What will be on the UK’s trade agenda in 2021?

Newington’s Trade Team – Tiffany Burrows, Sabine Tyldesley, Nick Jessup and Ciaran Gill – look at what to expect the UK’s trade priorities will be this year in this long read. 

EU

UK-EU Trade and Cooperation Agreement (TCA) or not, in 2021 we will not stop hearing about Brussels or the rules that are made there.

The Joint Partnership Council and its various sub-committees will be the forum in which the UK and EU will manage and monitor how the deal is implemented, as well as how to coordinate on policy in the future. However, within the UK, the cake has not been fully eaten yet and 2021 will be the year where the UK will decide how much it wants to set itself on the path of divergence from EU rules.

For example, there will need to be further detail on home-grown rules, the enforcement mechanisms needed for them, the agencies that will be set up, and which EU rules the UK will in future seek to align with (and how to decide this).

The TCA will be unpicked over the course of the coming months for its deficiencies more detail is needed for businesses to be confident that additional burdens of leaving the EU are eased and hopefully over time alleviated. While generous on rules of origin, there will remain questions on the precise composition of products and in particular what happens if parts at short notice need to be sourced elsewhere to ensure production, thereby changing the percentage of certain origin parts (for example in the automotive sector). This is also a consideration for rollover agreements – see more below.

The agreement currently does not grant automatic mutual recognition for conformity assessments on all products, either. While mitigating ‘trusted trader’ schemes will make things easier at the border, there will be more action forthcoming from Government on regulations and how they interact with the EU standards.

Finally, the big question mark on services and skills will need to be answered, given the gap between the rules from within the Single Market and the rules as they now stand being equivalent to the WTO Agreement on Trade in Services (GATS). Specifically on “equivalence” decisions for financial services, the City is eager to hear the Government’s next steps and the tech sector awaits an “adequacy” decision that would allow for the continued free flow of data. This chapter of the TCA deals with professional qualifications and currently does not grant automatic recognition of professional qualifications.

Rollovers

Whilst focus may have been on Brexit towards the end of the year, a flurry of activity at the end of 2020 resulted in the UK putting into place “continuity” deals – those intended to roll over the terms of trade the UK enjoyed as a member of the EU – with 62 countries around the world. In December alone, the UK struck deals with countries such as Kenya, Singapore and Vietnam, and secured an agreement with Turkey a few days before the end of the year.

The continuity agreements in place – which also cover countries such as Japan and Switzerland – should be welcomed by UK businesses, but gaps remain. The Government is still in rollover trade negotiations with countries such as Algeria, Ghana, Serbia, Albania, and Montenegro. Some agreements have been signed but are only expected to come into full effect later on this year, such as those with the governments of Canada, Mexico, and Jordan.

After the rollover agreements with Canada and Mexico come into effect, the UK will embark on further negotiations with the two governments in order to agree more tailored and advanced deals. How these talks will play out and whether they will ultimately benefit UK industry remains to be seen, given the size of the UK’s economy (and therefore negotiation leverage) compared to the EU’s.

In addition, thinking of rollover agreements (and their zero tariff provisions) may bring to mind the UK replicating the same trade benefits with other countries it enjoyed as a member of the EU. Being able to benefit from tariff-free trade with countries around the world, however, will be contingent upon various issues, not least rules of origin.

These rules, commonly found within international trade agreements, would determine whether a UK exporter, for example, could label a product British or whether it should label its product an import on account of how it has been made.

A country which the UK has agreed a rollover deal with may want to eventually insist that more stringent rules of origin go into the agreement (e.g. to protect a national industry) than would be in its deal with the EU. Provisions for zero-tariff trade, which often seem to be the primary benefit of trade deals, may therefore look appealing but obscure complexities laying underneath the surface.

Nevertheless, the overarching appeal of being able to forge trade deals with countries that benefit British industry more remains intact.

Australia

Looking at free trade agreements, both International Trade Secretary Liz Truss and Trade Adviser and former Australian PM Tony Abbott continue to sound optimistic notes about the possibility of agreeing a free trade deal between the UK and Australia in 2021. Trade with Australia was said to be worth £18.5bn in 2019, and the government confidently predicts that a free trade deal could increase British exports to Australia by as much as £900m.

Britain’s ambitions to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (see below) are said to be aided by securing a deal with Australia, by significantly improving access for UK businesses to markets in the Asia-Pacific region and having an influential signatory such on Australia available in support of a UK bid. From Australia’s perspective, an expeditious agreement with the UK that results in free trade of agricultural products might strengthen the country’s hand in its trade dealings with China, by diversifying its export markets and lessening its reliance on Chinese purchases of grain and meat products.

The third round of negotiations, covering the entire breadth of the trade agreement, concluded in early December, with the Department for International Trade saying that the exchange of “initial goods market access offers” is symbolic of the desire that exists on both sides to reach an agreement quickly.

New Zealand

The Government also remains optimistic about the prospect of an FTA with New Zealand, with a third round of negotiations expected to take place later this month. Much like with Australia, a number of Conservative MPs have been pushing for the Government to prioritise New Zealand (as well as Canada) for an FTA, citing the shared language, similar norms of parliamentary democracy, and relatively similar levels of wealth, as appealing points which will speed up the process of reaching the deal.

It is likely that progress on a New Zealand agreement will be seen in 2021, especially given the strengthened political hand awarded to Jacinda Ardern by her landslide election victory in October. An agreement with the Commonwealth country could also prove advantageous for the UK’s desired entry into the CPTPP.

Meat imports, specifically lamb, will remain a significant issue of contention. Welsh farmers will undoubtedly be expecting the Government to provide them with greater assurances that their market will not end up swamped by cheap New Zealand lamb. However, it is likely that New Zealand will seek to expand their market share, especially as their trading relationship with China has been made more challenging by Chinese claims of New Zealand meat containing coronavirus, prompting New Zealand farmers to seek customers elsewhere.

CPTPP

Looking to position itself as a “global hub”, the UK Government will submit its application early this year to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK Government stated that it believes joining the CPTPP will “help fundamentally strengthen ties between nations who believe in open markets and the importance of rules-based trade, and by doing so show the rest of the world that free trade is still the best way forward for the global economy after coronavirus.”

There are currently 11 members of the CPTPP – Australia, New Zealand, Canada, Japan, Singapore, Vietnam, Mexico, Malaysia, Peru, Chile and Brunei. The agreement covers 13% of global GDP, making it the fourth largest free-trade area in the world after the Regional Comprehensive Economic Partnership (RCEP), the United States, Mexico and Canada Agreement (USMCA) and the European Union’s Single Market. If the UK’s application is successful, this figure would increase to around 16% and the UK would become the fifth G20 nation in the partnership. The UK’s strategy has been to gain advocates, build momentum and garner  wider support by securing continuity agreements and FTAs with the individual members of the CPTPP in order to increase the likelihood of ascension. To date, the UK has secured agreements with Canada, Japan, Singapore, Vietnam, Mexico, Peru and Chile which puts it in a good position to negotiate its accession to the Asia Pacific partnership.

The UK’s entrance could be seen by some members as a bridge for the US to re-enter the agreement, following President Trump’s withdrawal from negotiations.  This would give the grouping significant weight and ability to influence trade rules (read constraining China, which was one of the US’ objectives at the outset). Former EU Trade Commissioner Lord Peter Mandelson has said that if the US does seek to re-join the partnership, “being inside this package” will make for a “simpler route to tariff eliminations in the US” without the focus on tricky regulatory and food standards questions. Before engaging in CPTPP discussions with the US however, the UK Government will be looking to establish and develop its relationship with the incoming administration.

US

The White House is getting a new occupant in a little over two weeks. In a recent interview with The New York Times, President-Elect Joe Biden asserted: “I’m not going to enter any new trade agreement with anybody until we have made major investments here at home and in our workers”, reiterating his commitment to focus on domestic policies. This will come as unwelcome news to the UK Government, who will not only be adjusting to a new administration, but are once again racing against the clock.

While the original November 2020 deadline for a deal was understandably not met, the UK Government will be looking to salvage the progress made under Biden’s predecessor in the hopes of avoiding a return to square one of negotiations. If a deal is not agreed and presented to Congress by April, it will no longer be able to be fast-tracked under the US’ Trade Promotion Authority– where Congress, which gives approval to US trade deals, “ gives the agreement an up or down vote, without amendment.”

Progress will partly rely on the priorities of the new United States Trade Representative (USTR). Biden has already stated his intention to nominate Katherine Tai – who is currently the chief trade counsel for the House Ways and Means Committee – as the USTR and the UK negotiating team will no doubt already have done their homework on their new negotiating partner and be keen to secure a meeting.

Politico reportscomments made by a former US official regarding how the UK should approach a deal with the US, saying that the focus should be on lifting retaliatory tariffs before negotiating an investment and data treaty. The same source suggested COP26 as a potential timeframe to secure this. This seems like a more realistic outcome in the short term, but harder to explain to the British public, with an FTA having with the UK’s closest ally having been promised and seen politically to be a feather in the Prime Minister’s Global Britain cap.

China

Moving from one global economic superpower to another…

At the end of 2020, the EU made the surprise announcement that it had concluded in principle the negotiations for a Comprehensive Agreement on Investment between itself and China. European Commission President Ursula von der Leyen said that the deal “will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs”.

With UK trade negotiators no longer working against the EU Transition Period clock and with the EU set to make further inroads into the lucrative Chinese market, it is possible that the Government may seek to strengthen trade ties with Beijing. Considerable financial benefit could be secured from any trade agreement given that in 2019, China was the UK’s sixth largest export market, worth £30.7bn.

It has taken the EU seven years to get to where it is at with China. Can the UK make progress in 2021? It is possible, but the fact that the UK has already commenced trade negotiations with Taiwan (which China sees as a breakaway province) may make the task harder.

Image Copyright: Department for International Trade