The UK has a long road ahead on post-Brexit trade policy

The UK government has high hopes for future trade agreements as the date for leaving the EU fast approaches. Public consultation on new agreements with the U.S., Australia and New Zealand, as well as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), was launched in 2018, and informal talks with the countries concerned are already underway. The plan is to turn these informal talks into formal negotiations as soon after Brexit as possible.

There are, however, several hurdles the UK will have to clear to successfully conclude negotiations.

While already a member of the World Trade Organization (WTO), members have yet to agree to the UK's proposed tariff schedules – in particular, agricultural quotas, which will be the baseline against which countries will seek preferential access.

The UK has also fallen behind schedule in agreeing to replicate the EU's existing 37 trade agreements to which the UK is a party, which in total cover around 60 countries. The idea was that all of these should continue to apply to the UK after Brexit, but those with Canada, Korea, Japan and Turkey, covering around 6.5 percent of UK trade in total, have yet to be agreed. Only parts of the agreements with Switzerland and Norway, covering a further 4.5 percent of UK trade, have been concluded.

An anti-Brexit placard that says "Brexit what a bloody shambles" during the protest outside the Houses of Parliament, March 19, 2019. /VCG Photo

The way in which the UK leaves the EU, which currently accounts for around 50 percent of UK trade, will also be significant. If the UK leaves with no deal, reverting to WTO terms for trade, the government will be free to reach new agreements, though at the cost imposed by higher barriers to EU trade.

It is more likely the UK will leave with either a transition deal of indeterminate length or even explicit commitment to a customs union. These will protect UK-EU trade but mean no separate UK trade agreements in goods, at least for several years. Talks on the future relationship between the EU and the UK will only start in detail after Brexit and could easily take five years to conclude, based on the typical times the EU takes to negotiate new agreements.

When these issues are put together, the UK government will face difficult choices. There may be pressure to delay new agreements with New Zealand and Australia in favor of working on a continuity agreement with Japan, given trade for the latter is greater than for both of the former together.

There will also be a conflict between the typical requirements of a U.S. trade agreement, including on food standards such as hormone-treated beef, and the desire to maintain close economic ties with the EU. The U.S. accounts for around 20 percent of UK trade, so is much less significant than the EU, but completing a trade agreement with the nation is symbolic for many who support leaving the EU.

Two areas have been less discussed in the UK trade debate, but may also play a role. The first is the policy towards emerging economies such as India, China and Brazil, none of which are current priorities for the UK government, but post-Brexit opportunities could change this. For example, several UK businesses feel it is unlikely UK-U.S. trade will grow by much, even with a new agreement, and that a UK-China agreement would offer greater economic potential, particularly in the area of services.

The second area that has been relatively unexplored is the UK's priorities in terms of offensive and defensive interests in the future trade agreement. Some information could be extracted from the publication of proposed UK tariffs in the event of a no-deal Brexit (tariffs, if there is a deal, will remain as they are), which suggested the UK would aim to be marginally more liberal overall than the EU – in particular, in reducing a large number of industrial and agricultural tariffs for year one. This was not comprehensive though and it is notable that the tariff on cars would remain untouched, as would areas where developing countries value their preferences, such as textiles, bananas and sugar.

Anti-Brexit demonstrators protest with flags during a snow flurry outside the Houses of Parliament in London, England, February 26, 2018. /VCG Photo

The economic value of the UK's potential new trade agreements is not expected to be significant. A major study carried out by the government suggested all new possible trade agreements together, including with the U.S., China and India, would only add between 0.2 percent and 0.4 percent to gross domestic product (GDP).

However, this would be outweighed by the loss of GDP from greater barriers to UK-EU trade. Indeed, there would also be a loss to GDP from the failure to carry over existing trade agreements. Many economists believe there has already been a relative decline in GDP since the Brexit vote, compared with the most likely figures without a referendum.

In summary, on the eve of Brexit, the UK has set a path and priorities for future trade agreements but may find there are rather more obstacles than they had expected. The future EU relationship is the main thing to watch out for – the UK leaving with a deal will mean little change in the short term, a customs union will mean a switch to focusing on whether trade deals in services will be possible, whereas a no-deal Brexit will mean more economic impact and more pressure to push forward with the trade agenda.

(CGTN)