The future of UK trade: what deals might we have in place with the world?
Now that the UK is no longer part of the EU, there have been many discussions about how trade may change. As part of the EU Single Market, the UK enjoyed reduced tariffs and free movement. In 2019, before Brexit, UK exports to the EU totalled £294 billion while imports were £374 billion.
There were fears that leaving the single market would put the UK at a trade disadvantage and lead to negative repercussions for businesses. In January 2021, data showed that exports to the EU were down 44% on the year before. By February, although the gap narrowed, they were still down 17%. UK trade to the rest of the world was also down 13% in February 2021, though this may be due to the coronavirus pandemic.
Although this is just early data, with a year not having yet passed since we left the EU, it might raise already existing concerns that Brexit would damage UK trade.
In response to these concerns, the government sought to agree on trade deals with the rest of the world before Brexit and continues to do so now. It is hoped that introducing more agreements will improve the UK’s international position while enabling businesses to seize new opportunities and source alternative suppliers.
In this blog, we have detailed the trade agreements the UK has already made and potential upcoming deals. We’ve also explored the effect this could have on business and trade.
Existing trade deals
The UK already has many trade agreements outside of the EU, amounting to over £100 billion in value.
Many of these deals were signed as ‘continuity agreements’ – agreements that ensured once the EU-UK Withdrawal Agreement expired on 31st December 2020, trade would continue as usual with countries including Eastern and Southern Africa, Iceland & Norway and Switzerland. Switzerland is particularly notable as it is responsible for an average of £32 billion of trade each year.
More recently, the government has built on the agreement with Norway, Iceland and Liechtenstein. This month, a deal was struck that focuses on utilising digital paperwork to cut down delays and reduce the costs associated with post-Brexit bureaucracy. Norway has also cut duties for UK exports in specific areas.
Other high-value trade deals that have been signed include with South Korea (£14.8 billion), Morocco (£2.5 billion), Israel (£4.2 billion), Caribbean countries (£3.7 billion) and Andean countries (£3.4 billion). This is in combination with smaller value, though still significant, deals with the likes of Georgia, Lebanon and Central America.
As well as the continuity agreements outlined above, the UK also has a select number of mutual recognition agreements (MRA) that began on 1st January 2021. An MRA is an agreement between two countries to reduce the technical barriers to trade and benefits industries by allowing them greater access to the global market. As part of these agreements, each side must recognise the results of the other’s assessments on whether a product meets the specified legal requirements for trade.
At present, the UK has MRAs in place with Australia, New Zealand and the US. These MRAs were created to replicate the agreements with the EU to reduce disruption. However, the UK is also working on more extensive deals with these countries, which we will cover in more detail later.
A great deal of press was generated by the signed trade deal between the UK and Japan, which marked the UK’s first agreement as an independent nation in October 2020. The deal was predicted to bring a £15 billion boost to trade between the countries, specifically offering benefits for the food and drink, digital, creative and financial services industry.
Of course, one of the most discussed and perhaps controversial deals that the UK has is with the EU. The UK-EU Trade and Cooperation Agreement came into place on 1st January 2021, though some grace periods have allowed businesses to adjust to the changes gradually.
Although many businesses and leaders welcomed the trade deal with the EU, it has not been without issue. While the agreement does mitigate some threats to trade, such as tariffs and other barriers, there are still increased hoops to jump through compared to pre-Brexit. Negotiations continue between the two sides regarding the Northern Ireland protocol, which has left many companies frustrated, though no significant process has been made to date.
These trade deals agreed to date, including the EU, offer the UK a safety net by enabling ongoing opportunities as well as the continuation of import and export. This should reduce the trade deficit the UK could experience as a result of falling trade. However, only time will tell the actual impact of leaving the EU and the new trade deals.
While the trade agreements with a number of countries is a promising start, further work is needed to improve the UK’s trade position and allow standard levels of trade to continue.
Alongside its continued discussions with the EU to iron out issues in the TCA, the UK government is in talks with many other countries to achieve other deals.
One country is the UK is in ongoing talks with is America. Around £230 billion worth of trade is done between the US and UK on an annual basis, so having a deal in place secures that business and places the UK at a huge advantage. Although there had been positive feeling after talks were held in 2020, the election of Joe Biden has caused a delay as the new US government seeks to review the progress made under Donald Trump. As such, a deal isn’t expected for some time.
Even if a deal were to be agreed, there would still be some issues to discuss, including differing food standards, competition for agriculture and UK taxes on US tech companies.
The most recent agreed deal is with Australia, which was announced on 15th June 2021. There are controversies around this deal, with the UK Agricultural sector fearing that a proposed tariff-free allowance for Australia to import red meat to the country could undercut their sales, leading to loss of profit and over-competition. There are also concerns standards could be lowered to facilitate the deal. However, the government has stated there is no such threat.
The deal with Australia has only been broadly agreed, so there is still work to do towards the finalised version. However, with trade between the UK and Australia already totalling over £13.9 billion a year, the deal could help to grow imports and exports between the two countries.
The agreed trade deal with Japan also came with a clause that Japan would support the UK in joining the Trans-Pacific Partnership, one of the world’s most significant free trade areas. The UK has been allowed to begin the process to join the partnership and, if successful, it could bring sizeable benefits.
Impact on UK trade
With it still unclear how leaving the EU will affect the UK’s long-term trade levels and position as a global power, the negotiation of deals around the world could be the key to relieving pressure on the country’s businesses and the British economy as a whole.
The creation of agreements with countries outside of the EU to date allows UK businesses to retain access to all import and export opportunities for their operations to an extent, as well as continue to benefit financially from global trade. Trade deals may also reduce the costs, checks and other barriers around trade that the UK would otherwise experience. These deals could also help to reduce the risk of supply shortages, whilst increasing opportunities.
However, trade deals do not come without controversy, so there will be a need for balance between the needs of domestic businesses whilst enabling trade possibilities. Similarly, amendments may be required to deals, such as that with the EU, to make smoother processes and remove barriers.
There is still plenty of room for growth with talks open with the US, Australia, India, Canada and Mexico. It remains to be seen whether these negotiations will amount to anything and what the exact impact will be – but more deals should empower UK businesses to embrace opportunities.
Many businesses deal with exports or imports as part of their daily operations. If this applies to your company, you may be asking how Britain’s future development in trade could affect you.
We are here to help. Our team of experts have experience across a range of industries and business types, so we can provide bespoke advice tailored to your unique challenges. We can also offer you up-to-date information so that you can identify opportunities for your business and adapt to process changes.