Why 2023 is a turning point for the UK's post-Brexit trade agreements

Tue 24 Jan 2023
Posted by: Richard Cree
Features

Trade barometer

One of the promised dividends from Brexit that has yet to be fully realised is the ability for the UK to negotiate its own trade agreements with countries around the world.

As part of the EU, the UK was party to agreements made between the bloc and its trading partners. Many of these have been rolled over in UK treaties, but additionally for the first time in 48 years, the UK is starting to negotiate its own bilateral agreements as well as stepping up initiatives to join wider trade pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

To date, the UK has agreed two completely new free trade agreements (FTAs) – with Australia and New Zealand. These have been signed but are not yet ratified and have not yet entered into force.

2023 – a turning point

But 2023 looks to be a year in which the groundwork laid over the past couple of years starts to pay some dividends.

As Hunter Matson, trade and policy research specialist at the Institute of Export & International Trade (IOE&IT), explains:

“2023 will be a very exciting year because we expect ratification and implementation of the Australia and New Zealand FTAs. Negotiations with India are ongoing and we are optimistic about an agreement being concluded by the end of the year, and we expect negotiations to kick-off with several more countries, South Korea being the latest one.”

But do trade agreements matter to business?

Henriette Gjaerde, a trade and customs specialist at IOE&IT, says trade agreements do make a difference, although she admits it can sometimes be difficult to ensure that the treaties contain provisions that matter most to businesses and for companies that will make use of them.

“Trade agreements provide many advantages  for businesses, and we want to help UK businesses maximise the benefits from them,” she said.

Gjaerde adds that this is one reason IOE&IT is proactively reaching out to its members who already have trade connections with South Korea to better understand their experiences trading in the market and elicit their input on an enhanced FTA.

“In advance of discussions on an enhanced UK-South Korea FTA we have gone out to members to consult and seek their opinions. This is something unique, for businesses to be able to have a say at this early stage, ahead of negotiations.”

Influence

Matson adds this is a shift in the negotiating strategy, pointing out that public consultation on FTAs is a new tact that UK Government has taken, and one that is different from some its trading partners.

“This is the first time UK businesses have a chance to influence what is in an agreement, because the rollovers that came from the EU had minimal input from UK businesses. We're in a new era now.

Furthermore, the UK now has an opportunity to create its own model of FTAs, and may opt to strike a balance between the commonly used US and EU models. The US model focusses more on trade barriers and tariffs, whilst the EU model tends to incorporate additional elements such as domestic obligations for labour standards and human rights.

The UK can prioritise the economic areas of interest to its traders, such as digital trade, trade in services and foreign direct investment. It can also incorporate provisions on sustainable trade and MSMES, as are included in the Australia and New Zealand agreements.

For the first time, the UK government can add clauses that are most relevant to Britain and to the British business community.”

FTA utilisation

While a lot has been mentioned about FTA utilisation. Gjaerde recognises that there is still work to be done once the agreements have entered into force: 

“This year will see a lot of focus on FTA utilisation. How can we get businesses to use the newly minted FTAs?

Trade agreements are lengthy and technically complex documents and can be difficult to understand. Therefore, we need to provide practical step-by-step guides to businesses, succinctly laying out the opportunities of the new agreements and how to use them. We also need to be able to measure the utilisation of the FTAs by collecting and analysing data to understand how we can facilitate the use of FTAs for businesses.”

However, there is some uncertainty as to how to effectively measure utilisation, as Matson explains: 

“Take for example trade in goods -  unless preferential tariffs provided by the FTAs have been used, there isn’t any indication that the goods have been moved under an FTA or some other trade agreement such as WTO MFN status. Trade in services is even more complex as there is not enough data available to fully measure the utilisation rate.

FTAs create an environment to enable trade. The way you really measure FTA utilisation though, is through comprehensive analysis of the data available.

Furthermore, educating the public on the process and content of the trade agreements is important to ensure that businesses can fully understand them, and be prepared for the implementation of a new agreement."

Do FTAs help boost digital trade?

Matson says the role of FTAs in promoting digital trade initiatives depends upon the appetite of the trading partner. 

“Certain partner countries are more advanced on their digital journeys than others. The UK-Singapore Digital Economy Agreement (DEA) is a good example of that. There are some very ambitious provisions in that treaty which the UK government has announced that they are looking to replicate in other trade agreements.

Another unique thing about the DEA is that some of the provisions are binding and others are nonbinding. This allows both the UK and Singapore to be more  exploratory and innovative, pioneering new trade policies that may become the global standard in the future.

We hope that an enhanced South Korea FTA would be equally as ambitious around digital trade and enable new growth opportunities for businesses.”

He adds that the only ones we can go from right now are the agreements signed with Australia, New Zealand and Singapore in terms of what a forward looking agreement could do for digital trade.

“When you look at these and the Singapore DEA, there are some ambitious digital chapters. With regard to single trade window, particularly, WTO members are committed to implementing single windows where they can.

The UK has committed in the FTAs signed with Australia and New Zealand and the DEA with Singapore to develop and adopt a single window. It is a key part of these agreements and is essential for facilitation of trade between the UK and each of those countries.

Assuming South Korea is willing, it is possible there will be similar chapters on digital and specifically single windows in the enhanced South Korea FTA, especially given that South Korea has already implemented a single window.”

Have your say

The IOE&IT acts as an interlocutor between its members, the wider trader community and the government on UK economic and trade policy.

To submit your views and feedback on the UK’s trade negotiations with South Korea, please contact us at clientservices@export.org.uk.