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Brexit: UK firms face £80bn trade hit due to government failure to roll over EU deals

The Independent logo The Independent 13/11/2020 Ben Chu and Jon Stone
Toshimitsu Motegi et al. in a living room © Provided by The Independent

British businesses are facing disruption to as much as £80bn of global trade because of Boris Johnson’s failure to roll over 15 EU trade deals with other countries in time.

While the UK’s talks with Brussels over a deal with our biggest trading partner garner most of the attention, the government also has just 50 days left to sign free-trade agreements with countries such as Mexico, Singapore and Canada to replace the ones it will otherwise lose access to on 31 December.

Adding to the atmosphere of crisis, the shadow international trade secretary, Emily Thornberry wrote to trade secretary Liz Truss on Tuesday to point out that unless these deals are concluded and published by 11 November, there will be insufficient Parliamentary time under the law for MPs to ratify them. 

An analysis by The Independent has found that the missing deals – which also include accords with Turkey, Egypt and Algeria – could see tariffs and quotas imposed on £38bn of British exports and £41bn of imports, potentially causing havoc for some firms.  

The hole accounts for 5.5 per cent of UK total trade and would represent a second blow to Britain’s terms of trade with the rest of the world, at the same time as it takes the hit of leaving the EU single market and customs union.

Allie Renison, head of Europe and trade policy at the Institute of Directors, said it was vital for UK businesses that these other deals are rolled over.

“While the government is doing a lot of running just to stand still, the value of continuity in a world full of uncertainty should not be understated,” she said.

“Businesses need as much stability on trade as possible, and countries jealously guard access to their markets, so these rollovers should not be taken for granted.”

The government is in discussions to roll over all the deals.

“We are considering all possible options to maintain continuity of existing trade terms and will look to sign further agreements in the coming weeks,” said a Trade Department spokesperson.

“We are working with our partners to ensure that signed continuity agreements with all 52 partner countries are able to enter into force after the end of the transition period.”

Many trade experts believe most could still be replaced at the last minute.

Yet the frenzied dash to preserve the status quo on trade contrasts with ministers’ boasts of a swashbuckling “Global Britain” freed from the constraints of EU membership.

“It now seems likely that the UK will manage to roll over the majority of the EU’s trade agreements by the end of the year. Of those outstanding, Canada, Singapore and Vietnam will probably be done in the coming weeks, but Mexico will be a struggle,” said Sam Lowe, senior fellow at the Centre of European Reform.

“Perhaps the most important one of those left to do is also among the trickiest: Turkey. Turkey is in a customs union with the EU, which means that it can only strike a trade deal with the UK if the EU also does so. Assuming the EU and UK do reach agreement, this still doesn’t leave a lot of time to get everything sorted with Turkey.”

Turkey’s trade with the UK was worth £18bn alone in 2019, making it one of the biggest missing links on the list of deals yet to be signed. It is beaten among the countries holding out only by Canada’s £22bn and sits just ahead of Singapore’s £17bn trade haul.  

Since the Brexit vote the government has managed to roll over 24 EU trade deals, covering £146bn of UK trade, around 10 per cent of the total, with countries ranging from Switzerland to South Korea.

But Alan Winters of the UK Trade Policy Observatory at the University of Sussex warned that some of these are not a full like-for-like replacement because they do not replicate agreements on avoiding “rules of origin” checks on imports and various Mutual Recognition Agreements (MRAs).

“They’re things you can’t do anything about because they rely on the EU agreeing basically,” he said.

“They are slight disadvantages relative to the previous situation [and] in a couple of cases it might matter,” he said, citing UK firms exporting to Switzerland which could face disruption from 1 January.

Trade experts are also increasingly concerned about the government’s tendency to exaggerate the economic benefits of the rolled over deals, as well as the benefits of any genuinely new trade deals.

When Liz Truss signed a post-Brexit trade deal with Japan in October the international trade secretary hailed it as a “landmark moment for Britain” which “shows what we can do as an independent trading nation”.

The Department for International Trade (DIT) has also been extolling the economic benefits of the agreement with Tokyo, including a claim that it will reduce the price of soy sauce for British shoppers.

But the analysis of the department’s own economists found it would deliver a long-term boost to UK GDP of just £1.5bn, or less than 0.07 per cent of the UK’s GDP today.

Moreover, this was an estimated boost relative to having no deal with Japan at all, rather than from rolling over the 2018 EU-Japan deal which currently benefits the UK.

While the DIT has claimed that the provisions on data flows in the agreement with Tokyo and in some other areas represented an improvement on the EU deal most trade experts find such claims unconvincing.

“For most sectors the Japan deal is pretty close to the EU deal,” says Thomas Sampson, an economist at the UK in a Changing Europe think tank.

“When it was first announced they were hyping some additional agricultural access and some GIs [Geographical Indications] but that seems to have been somewhat overstated. They have done a little bit more on the data stuff but it’s hard to forecast with any degree of any confidence whether that will make a substantive difference.”  

Holger Hestermeyer, an expert in trade law at King’s College London, advised the government to stop hyping the roll-over deals as breakthroughs that would deliver additional economic benefits and to be upfront about the trade offs new trade deals would throw up for British firms and consumers in areas like food standards.

“DIT has been doing a good job with the trade continuity program, but the task was just to get what we already had. They are continuity deals, they’re not about opening new opportunities,” he said.

“When does the need to sell Brexit end? Brexit is done – and cannot be reversed in the foreseeable future. Let’s honestly debate where we’re going and where we want to go.”

The Conservative manifesto said new post-Brexit trade deals would allow Britain to “enrich ourselves” and cited ambitions to do free trade deals covering 80 per cent of UK trade within the next three years, starting with the USA, Australia and New Zealand.  

But the UK government’s own analysis in 2018 has found that deals with these countries would be likely to deliver a long-term boost to UK GDP of only around 0.1 per cent.

Mr Sampson explained that such meagre benefits were a result of the fact that the UK currently only does a relatively small amount of trade with these countries relative to the half of all UK trade done with the EU and that new trade deals tend to be far less comprehensive than the EU’s single market.

“Those things mean the aggregate effects are going to be small whatever model you run them through,” he said.

Ms Renison of the Institute of Directors said that the priority of business was not new deals but preserving existing arrangements.

“Most company directors consider an EU agreement their top trade priority but rank continuity with others as more important than new trade deals, particularly in manufacturing with countries like Turkey where we have enjoyed longstanding preferential access through the EU customs union,” she said.

Under the 2010 Constitutional Reform and Governance Act (Crag), international treaties have to be laid before Parliament for 21 sitting days before they can be ratified. Ms Thornberry, in her letter to Liz Truss, said Labour had been informed by Parliament’s Public Bill office that, because the House is due to break for Christmas on 17 December, 11 November is the last day that the deals can be submitted and still receive the minimum 21 days of scrutiny.

However, the Crag Act also has clauses allowing for shortened scrutiny in “exceptional cases”.

“What makes this abysmal and shambolic state of affairs all the worse is that when we look at the length of time your department has had to get these agreements in place, ensure proper parliamentary scrutiny, and protect our continued free trade, it has been so totally avoidable,” said Ms Thornberry to Ms Truss in her letter.

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