As the UK prepares to leave the EU, significant efforts have needed to be made to prepare the government to negotiate for their own Free Trade Agreements. Is the UK ready for such a challenge?
Brexit and the Birth of DIT
In the wake of early Brexit discussions, Theresa May created the Department of International Trade (DIT) to develop government trade policy following EU Exit. Led by Dr Liam Fox MP, DIT has the overall responsibility of promoting British trade across the world. A key component of this responsibility is negotiating free trade agreements (FTAs). The UK Government, however, has not been in charge of its own international trade policy in more than 40 years. As a member of the EU, trade negotiations have been conducted by the European Commission (EC) on behalf of the UK and other EU nations.
As a member of the EU, the UK benefits from 38 trade agreements that have been negotiated by the EC on its behalf. The government is seeking to replicate 34 of these agreements for a post-Brexit world, however only 10 of the deals being signed as of the end of April 2019.
Exporting is Important
It is no secret that overseas trade forms a significant part of the UK economy, with £634 billion in exports and £665 billion worth of imports in 2018. Exports alone make up around 30% of the UKs GDP and make it the 6th largest exporter in the world.
About 49% of UK trade is with the EU, 30% is conducted the 27 WTO members that the UK trades with under WTO rules for tariffs, and 14% comes from the nations of the 38 free trade agreements that the UK benefits from as a member of the EU.
The sheer importance of trade to the UK economy and the idea that the government is leaving the negotiating care of the EC and venturing out into unchartered waters for the first time in 40 years is causing many to ask: Is the UK ready?
Is the UK ready for Brexit?
Despite 40 years worth of rusting trade negotiation skills, the UK government may be better suited than first appears. DIT, the department responsible for spearheading trade deals with non-EU states, has a vast network of over 1300 staff operating in embassies and consulates organized in nine geographical regions around the world. Each of these nine regions is overseen by a Regional Trade Commissioner who will take the lead on trade policy negotiations overseas on behalf of the UK government.
This means that, regardless of the immediate-term trade negotiating aptitude of the out of practice government, the negotiations will be spearheaded by individuals with in-depth knowledge of the culture and the nuanced business practices that their counterparts hold.
To supplement this cultural knowledge, the UK is beginning to get some real-world experience. To date, the DIT has begun consulting on four proposed FTAs. These agreements would be with the United States, Australia, New Zealand and the 11 countries that make up the Trans-Pacific Partnership and will provide valuable insights and real-life lessons to be applied in subsequent deals.
Here is the summary from DIT on where FTAs are at now: https://www.gov.uk/government/news/summaries-of-consultations-on-future-ftas-published
Processes and training
Internally, the UK government is taking strides to develop its international trade prowess in a post-Brexit world. A review of Government department policy priorities in their Single Department Plans shows that DIT, HMT, DFID, FCO, Defra and the Ministry of Defence (MOD) all have objectives which relate to promoting trade in overseas markets. DIT has also developed and launched multiple training programs to help develop its employee base.
One DIT program, in partnership with the FCO Diplomatic Academy’s Trade Policy and Negotiation Faculty, has offered more than 1000 places on its trade policy foundation and practitioner level training and more than 400 places for expert-level trade policy training. To supplement this they have also developed an accelerated programme of trade policy and negotiations skills training. DIT also launched the cross-government International Trade Profession, which has since grown to include over 2,700 members. This indicates a serious push for internal skill development.
In addition to the training and development programs, DIT has also established its approach for engaging Parliament and laid out the framework for ratifying any negotiated agreements. To assist with ensuring this, they have also proposed arrangements for both public and parliamentary scrutiny of the FTAs.
Can the UK Actually Negotiate its own FTAs?
While the general outlook of this article has indicated a positive view of the UK’s ability to negotiate its own FTAs, there remain some key concerns worth noting.
Despite growing from 119 staff at its establishment in 2016 to around 650 staff in 2019 with support from an additional 200 analysts, lawyers and members of other departments, DIT considers it still needs 135 additional staff. If these considerations are accurate, it means the DIT is only running at about 80% capacity, a notable deviation from the optimal 100% level.
The next concern comes from the fact that once ratified, an FTA only provides the legal framework for trade with new partners. It will not lead to an increase in exports without UK businesses seeking new commercial export opportunities. The unfamiliar nature of new agreements, coupled with the general haze of uncertainty surrounding a post-Brexit future may discourage some businesses from seeking these opportunities.
If these concerns are impacting your business, TFG may be able to help. We are the leading trade and receivables finance information provider and international trade finance brokerage. We recognize that at the end of the day, the strength of UK exporting is only as great as the firms that make it happen, and we are here to provide companies with the guidance and expertise that they need to go forth and trade.