Trade policy has been front-page news in recent weeks – with either new research on UK trade with Japan, the effects upon EU exporting business of the Trade and Co-operation Agreement nearly two years on from its introduction, or trade negotiations with India all featuring.
So why the current interest? What does it tell us about the search for economic growth as the UK economy prepares for recession, and many firms have seen orders contract already?
At the BCC we would say that the economic data and research from member firms is clear – international trade boosts productivity, resilience, investment in innovation, as well as profits and wages for businesses. Furthermore economies with a high trade density experience these advantages more strongly.
Supply chains have been reordered by Brexit, the pandemic and the war in Ukraine with consequences which will play out for years to come. 70% of importing manufacturing firms in GB have reassessed their supply chains in recent years in response to this trio of challenges.
There have also been changes in policy in Washington, DC and Brussels with legislation and incentives introduced to boost more independence in vital supply chains, such as semi-conductors. Other countries have considered friend-shoring or near shoring as part of their approach.
There are signs that a real discussion about the trade-offs involved in trade negotiations and the effects of non-tariff barriers upon trade have begun in the UK – both in terms of our trade with the EU and the rest of the world.
This is a helpful development – overselling the benefits of trade deals is as bad as having no ambition to make them in the first place.
The UK Government has an ambitious pipeline of negotiations underway with key bilateral trading partners. Currently, negotiations with India, Canada, Mexico, the Gulf Co-operation Council and Israel are underway, with negotiations for an upgraded agreement with Switzerland due to begin soon.
The UK is also seeking to accede to the 11-strong CPTPP bloc of nations (the UK has bilateral agreements already with 9 of the current 11 members). A call for evidence is being launched on improving the trade agreement with South Korea. In terms of choices of partners to make new or upgrade existing free trade agreements with, the UK Government has adopted a combination of either the size of the current or future export market, or the ability to increase trade in areas such as digital, environmental, life sciences, or services.
As trade policy develops, consideration of supply chain diversity may become an important factor in the choice of preferential trade partner, as well as geopolitical factors and the Indo-Pacific shift. That may lead the UK to seek trade agreements with more of the ASEAN group of countries (not least of which with Indonesia) and to upgrade agreements in Southern and Eastern Africa and Latin America.
Deals with two major trading partners – the US and Mercosur – look to be off the table so other means will have to be explored to expand trade with both.
Most of the trade agreements the UK has are continuity agreements inherited from its EU membership. Some of these require tweaks or upgrading, such as Switzerland (in services) or South Korea (data and rules of origin).
In other cases changes to factor in with CPTPP accession are being contemplated (Mexico, Canada). But in the category of new FTAs being sought trade offs will have to be made in terms of securing expanded market access for exporters and future-proofing the agreements for advances in green and digital trade.
Furthermore, the real strength of trade agreements must be measured in terms of their scale of use by SMEs and their contribution to future economic (export-facing) growth.
That is why the BCC has called for a Trade Growth Office within DIT, a preference utilisation campaign focused upon SMEs, and accelerator schemes to ensure the maximum growth potential is extracted for SMEs from these agreements.
We can’t expect trade stories to always lead the news, but it is at the top of the Chambers Network agenda as we work for a speedy and broad-based recovery from the downturn businesses have begun to face this year and seek to overcome as quickly as possible.
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