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Brexit and The Re-emergence of the United Kingdom on the Global Trade Policy Stage -3

Author(s): Stuart Harbinson

Date: Oct 6, 2017

Theme(s): Trade & Investment

Publications: Opinions & Speeches

Stuart Harbison raises a possible roadmap for the UK in the third of a three-part series on Brexit and its implications on the UK economy

How will the UK fit into the World Trade Organization (WTO) and today’s trade order?

First, the UK will need to disentangle its commitments in the WTO in both goods and services from those of the EU, and thereby establish its own “schedules of commitments”. In order to do so, it is pursuing a “replication” approach which essentially means that, upon Brexit and leaving the EU trade policy orbit, its WTO commitments will mirror those of the EU. This approach is sensible overall. There are complications in a few areas – such as agricultural tariff rate quotas and the measure of domestic support (subsidies) – but it is almost certain that, through negotiation, these can eventually be dealt with.

The UK will also need to accede to the WTO’s (plurilateral) Government Procurement Agreement, since it is currently a party to this only under the aegis of the EU. Again, this should be very feasible since other parties to the Agreement will want to retain access to the UK’s government procurement market. Some parties may however want to take the opportunity to exert pressure on the UK to improve its market access commitments.

Like many APEC economies, the UK is a strong supporter of the rules-based multilateral trading system represented by the WTO, of which it is a founding member. The EU can also justifiably claim a position of leadership in this respect but the UK will feel that it can exert a more positive influence on global trade liberalization and rule making operating independently outside the EU rather than having to make compromises inside. The balancing argument is that the UK on its own, although a major economy, lacks the weight of the EU.

There are three issues which the UK regards as particularly important priorities in the WTO – digital trade, trade and development and trade in services.

How much influence the UK will be able to bring to bear in the WTO depends on how it positions itself and how much effort it expends. It will not automatically be included in the innermost councils and consultations as the EU now is, and will have to earn its place.

The UK has some potential advantages which it can leverage to maximize its influence. For example, the WTO is currently under pressure from the US which is dissatisfied in some respects with its performance, particularly its ability to challenge and change perceived “unfair” trade practices. The UK’s close relationship with the US – a relationship which contributed significantly to the formation of the GATT nearly 70 years ago – could promote greater understanding of the benefits of, and constraints on, the system. On the other hand it could also help to induce changes which, without endangering the system, respond to some extent to the US’ concerns.

More broadly the UK is also well positioned to play a creative role in building bridges between contrasting stances in the WTO. It has in recent years acquired a good reputation in, and understanding of, development-related issues and is also relatively open to trade and investment with major emerging market economies. It has diplomatic expertise which, when allied to increasing technical competence in trade policy, should enable it to play a constructive and effective role in consensus building – potentially filling a gap which, apart from the admirable efforts of some smaller economies, has often been sadly too apparent in recent years.

The UK is also likely to be a proponent of other plurilateral initiatives related to the WTO such as further development of the Information Technology Agreement, the currently stalled proposed Environmental Goods Agreement and, potentially, e-commerce.

Many Asia Pacific economies would like to see the WTO strengthened because it underpins the entire international trading system which has allowed their trade to flourish. They would find the UK to be a willing partner in this endevour.

Conclusion

As the enormous complexity of unwinding the 40 year legacy of membership of the EU is becoming increasingly apparent, even pro-Brexit members of the UK Government now admit that all of the details will not be able to be worked out by March 2019. A consensus is emerging in the UK that a “transitional” or “implementation” period will be required. The attitude of the EU remains to be seen.

In terms of the timing of development of trade relations between the UK and the Asia Pacific region, the question then is: will the UK be able to negotiate and conclude its own trade agreements within this transitional or implementation period? The answer depends on the outcome of negotiations between the UK and the EU. If the UK remained in the EU customs union and single market during this period, it would seem that trade agreements between the UK and other countries would have to be put on hold for perhaps another two or three years beyond 2019.

Even so, it is more than likely that, at some point between 2019 and 2022, the UK will have left the EU and be in a position to conclude its own trade deals.

There has been a tendency on the part of some in the pro-Brexit camp to portray the UK as a buccaneering trading nation that has only been held back from reliving past glories and reaching the sunlit uplands of prosperity by stifling EU regulation. This does not ring true, and indeed is belied by the trade performance of Germany. The UK economy has some deep structural problems which Brexit on its own will do nothing to address. It will not necessarily find countries banging on its doors clamoring for access to its market or to participate in ground-breaking trade liberalizing initiatives, the more so since the UK is itself already a relatively open market. Since the UK is not immune from the anti-globalization and anti-trade forces gathering in many developed countries, there is also no guarantee that the pro-trade policies of the current government will continue in perpetuity.

Nevertheless, Brexit looks on balance positive in the long term from the Asia Pacific perspective. The UK’s departure from the EU will force it to adopt a more global outlook. The Asia Pacific region, with its generally pro-trade posture and growth-oriented economies, would be a natural priority for the UK to focus on in the development of its trade relations. While the EU is also moving to improve its trade with the region, the UK may be able to go further and faster.

Overall, the UK is likely to be a useful ally for the region bilaterally, plurilaterally and multilaterally.

 

The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy. Part 1 can be found here, Part 2 can be found here.