Work on future trade policy in the Department for International Trade in London appears to have geared up in recent months, shortly after the arrival of Crawford Falconer as new permanent secretary in charge of overseeing trade negotiations at the end of the summer 2017. A hearing in the House of Commons on Wednesday (1 November 2017) offered some useful insights into the state of British preparations for its future trade policy.
During the hearing Liam Fox, Britain’s international trade secretary, said his ministry is “preparing trade policy for when we leave the European Union”. The DIT is to deal with anything but the negotiation of a trade agreement with the EU post Brexit, currently a task in the hands of David Davis, secretary of state for leaving the EU.
Fox listed thirteen countries or groups of countries with which the UK had established “working groups” to discuss trade matters and scope out agreements once Britain is out of the EU.
The working group countries listed include the South American members of the Andean Community, Australia, China, the Gulf Cooperation Council, Israel, India, Japan, Mexico, New Zealand, Norway, Turkey, South Korea, and the United States.
Fox said that his department was aiming to “transition” existing trade arrangements with the EU, citing South Korea and Switzerland as a priority. As post Brexit new FTAs, Fox sees an agreement with the United States, Australia and New Zealand as a priority. Liam Fox did not cite Switzerland as a country with which the DIT has set up a working group. It is not clear how active of fruitful these groups are. A visit by the UK’s Prime Minister to China initially pencilled in for the the autumn 2017 was reportedly postponed by Beijing.
Falconer, a former New Zealand trade diplomat, also said that Canada, with which the EU is provisionally applying a free trade agreement – the CETA – has “certainly” said that they were ready to “transition” this deal post March 2019. The UK is aiming to take a similar approach with Japan. But Britain is waiting for the final outcome of EU Japan free trade negotiations, which are in their final stages.
Another task the DIT has embarked on is sounding out the EU’s current free trade agreement partners – there are more than 50 of them – on whether they actually are interested rolling over these agreements with Britain, at least as far as possible, on the basis of the current text.
Crawford Falconer told MPs that most countries had not signaled opposition to doing so on the basis of the existing text with the EU. Falconer said he could not exclude that partners change their minds in future. Liam Fox added that some EU partners had asked for the negotiation of completely new agreements but that was not the UK’s current “ambition”.
The issue of rolling over FTAs has become enmeshed with the current process launched by the EU and UK to separate their schedules of trade commitments in the World Trade Organization in Geneva.
Separating out tariff rate quotas has become a complex matter, with Britain’s key targets for FTAs – the US, Australia and New Zealand among others – already expressing fears this could lead to them losing market access to the EU for their key export products such as meat, dairy, sugar or cereals.
“We’ve been in initial discussions over the methodology” with EU trading partners said Crawford Falconer, who is steering this process at the WTO.
Quotas and origin rules complicate EU trade agreement replication
This WTO matter is spilling over into conversations on Britain’s bilateral FTAs, where tariff rate quotas are also part of the picture. Replicating existing EU trade agreements “is not quite as simple as rolling them over”, said Falconer.
Another complicating factor for what Liam Fox insisted during the hearing is “technical replication” of existing FTAs will be the rules of origin agreed therein.
These rules set out how much imported content in a product is permitted to still qualify for duty free treatment under a free trade agreement. A standard rule in many EU FTAs – such as 55 percent local added value for autos in the EU South Korea Agreement – would suddenly apply to the UK only and no longer be EU wide. This could significantly impact the complex EU-wide value-chains Britain’s automotive industry is involved with and lead to a significant reduction of exports to South Korea.
On this issue Falconer said that with countries like Korea the DIT “was not yet at that level of discussion”. We will “seek a rule of origin that is as close as possible to the earlier rule of origin”, the DIT’s chief trade negotiator said.