Brexit & UK trade

Minister: UK has limited bandwidth to pursue additional FTAs

Most – but not all – of the EU’s existing free trade agreements will have been rolled over to apply to the UK by the time the country leaves the bloc next year, UK trade minister George Hollingbery said today.

In testimony to the House of Commons’ International Trade Committee, Hollingbery said his team had encountered a range of challenges in negotiating the extension of the provisions of the EU’s 40 or so FTAs to apply to the UK post-Brexit.

“As of today, there is nothing on the books,” he said. “But we’re still extremely optimistic that we’ll transition most of these agreements in time for a hard Brexit.”

Hollingbery declined to say how many of the FTAs would be rolled over by 29 March, although he said the number would be “much closer to 40 than zero”.

“A lot are very close to being concluded,” he told MPs. “With some we’ve made very substantial progress – that includes some of our largest trading partners. But there are some where we have not made much progress, for all sorts of reasons.”

He declined to name the countries with which a deal was closest, other than the Southern African Customs Union, which the Department of Trade had identified in August as a prime candidate for an early agreement. But the UK and SACU have still had not signed a deal after nine rounds of talks, and despite agreement on “the vast majority of issues”, according to Hollingbery.

‘Hit to UK GDP’ if deals aren’t rolled over in time

The rollover of some FTAs won’t be done by the end of March, he said.

“I don’t guarantee that all of them will be absolutely ready on time,” he said, adding that ratification issues in some countries would delay the process. South Korea was one example where “several months” would be needed for the necessary legislation to go through the national parliament.

Around 12% of British trade is channelled through EU FTAs with third countries, and Hollingbery conceded that there would be negative consequences from any failure to roll these over to apply to the UK.

“Of course there will be a hit to GDP if we can’t trade on the same preferential terms as at present with partners who account for 12% of our external trade,” he said. “I don’t think any rational person could conclude otherwise. We know which deals are most used by business. But we believe we have to prioritise all of the deals, and we’re putting all our efforts into getting those rollovers.”

‘Not a straightforward process’

Hollingbery gave the committee a candid assessment of some of the problems that he and his department had encountered in persuading third countries to extend EU FTAs to the UK after Brexit.

“The signals and incentives for our trade partners have changed, as we have shifted the focus from a post-Brexit transition period to the possibility of a ‘no deal’ exit,” he said.

“Some countries have a lack of resource to enter negotiations; some may not want to want to incentive a ‘no deal’ exit. Some have upcoming elections, some have ratification issues, and some have asymmetries in terms of their motivation to make changes. With some, it’s hard to see how you could transition the agreement without a deal in place between the UK and the EU.”

Furthermore, Hollingbery said, economic partnership agreements involve multiple partners and “the transition of a trade deal can exacerbate or emphasise political difficulties between these countries. So this is not a straightforward process, and I don’t pretend that it hasn’t been disappointing at times.”

He also gave MPs insight into government policy on negotiating new UK trade deals after Brexit.

The government has held well-publicised internal consultations on four possible new pacts – with the US, Australia, New Zealand and the Comprehensive and Progressive Agreement on Trans-Pacific Partnership. Hollingbery said this was the limit of the government’s ambition for now.

“Doing four full-scale FTAs is a resource-consuming task,” he said. “We don’t expect that we’ll have the capacity to do any new FTAs beyond those four for some time. If we have more resourcing, we can probably do more.”

He also noted the challenges involved in doing trade deals with the US, particularly on sanitary and phytosanitary issues.

“If we come out of alignment with EU regulations in this area, then there is a penalty to be paid in terms of frictionless access to Europe, which we can then trade for better trade with the US. In my view this is an example of an independent sovereign state trading its sovereignty, in full cognisance of the consequences, and setting up deals which work for it in whatever context it finds itself,” he said.

Turkey and EFTA states seen as ‘a challenge’

Questioned about future trade relations with Turkey and the EFTA countries, Hollingbery acknowledged the issues involved – but offered few clues as to how they might be resolved.

Switzerland has more flexibility to negotiate with the UK because it is not a member of the European Economic Area and has its own bilateral relationship with the EU. But “the EEA states [Norway and Iceland] are more of a challenge. And Turkey is in a customs union with the EU, so if we don’t reach a deal with the EU, that will be a problem.”

However, there was a more positive report on the joint UK-EU quest to persuade third countries to continue to treat Britain as an EU member for international trade purposes during the 2019-2020 post-Brexit transition period.

Hollingbery said 19 countries or groups had so far assented to this request – namely Australia, Brazil, Norway, Switzerland, Ukraine, the SACU countries, Chile, Canada, Egypt, Iceland, Peru, Norway, Liechtenstein, South Africa, Morocco, New Zealand,  the Eastern Southern Africa countries, Israel and Panama.

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