Everything you need to know about the UK’s trade policy

Daniel Baynes

Account Director

As the first round of the UK-US trade talks come to an end and the Trade Bill receives its Second Reading this Wednesday, Dan Baynes and Joseph Smith take a look at the state of play and some of the difficulties the Government might face in the months ahead.

After the Conservative Party’s landslide victory last December, it was settled that Britain would not only leave the EU, but also reclaim its ability to strike trade deals independently. This vision represented a central part of the 2019 manifesto and was further outlined by the Prime Minister in a speech at the Painted Hall of the Royal Maritime Museum in February.

Since then, a lot has changed:

Brexit negotiations continue, albeit on the periphery, as the deadline for extending the transition fast approaches. The UK’s chief negotiator, David Frost and his EU counterpart Michel Barnier have found themselves at an impasse, with fundamental disagreements on fisheries and ‘level-playing field’ provisions stalling progress. This has been recognised by the Government, with reports over the weekend suggesting that civil servants tasked with handling the coronavirus had moved back to no‑deal Brexit planning.

Meanwhile, the UK-US trade talks are ongoing and “proceeding efficiently” in the 30 “workstreams” set up to discuss different components of the desired Free Trade Agreement (FTA). The UK has also set out its strategic approach for an agreement with Japan, which will also be used as a logical stepping stone to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

As part of becoming an independent member of the World Trade Organisation (WTO), the Government published its non-preferential tariff regime on Tuesday – which will come into effect on 1 January 2021. In total, 60% of trade entering the country will do so tariff free. Whilst the new schedule makes cuts across the board, tariffs on agricultural products such as lamb, beef and poultry will remain the same. Although farmers will be pleased with this result, the regime will only apply to trade with any country the UK has not negotiated an agreement with by December. This means that any preferential agreement, with the US for example, might still include tariff cuts on food imports.

The Trade Bill will also have its second reading on Wednesday after Prime Minister’s Questions. The legislation sets out the UK’s policy post-Brexit and will face heavy scrutiny from MPs on all sides, many of whom worry about its implications for businesses and consumers.

Conservative thinking on trade

A faction within the Conservative Party has always viewed the EU as a protectionist bloc, believing that it’s regime of tariffs and regulation are designed to insulate the continent from international competition, and largely reflect the objectives of countries like France.

Brexit was always regarded as an opportunity to extricate the UK from this, enabling it to establish a policy that reduces prices for consumers through tariff reduction and increased supply.

Many in the Conservative Party also believe that aligning to Brussels’ regulatory orbit post-Brexit renders any autonomy obsolete. They argue that the bloc’s rules in certain sectors have precluded it from striking trade deals with the likes of the US, China and India. This underpins the government’s resistance to ‘dynamic alignment’ – whereby the UK would remain in lockstep with EU rules in perpetuity.

Having flexibility on standards is therefore central to this administration’s thinking. Whenever an amendment has been tabled to ‘maintain’ standards in either the Trade or Agriculture Bill, the Government has always rejected it, arguing that it either undermines the UK negotiating hand, or has unintended consequences. The language used in the Government’s mandate for the US trade deal is also noteworthy. Whilst it states that any agreement will “ensure high standards and protections for consumers and workers, and will not compromise on high environmental protection, animal welfare and food standards”, it never explicitly commits to retaining and upholding the existing regime.

Consumer Vs Producer Interests

Given the political and symbolic importance of a US trade deal, the government is unlikely to allow the issue of standards to jeopardise any agreement. It will be fully aware of the agricultural lobby’s power in Washington and expect any comprehensive agreement to include market access for US farmers. Similarly, tariffs are also likely to be an important issue. The average EU levy on third country food imports is 22%, something that advocates of free trade see as price inflating and harmful to consumers. However, many rural Tories view tariffs as a means to protecting UK farmers and the countryside, and will resist improved access for food imports, as seen last week in the report stage of the Agriculture Bill. With the Trade Bill returning for its Second Reading on the 20th May, expect Tory MPs participating in the debate to make their case along these ideological lines.

MPs to look out for

Theresa Villiers (Chipping Barnet) – The former Secretary of State for Environment, Food and Rural Affairs has the potential to cause a considerable headache for the Government and is one of the most influential voices on the backbenches. Prior to being sacked in February, she gave assurances that the UK would not lower its food standards in trade talks. Her successor George Eustice has not been as unequivocal.

Dr Liam Fox (North Somerset) – A longstanding advocate of trade liberalisation, Fox is a vocal opponent of barriers to global commerce and protectionism. As Secretary of State for International Trade, he played a key role in laying the groundwork for the UK’s negotiations with the US. Last week he made the case against attempts by MPs to enshrine high standards in the Agriculture Bill.

Timeline of upcoming events

20th May – Trade Bill receives its Second Reading in the House of Commons.

1st June – Fourth round of talks between the UK and EU set to take place.

2nd June (Est) – If passed, the Trade Bill should enter its Committee Stage week commencing 1st June.

15th June – Second round of “virtual negotiations” to take place between UK and US trade negotiators.

30th June – Deadline to extend the Brexit transition period lapses. If no extension is agreed, both sides will have until 31 December to thrash out a deal.

1st January 2021 – UK’s new non-preferential tariff regime comes into effect.

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