Updated: Sep 15, 2021
On 30th January 2020 at precisely 23:00 the UK became the first and only country ever to break away from the EU bloc. Before coronavirus obliterated news headlines everywhere, the exhausting process of how and when Britain was going to depart the European Union (EU) and the European Atomic Energy Community (EAEC) dominated. For the previous 47 years, the UK had been a member of the bloc, and its forebear, the European Communities (EC). The overarching impacts of Brexit – as the whole morass has come to be known – will be partly managed by the EU-UK Trade and Cooperation Agreement, which was ratified by the UK government in December 2020. So, what then, lies ahead for the UK?
As iterated by Katharina Buchholz for the website Statista in May, and based on data taken from the World Trade Organization, the most trade agreements in the world are held by the 27 member states of the EU, and totals 45 (counted by each individual agreement and by entity, and 46 if one includes the agreement it has with itself). As of May, the US in contrast, only has 14 such agreements. Iceland and Switzerland have 32 apiece, Norway has 31, and Lichtenstein and Chile, 30. The UK , after its break away from the EU, can still boast having 35 trade agreements.
The term ‘entity’ is an important distinction because the trade accords mentioned are not only between nations. They are between nations and free trade areas. For example, the EU has free trade agreements with the European Free Trade Association, which comprises Iceland, Lichtenstein, Norway, and Switzerland (the EFTA). It too has an agreement with the Southern African Development Community, which includes Namibia, South Africa, Tanzania, Botswana, and some others. Perhaps a little perversely, there are no accords in existence between the EU and the US. The TTIP (Transatlantic Trade and Investment Partnership) was under negotiation for some time but talks ultimately collapsed. Had it succeeded, the TTIP would have become the largest trade agreement of its kind ever. It would have been an agreement between the two largest geo-economic regions in the world, and its scope in generating free trade globally would have been unprecedented. And, although negotiations did eventually founder, the door has been left ajar for any interested parties to revisit in the future.
Leaving the Family
The 35 ongoing trade agreements the UK has fostered throughout the Brexit process and into the new world include a total of 66 territories and account for – through 2020 – £158 billion in trade. Of these agreements, the most lucrative is with Switzerland. It accounts for just over 20% which is the equivalent to around £34 billion. After this it is the UK’s joint accord with Norway and Iceland at just more than £20 billion or just over 13.5% (see figure 1).
Figure 1: Excerpt of UK Trade Agreements through 2020 (BBC)
The EU-UK Trade and Cooperation Agreement (TCA) came into force on the 1st May 2021, and did so in order to create an understanding between the two parties in the sober light of their final divorce. The negotiations took eight months with the final agreement making provision for free trade in goods, limited mutual market access in services, and avenues for cooperation in areas such as policy, transition, EU access to UK fisheries, and UK participation in some EU driven programs.
Currently, the UK government is in negotiations with Australia. The fine details of the agreement are yet to be published but – according to the BBC – commodities such as cars, whisky, biscuits, and ceramics will become cheaper to sell to Australia. In contrast, UK farmers have complained about the possibility that cheap imports will undermine the British agricultural sector, despite assurances from the UK government that it plans to put in place protections to countenance this. Indeed, the first deal the UK had cut as a fully independent nation was confirmed in October 2020 and was with Japan (which was worth £31.6 billion through 2019 – equating to 2% of the UK’s total trade). Another move being made by the UK government in the new light of independence is an attempt to become part of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Experts in some corners are wary of this development since it could mean the substitution of EU regulations and impositions with newer political and economic constraints. UK exporters may not see any material gain from such a partnership compared with the EU either. There are also further risks in that the UK could find itself embroiled in a new set of complicated geopolitical rivalries.
If all else had been equal, by now, the UK would have some idea of how it is doing fiscally upon emerging from the Brexit chaos. But things have not been equal. In fact, things have been very far from equal. As has been described by Chris Giles in the Financial Times, the economic picture for Britain post-Brexit has been “swamped” by the global pandemic. The term swamped is a fitting one as the data one would use to attempt to assess the UK’s financial status, and make ‘before and after’ statements say, has literally been drowned by the financial burden, pitfalls, responsibilities, and general titanic cost, of maintaining a country in a healthcare crisis. Data exists for sure - and most experts would agree that trade has been hit - but depending on where one looks, interpreting the impact Brexit has had is treacherous because the statistics differ so starkly.
It was always apparent from the outset that where trade barriers came into force the impact on the flow of trade would be negative, and the consensus is that that has largely been the case. However, such barriers are regarded as both a novelty and one-off effect of the new world. The real question looking forward will be the extend to which supply chains across the English Channel will have become compromised, and by how much the UK has become a less enticing prospect for foreign investment. Notwithstanding, it is anticipated a labour shortage is in the making at the very least, since the movement of EU citizens into and around Britain has been curbed. However, experts do concede that other countries are showing similar patterns, and that the effects of the pandemic are tainting the data. Coming to any useful conclusions in the near future then, is troublesome and perhaps ambitious. It seems that for the time being, the grip of the pandemic – although loosening – remains strong enough to contaminate reliable data analysis. Formulating useful fiscal strategies might do well to be placed on hold until the smoke of the pandemic has been allowed more time to disperse.