19
May 2020

Written by:

Thomas Woolhouse

Senior Account Manager

Trading Returns to the Political Agenda

For the past three months, attention has understandably been fixed on the Government response to coronavirus, and issues such as NHS capacity, PPE procurement, support for businesses, and the gradual relaxation of social distancing have dominated the political debate. Given how the social and economic impact of coronavirus will be with us for some time, this fixation will likely continue for the foreseeable future.

However, it is notable that in recent days we have seen a flurry of activity from Government as it has sought to return attention to its post-Brexit trading ambitions, which prior to the coronavirus pandemic had been one the key planks of its policy agenda, alongside levelling up and decarbonisation.

The headline issue for this trade agenda has been the negotiations on the future relationship with the European Union, which (coronavirus aside) still represents the largest policy and political challenge facing the Government. Boris Johnson may have won the 2019 General Election on his commitment to Get Brexit Done, but he will also be held accountable for its success or failure.

The deadline to achieve a deal with the EU, which minimises economic disruption before the Transition Period expires, is the 31 December 2020. Further adding to this pressure, the UK Government must also decide on whether to request an extension to the Transition Period by the end of June.

The third round of negotiations with Brussels came to an end last week, and as expected there remain several key points of divergence, these being access to fisheries and the level playing field. The UK Government has accused the EU of not negotiating in the spirit of the political declaration, and of adopting an ideological approach to try and tie the UK into an unfair relationship.

The preferred UK outcome is to strike a similar agreement to the EU/Canada trade deal. However, EU Chief Negotiator, Michel Barnier has argued that the UK cannot have unrestricted access to the Single Market without observing the necessary obligations, which includes regulatory alignment on issues such as state aid and employment law. He also made the point that there will be no preferential access for British businesses to the Single Market if EU fisherman are excluded from UK waters.

To help refocus minds, the Cabinet Office has today published 13 documents outlining its vision for the future relationship. These documents included the draft legal text for the UK’s preferred trade deal, as well as other agreements on agriculture, fisheries, law enforcement and air transport. The Government has also published the future tariff schedule that will be adopted once the Transition Period ends and the UK leaves the Common External Tariff.

This new schedule addresses almost 6000 different tariff lines, and the Government claims it will ensure that 60% of trade will come into the UK tariff free, either on WTO terms or through existing trade agreements. Some of the sectors which will now be subject to zero tariffs include white goods and sanitary products, while key UK industries will continue to be protected such as ceramics, agriculture, and car manufacturing.

Talks with the EU are set to resume at the beginning of June, and whilst it is hoped these new documents will help to reboot the negotiations, Cabinet Office Minister, Michael Gove has also begin to step up preparations for a No Deal scenario. The Exit Operations Committee which he chairs will now meet more regularly, and civil servants previously tasked with the Government response to Coronavirus will now be redeployed to work on No Deal preparations full time.

Alongside the daunting task of reaching an agreement with the EU, the Government has also set itself the ambition of securing a new Free Trade Agreement with the United States by the time the Transition Period ends.

The first round of talks with US trade negotiator, Robert Lighthizer, took place in May and they are set to resume in June. International Trade Secretary, Liz Truss, has reported to Parliament that good progress has been made in a range of sectors, but already there are rumours of a concessions package designed to slash tariffs on US agricultural imports in the hoping of accelerating the negotiation process.

Although Boris Johnson had largely enjoyed a united cabinet, such a move would almost certainly be opposed by Environment Secretary George Eustice (likely backed by Michael Gove) in order to protect British farmers, and to prevent a race to the bottom on animal welfare and hygiene standards.

However, as with any agreement there are always concessions to be made, and with a US FTA representing a major objective for the Government, it remains to be seen whether Mr Eustice would be overruled if it enables the Prime Minister to reach this goal, and prevent coronavirus from derailing his entire political agenda.