With four weeks to go before the UK is due to leave the EU, British businesses are finally getting some clarity on their future trading environment, including confirmation of access to the WTO’s Government Procurement Agreement (GPA), an outline of tariff arrangements, and an update on which EU trade deals will roll over on March 29.
Continued access to the GPA, which the UK currently enjoys as an EU member, ensures
WTO members voted unanimously in favour of allowing the UK to become an independent member of the agreement. This verdict stands even if the UK leaves the EU without a deal on March 29, although a no-deal scenario will cause a several-week delay on the new status coming into effect. During this gap, British businesses will be unable to bid for international contracts, but foreign businesses can still compete for UK contracts.
The GPA is an agreement within the WTO framework between its members, including the US, Canada, the EU and Japan, which aims to mutually open government procurement markets among its parties. The GPA has 19 parties that comprise 47 WTO members.
The UK’s independent membership will give British businesses the ability to bid for contracts overseas on the same terms as they do now, bar some technical changes to reflect the UK’s new status.
The agreement allows foreign businesses to bid for £67bn-worth of public sector contracts in the UK every year, while British suppliers can bid for £1.3tn-worth of contracts around the world for large infrastructure projects as well as professional and business services.
The confirmation of the UK’s continued GPA membership on February 27 follows an ‘agreement in principle’ on the matter, which was offered to the UK by WTO members in November 2018.
Quantity not quality
In another step towards adding flesh to the bones of the UK’s post-Brexit framework, the department for international trade (DIT) has revealed which of the 40 free trade deals that the UK enjoys as part of its EU membership will be rolled over following the March 29 Brexit deadline.
Most notably, the recently-signed economic partnership agreement (EPA) between Japan and the EU was not among the deals that UK business will benefit from going forward.
Once fully implemented, the EPA will remove 97% of customs duties on goods imported by Japan from the EU. The deal places a heavy emphasis on easing the flow of agricultural goods, with Japan scrapping 90% of its duties on EU agricultural exports. Long-term provisions have also been made relating to transfer of goods in the automotive sector, which is of special interest to Japan.
The UK’s primary exports to Japan include Scottish whisky, biscuits and a range of manufacturing goods such as aluminium and forklift trucks.
Since the EU-Japan EPA will not count for the UK after Brexit, UK exporters and farmers revert to WTO rules as they had until February. This comes with a risk of Japanese customers re-considering their supply chains in favour of newly accessible EU alternatives.
At the same time, UK businesses will also lose the privileged access to free flow of data between the EU and Japan, which was agreed on January 23. The agreement allows for the mutual recognition of data protection systems as ‘equivalent’ and will enable data, including trade documents, to be transferred more easily.
Although the EPA came into force on February 1, which technically means the UK can propose that trading continues on those terms once it leaves the EU, widespread reports indicate Japan is instead looking to strike a new deal that better favours its economic priorities. Specifically, Japanese negotiators will argue for preferential treatment with regards to financial services, intellectual property rights, along with tariffs on goods relating to the agriculture and automotive industries.
Andorra and San Marino and Turkey were also highlighted as trading partners for which the UK will not roll over its current free trade deals ahead of March 29, while Algeria was listed as ‘unlikely’. All other discussions with trading partners without continuity agreements are listed as ‘ongoing’.
As of last week, the UK had secured trade agreements with Chile, the Faroe Islands, Switzerland, Israel and Palestine, and Eastern and Southern Africa.
Mutual recognition agreements are also in place for the UK’s post-Brexit trade with the US, Australia and New Zealand to allow the free-flow of trade and minimise border checks in line with those currently agreed with the EU.
These deals fall far short of covering the 11% of the UK’s total trade which is currently covered by the EU’s 40 trade deals. This is largely due to the fact they do not include South Korea, Japan and Turkey, three of the five largest free trade deals that the UK has through the EU.
Trade secretary Liam Fox was recently forced to abandon his pledge to ensure a replacement would be in place for all 40 deals “the second after midnight” on March 29. Fox is now advocating a ‘quality not quantity’ argument as over half of the 40 agreements account for less than 1% of the UK’s total trade, while the top five deals make up over two-thirds of trade.
According to the DIT, 49.5% of the UK’s total trade is with the EU, while 11% is through EU trade deals with global partners, excluding Japan, which makes up a further 2.2%
The UK is set to scrap 66 trade remedies maintained by the EU once it leaves the trading bloc. According to the DIT, these remedies do not significantly benefit British industries and only increase costs for domestic consumers.
A further 43 trade remedies measures that currently apply to imports from outside the EU will be transitioned into UK law after Brexit.
EU trade remedies measures relate to anti-dumping, anti-subsidy and safeguards.
Anti-dumping measures, which are the most common form of protection, aim to protect the domestic market from foreign products flooding the market and causing a price crash. If an instance of this occurs, EU members can act to protect their domestic businesses. The EU’s 74% tariff on Chinese steel imports is an example of an anti-dumping measure.
Post Brexit, the UK has confirmed it will maintain such measures to protect against unfair selling of tyres, aluminium wheels and ceramics by China, as well as a range of steel and iron products from countries including Belarus, Brazil, China, Iran, Russia and the US.
EU trade defence measures are only being continued in cases where UK business supported the measure and where British businesses produce more than a 1% market share of those products sold in the UK.
As a result, importers to the UK will soon no longer face tariffs on a range of goods including the 10% tariff on sweetcorn from Thailand, a 42p per kilogram tariff on tinned mandarins from China or a 34% on imports of solar glass, which is used to produce solar panels, from China. The revision of these measures follows a call for evidence from the DIT, which elicited 89 responses from industry stakeholders. Of these, 52 were from producers, and 37 were from other parties.
This week, UK Prime Minister Theresa May announced a much-anticipated U-turn on her resistance to delaying article 50 and laid out a clear route for parliament to push back the deadline in order to avoid a no-deal Brexit scenario. If MPs vote against May’s amended EU exit deal on March 12, a further vote to reject a no-deal divorce will be held the following day. If the House of Commons has a majority against allowing no-deal, which is the current default position, a third vote on March 14 will then request an as yet unspecified delay to article 50’s expiration. This mechanism for an extension has now been formally written into the Withdrawal Bill as part of the Cooper-Letwin amendment, which was passed in the Commons last night. A request to push back the deadline will need unanimous acceptance from other EU states.