Context
Trade will be a key facet in the UK’s ambition to act as a global convenor and strengthen international rules. Trade will be central in the UK’s ambition to reinvigorate WTO, bring the EU onside, align against China, and uphold international order.
Government leaders have previously recognised that the trade policy of ‘a truly Global Britain’ must be predicated on a close relationship with Europe. In February 2020, Dominic Raab stated the first pillar of ‘a truly Global Britain’ is “to continue to prove that we are the best possible allies, partners and friends with our European neighbours.” The second and third pillars were the promotion of “open and free trade” worldwide, and positioning the UK as a force for good in the world. However, the competing interests of new trade partners, the reality of global trade and tensions with Europe, have undermined the first pillar of ‘a truly Global Britain’.
Since the end of the transition period, frictional trade and uncertainty has led to a significantly decreased flow of goods and services between the EU and the UK. According to the French customs office, French imports from the UK were down 20% in January compared with the average of the previous six months, and French exports to the UK were down 13%. Italy saw a 38% drop in exports to the UK and a 70% drop in British imports in the same time frame, a much steeper drop in trade than those with other countries. Germany experienced a 30% drop in exports to the UK. ONS figures released in March, 2021, have shown trade made a partial recovery in February, but remained well below the rate in the same month last year. Diplomatic tensions, produced by issues like the Internal Market Bill and vaccines disputes, as detailed in the previous section, have compounded the disruption of the EU-UK trade relationship.
This has led to a shift away from EU trade as the ‘central pillar’ of Global Britain, and towards a reliance on bilateral or plurilateral trade agreements to mask economic and diplomatic losses incurred by the UK’s disorderly exit from the EU.
Global Trade Environment
The Global Britain strategy is complicated by the disarray in which the World Trade Organisation finds itself. Notably, the WTO’s Appellate Body has been in deadlock since December 2019. The USA continues to block all new appointments in protest of perceived judicial overreach, leaving the body without quorum. The increasingly politicised global trade environment has undermined the WTO’s mediative capabilities, despite the unanimous appointment of Ngozi Okonjo-Iweala as Director-General in March 2021. A senior UK Treasury official noted: “nobody is particularly optimistic about multilateral trade”.
Equally, bilateral trade agreements don’t always offer significant benefits to the UK economy, especially in comparison to the multilateral partnerships the UK benefited from as a member of the EU. For example, the UK-Japan deal, signed in October 2020, has “very limited improvements relative to the EU-Japan Economic Partnership Agreement” according to the UK Trade Policy Observatory. Largely, the UK has replicated the trading terms experienced as an EU member in its new bilateral agreements with New Zealand, Australia and Japan.
Plurilateral trade has therefore been seen as a stepping-stone to significant future multilateral trade, particularly in trade of services. This has been coupled with UK trade policy shifting towards fast-growing markets in the Global South. A Senior Downing Street Official stated “the UK has the opportunity to take an eyes-wide open approach to China with the support of Pacific Rim partners.” This is seen as a way to compensate for the loss of EU trade and side step inherent issues in multilateral trading. The UK hopes to use the bilateral deals with New Zealand and Australia to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK’s overarching trade focus will be on the Indo-Pacific territories, as outlined in the March 2021 Integrated Review of Security, Defence, Development and Foreign Policy. The Review centres on the ‘Indo-Pacific’ tilt, citing the economic and security benefits of engagement with Asia. The Integrated Review states Britain must work to “promote open societies and to uphold the international rules and norms that underpin free trade, security and stability” in Indo-Pacific areas.
The purpose of trade
There have been concerns surrounding membership of the CPTPP, and the Indo-Pacific tilt more generally. The Trade Union Congress warned the CPTPP “has no effective enforcement of labour standards, includes Investor-State Dispute Settlement clauses and exposes public services”, while others have raised certain partner’s links to modern slavery. Without membership or support from the EU, UK labour and environmental standards will not be guaranteed by the world’s largest trading bloc. This presents a probable challenge to upholding the third pillar of Global Britain: positioning the UK as a positive force in global trade.
Equally, the UK’s trade policy should reinforce its foreign policy goals, which involve coordinating an internationalist response from bigger powers to the ‘systemic challenge’ presented by China. Ignoring trade with Europe to focus on the tilt to the East would undermine the UK’s wider diplomatic objectives in its relationship with the EU.
Indeed, trade with certain parties will have repercussions with other partners. For example, the Inter-Parliamentary Alliance on China, comprising over 100 MPs from 19 countries, represents just the most vocal strand of international opposition to trade with China , alongside an implicit preference for trade with Anglophone or Commonwealth nations. Trade with China may incur tacit penalties with the USA, whilst trade with the USA may complicate trade with the EU. The UK will no longer be able to rely on the European Commission to manage complex and simultaneous trade negotiations with these major powers and fast-emerging markets.
The UK finds itself in a troubling position, stuck between the established trading powers of the USA, the EU and China, without a clear ally or forum. At the same time, the UK seems unwilling or unable to secure substantially new or beneficial bilateral arrangements. Without a strong international mediating force like the WTO or the EU Commission, the UK may lose out on opportunities as it is subsumed into existing trade axes or pinballed between opponents.
A ‘truly’ Global Britain should promote multilateral cooperation for its own sake, fulfilling the second and third pillars of a Global Britain. The UK should seek to “reform and strengthen” the WTO, as promised in the Integrated Review. Indeed, the UK should seek to resolve trade tensions between its allies, the USA and the EU, through the WTO, and unite NATO against existential threats from China and Russia. This internationalist approach to trade is widely supported by the public. Of those polled, 82% agree the UK should cooperate with international bodies on trade, including 62% of the least internationalist group.
Fig.6 Should the UK cooperate with international bodies in trade?
Source: Number Cruncher Analytics. The full question posed was: For each of these challenges facing the UK and the world more generally, please say whether you think the UK can best tackle it alone, or whether it should work with other countries/allies to tackle it: Trade. Sample size was 3,004 UK adults. Fieldwork was conducted between 18 February and 8 March, 2021. This poll was commissioned by Best for Britain.
The EU and the US continue to be in dispute over digital taxation and commercial aircraft subsidies. However, on 18 February 2021, the EU proposed reforms to restrain the WTO’s judicial authority of the WTO’s dispute settlement body. The UK should use this moment of reconciliation to act as a convenor and mediator, drawing the EU and the Biden administration into agreement over trade. This would further the UK’s foreign policy goals and reinvigorate the WHO to assist in the UK’s multilateral trade ambitions. The UK should use its trade policy to positively impact the international rules based system.
But the diplomatic challenges inherent in navigating global trade highlight the need for the first pillar of Global Britain, a stable and prosperous trading relationship with the enormous market on the UK’s doorstep. Over reliance on new plurilateral trading relationships, especially without a strong WTO, will ultimately relegate the UK’s position, and may undermine the system of global trade and cooperation.
The first pillar of trade
The UK must, as a matter of priority, level-up the EU-UK trade relationship, foster cooperation and invest in new diplomatic infrastructures. Methods of liberalising trade include membership of EU standardisation bodies like REACH or EASA and streamlining non-tariff barriers to trade such as rules of origin checks. Trade in services accounts for nearly half of UK exports to the EU, yet is underrepresented in the provisions of the Trade and Cooperation Agreement. A recent report therefore urgently recommends the UK pursues ongoing regulatory dialogue to ensure people and services can continue to be traded. These recommendations include securing the mutual recognition of professional qualifications and securing a data adequacy agreement.
A pressing example of this can be found in financial services, which contributed £132 billion to the UK economy in 2019, accounting for 6.9% of total economic output and 1 million jobs. In January 2021, the City of London lost its position as the largest share trading centre in Europe to Amsterdam. Even if financial equivalence is granted by the EU to the UK, it is likely to be in a patchwork fashion, concerning both access to the market and regulatory supervision with some sectors struggling to demonstrate regulatory alignment. To maintain its position as a financial hub, the UK must create an ongoing regulatory dialogue with the EU, pushing for a mutual recognition agreement which could replicate the UK’s previous access to the single market. The Memorandum of Understanding, signed on 26 March, 2021, showed a willingness on both sides to talks and cooperation in the arena of financial services, but much still remains to be concluded.
In its Integrated Review, the Government expressed an ambition for the UK to become a science and technology superpower, building on Britain's reputation for innovation and pledging £22 billion for research and development investment. The Review pledged to “create an enabling environment” and to “extend our international collaboration, ensuring that the UK’s successful research base translates into influence over the critical and emerging technologies”. Indeed, 81% of British people agree the UK should collaborate with international bodies on science and research, including 91% of Conservative voters and 84% of Leave voters. Even 59% of the least internationalist group support this cooperation.
Fig.7 Do you think the UK should or should not cooperate with international bodies in science and research?
Source: Number Cruncher Analytics. The full question posed was: Do you think the UK should or should not cooperate with international bodies in the following areas: Science and Research. Sample size was 3,004 UK adults. Fieldwork was conducted between 18 February and 8 March. This poll was commissioned by Best for Britain.
However, the UK so far has failed to deliver the funding and the international collaboration needed to become a scientific superpower. In March 2021, the Chair and CEO of the Russell Group of Universities wrote to the Prime Minister warning of a £1 billion shortfall in research funding if the UK did not pursue further integration with the EU’s Horizon programme. The letter also stressed full participation in Horizon would allow the Government access to the best technology and the best people, as well as the ability for researchers to link-up with research teams in Europe and across the globe. Just 6% say of those polled by Best for Britain believe the UK should not work with experts from other countries, while more than a third (34%) strongly agree.
Fig.8 Britain should work with experts from other countries.
Source: Number Cruncher Analytics. The full question posed was: To what extent do you agree with the following statement: Britain alone can never have all the answers, it’s only right that we work with experts from other countries. Sample size was 3,004 UK adults. Fieldwork was conducted between 18 February and 8 March, 2021. This poll was commissioned by Best for Britain.
This year, the UK Research and Innovation agency told universities their budget had been cut from £245m to £125m. The Vice Chancellors of Oxford and Cambridge University warned this would be “a blow to Global Britain”. Bob Ward, policy director at the Grantham Research Institute on Climate Change and the Environment said that the cuts immediately undermined the Chancellor’s budget pledge to make the UK a scientific superpower: “this reckless and shortsighted act could create a gaping hole in the UK’s climate research, just as we prepare to host the crucial Cop26 UN summit later this year.” As explored in the foreign policy section, the UK is not making the most of its inherent strengths as a hub for research, convenor nation and home to the five of the top twenty research universities in the world.
Further integration with Europe, and free trade as whole, is central to boost British business and level-up left behind communities post-COVID. The recent ‘Global Britain, local jobs’ report from the Board of Trade demonstrated 6.5 million UK jobs are supported by exports, that those jobs pay 7% more than average and are 21% more productive. While the report focused on the potential for non-EU trade, it makes little sense to abandon liberalised trade with the largest single market on our doorstep, given the domestic benefits free trade provides. In fact, 66% of business owners and 64% of business leaders recognise the UK should seek cooperation with the EU in areas of mutual benefit.
Global UK can be a leader, but only in collaboration with Europe and the rest of the world. How the UK can achieve this balancing act is explored in the next section, the UK’s leading role in the climate response.