Britain is able to set its own trade policy as a result of its exit from the European Union, and Boris Johnson has hailed a pact with the US as a key post-Brexit prize. Here’s what you need to known about deals and their potential impact on the UK economy.
What is a trade deal?
Trade deals are contractual arrangements between countries that regulate their trading relationships. A free trade deal typically aims to make trading easier by reducing or eliminating charges or taxes, known as tariffs, on goods crossing national borders. These tariffs can also apply to services, as well as goods.
Another goal of trade deals is to remove quotas on the amount of goods that can be traded between countries. Some deals also seek an alignment of regulations or rules to make trading simpler between the countries involved.
Trade deals can be bilateral between two countries or multilateral between more than two states.
What impact did Brexit have on the UK’s trading relationships?
One major outcome of Brexit is that the UK is now able to negotiate, sign and ratify its own new trade agreements. While the UK was a member of the EU its trading agreements were negotiated by the European Commission on behalf of the bloc as a whole.
The Government says it is seeking “to reproduce the effects of trading agreements that previously applied to it to ensure continuity for UK business”.
To this end, the Department for International Trade was set up following the Brexit vote with the priority of launching negotiations with the US, Australia and New Zealand.
The current Secretary of State for International Trade is Anne-Marie Trevelyan, who replaced Liz Truss after she was appointed Foreign Secretary in a cabinet reshuffle.
Why does the UK want a trade deal with the US?
America is the single largest trading partner for the UK, with over £200bn worth of trade a year already occurring between the countries. A trade deal with such an important partner could offer significant economic benefits – although some experts have argued most elements of trade between the US and UK are already covered by existing arrangements.
However, expectations of a quick agreement between the countries have faded, with the Biden administration appearing to be more focused on domestic priorities and Boris Johnson telling reporters that he would “much rather get a deal that really works for the UK than get a quick deal”.
UK officials have suggested an alternative to signing a deal with the US could be to join the existing free trade agreement between the US, Mexico and Canada, known as USMCA. It was signed in 2020 while Donald Trump was still in office following a long renegotiation of the 1994 Nafta deal between the three countries, and primarily covers specific regional issues related to the three North American nations.
However, USMCA has limited coverage of services, a strong component of trade between the UK and US, so joining would probably offer fewer upsides than a direct deal with Washington. It also has no built-in accession process for prospective entrants, so it is not clear how the UK would go about joining.
What other trade agreements does the UK want to join?
The UK also formally applied in early 2021 to join a free trade agreement between 11 countries around the Pacific Rim, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. CPTPP countries accounted for £110bn of trade with the UK in 2019, with the agreement covering 500m people between its member countries.
On June 2 2021, it was announced that the accession process would begin to allow the UK to join the CPTPP, which would remove tariffs on 95pc of goods traded between members.
What trade deals has the UK already signed?
Since leaving the EU, the UK has signed trade deals with 69 countries and one with the EU. Nearly all of these deals replicate the arrangements that were in place before Brexit.
The first deal to contain marked changes of these was the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), which was signed in October 2020 and including some expanded provisions on digital services. The Government claimed that the boost to trade between the UK and Japan would be over £15bn, but did not provide a timeline for this estimate.
The UK also reached a free trade “agreement in principle” with Australia in June 2021, which outlined the broad strokes of a deal that is yet to be formally agreed. The Government says this will mean over £4bn of UK exports will no longer be subject to tariffs. Full access for beef and lamb imports from Australia will not occur for 15 years, but there were concerns at the agreement’s announcement that farmers could be undercut by cheap imports.