2023 Will Be a Defining Year for Brexit and Trade

Notwithstanding endless discussions and early data, Brexit cannot yet be definitively declared a success or failure. Those who would point to trade deals and independent regulatory policy as signs of success really have only the low-hanging fruit of typical Free Trade Agreements with New Zealand and Australia to point towards. On the other side of the argument, evidence of export struggles compared to other European countries are as yet far from definitive given what was always going to be an economic shock. 

The year ahead will provide far more evidence on how Brexit is faring, in particular from three major trade policy challenges:

• Acceding to the Comprehensive and Progressive agreement for the Trans-Pacific Partnership (CPTPP), given entanglement with the implementation of the Northern Ireland Protocol;
• Completing a satisfactory Free Trade Agreement with India’s notoriously parsimonious negotiators;
• Navigating a disintegrating world trade system threatening to leave the UK adrift. 

Succeed in these, and the UK’s international position will be looking far stronger and more settled. In part, because to do so will mean taking on those parts of the Conservative Party which have most staunchly backed Brexit.

CPTPP accession and an FTA with India are achievable in 2023 – but difficult

In the original timetable of the UK government under Prime Minister Boris Johnson, the UK would have acceded to CPTPP and signed an FTA with India in 2022. Delays in trade policy are fairly routine, but the failure to be honest about the reasons is more worrying.

India is the more straightforward. While basic chapters have been concluded, India is believed to have made limited offers on market access, while mobility remains a problem for the UK, to the surprise of nobody with experience of either country. The issue for the UK government is primarily about whether a limited improvement in market conditions for UK business will be politically acceptable, particularly after perceived government failure to push interests in the Australia FTA.

There are plausible arguments for a low ambition deal, as a step towards something better, or a step beyond what others such as the EU have achieved. However, the UK government has not wanted to make such a case so far presumably lest it undermine their negotiating position or support. This looks like a mistake needing to be rectified soon, for the test of this FTA will be how it is presented given the content will inevitably fall short of business asks.

CPTPP accession is more complex, for which the market access challenge of satisfying existing members expecting the same level of UK liberalisation as per Australia and New Zealand deals is the lesser problem compared to a geopolitical one bringing together China’s application and the Northern Ireland Protocol. This is binary, unconnected with market access, and essentially is that CPTPP members will point to China’s failure to meet trade agreement commitments in not taking forward accession talks, but cannot do this if the UK accedes while threatening to overturn its own treaty with the EU. Thus, the UK has to compromise, yet make this acceptable to Northern Ireland’s unionists and hardline Conservative MPs. The side product of improving EU relations will be a considerable bonus.

CPTPP accession is thus a test of the UK accepting its choices on trade are not unfettered, something always understood by those schooled in the realpolitik of trade negotiations, but less by Brexit advocates. This may only be a matter of time, for ultimately the UK is headed for closer relations with the EU than now, because of geography and it being the majority view. The question is how and when this happens, if it is 2023 because of CPTPP accession then this is a sign of a UK starting to recover some stability, and the Conservative Party in particular finding some pragmatism. If that is not the case then instability will continue until a change of government, with economic cost, and potentially meanwhile seeing support rising for returning to the EU.

Nothing else comes close to this level of importance for UK trade policy in 2023, other talks to update existing deals with the likes of Israel and South Korea are almost entirely trivial by contrast. Indeed, and positively, the UK government has recognised the need for trade policy beyond FTAs, if not yet what that may entail. 

Finding a trade policy for a changing world

One of the founding narratives of Brexit, forged between some Conservatives and US Republican counterparts in the years ahead of the referendum, was of the US and UK joining forces to support their version of free trade against that of the EU. This was the Singapore-on-Thames low regulation model which although it may never have been realistic, and was less attractive to voters than the idea of restricting immigration, still held strong sway among Brexit leaders.

Presidents Trump and Biden have made this vision look rather ridiculous in deepening the already existing US predilection for protectionism and breaking global rules, leaving UK Ministers making their regular pilgrimages to Washington DC to speak of shared values such as free trade struggling. This though is probably easier than asking the question of what future for middle powers like the UK if global rules are no longer respected particularly by China, US, and EU. For the UK this isn’t helped by recent struggles due to cost cuts and ideology trumping traditional diplomacy, meaning currently relatively weak relations with all the major powers as well as many of the mid-level.

Given the UK’s core values of general support for free trade and the rule of law, to integrate with growing priority for tackling climate change, it should be relatively straightforward to at least construct a modern vision, and work alongside partners on this. However, Brexit politics complicate, for example in working with the EU, putting forward meaningful climate and trade measures, or going against the US in joining the interim WTO appellate body replacement.

Inadequate understanding has also been problematic, particularly the interaction of regulations and trade which has the inevitable effect of making the UK a rule-taker to a degree uncomfortable given the Brexit referendum was won on the basis of taking back control. Attracting productive new inward investment requires regulatory stability, but if this means following EU rules it is a problem, and one still barely discussed in the UK.

More to do internally

Challenges of a difficult global position, problematic precedent, and FTAs not quite meeting the political promise would test any well performing trade department, but for the Department for International Trade they exacerbate some long-standing issues. Stakeholder relations have been difficult under a functional surface, with both sides criticising each other in private, stakeholders seen by government as inadequately informed, government seen by stakeholders as obsessively secretive. The absence of a trade strategy means that beyond the aim of encouraging trade deals there is little politically agreed. 

Investment protection is a good example, a controversial issue with strong voices for and against in the UK, but little sense of government policy. The likely absence of a useful form of Investor State Dispute Settlement mechanism from the India FTA will disappoint many businesses who see this as more important than tariff reductions, the inclusion in CPTPP will similarly anger campaign groups. The lack of consistency could easily have political ramifications.

Above all, there is little sign that UK Ministers understand the crucial negotiation in reaching trade deals is the internal one, of reaching agreed probably public positions with stakeholders. Making simple completion the goal was a major factor in subsequent criticism of the Australia FTA, while the lower criticism in the case of New Zealand reflected that country’s far more open approach including with UK stakeholders.

There is an obvious package of improvements to be made centred around an openness in discussion and presentation that other countries have demonstrated solidify support for trade. Ministers in the UK have tended to decry any critics as protectionist, an approach many would recognise from former EU commissioner Karel De Gucht that eroded EU support for trade, and was overturned with excellent results by Cecilia Malmstrom. New Zealand’s Trade for All approach adopted to help overcome opposition to the original TPP provides another model.

Conclusion

Independent trade policy has been widely seen as a key Brexit benefit. Trade experts have long been concerned that the marginal benefits and difficulties involved in delivering them made that promise problematic. If in 2023 the UK accedes to the CPTPP, resolves the Northern Ireland Protocol row thus also unlocking better EU relations, and completes an India FTA considered broadly acceptable, it will be a significant political achievement by any measure. While the economic losses of a looser EU trading relationship will remain not least given struggles of the WTO, UK political stability returning will be some counter weight, particularly if it also means a greater understanding of regulatory realities.

The Brexit story, far from being over, is going to be a major one in 2023.