Far from the bleak picture painted during the referendum campaign, it seems that the UK actually has many trade options open to it at the moment.
Last month the EU Referendum engaged more people in politics than any referendum or General Election since 1992. The fallout just keeps coming as both the main political parties face leadership contests and yet more resignations are still expected. As I write this, Nigel Farage has quit as UKIP leader (again), so it looks like we’re running head first into week three of political carnage since the referendum result. Brilliant.
Despite uncertainty about when or if Article 50 will be triggered, it is largely accepted that the UK has now been presented with an opportunity to cut ties and seek its own trade deals on its own terms. Now, as the dust settles, it is time to start considering with whom these deals could be struck.
Option 1: The EU
Hold on, haven’t we just voted to get out of this?
Well, yes, but we can still trade with them without being a member of the club.
There are more than twenty countries that have trade agreements with the EU. The European Free Trade Agreement (EFTA) is currently shared by several countries in Europe which are not actually EU members. Founded in 1960 by 7 European countries, this is seen as the most likely option for the UK to adopt post-Brexit. In fact, we were a founding member of the agreement, along with Austria, Denmark, Norway, Portugal, Sweden and Switzerland. However, we left in 1973 in order to join the European Community, and some argue this is where it all went wrong.
The Norwegian model is seen as the most viable option for the UK to adopt. This would give us full access to the single market through membership of the European Economic Area (EEA), although we would also still have to make a financial contribution and accept the same free movement agreement that we had while inside the EU. Iceland also shares this model, and was the first country to reach out to the UK to strike a post-Brexit deal.
Another EU trade possibility is the Swiss model – largely revered by libertarians for the simple fact that the Swiss have low taxes, are both prosperous and peaceful, and have a close form of direct democracy. It is no coincidence that a lot of multinational companies choose to base their headquarters in Switzerland, and that is partly down to their ‘best of both worlds’ bi-lateral trade deals with the EU.
The Swiss-EU agreement allows free trade (i.e. trade without tariffs) with most of the industries that make up the single market. Switzerland is neither an EU nor EEA member but is part of the single market. This means Swiss nationals have the same rights to live and work in the UK as other EEA nationals. However, Swiss trading success has partly been down to their substantial annual contributions to EU projects so it is likely that we would also end up pumping a lot of money into projects that we now have no say over.
These are two viable – if imperfect – options for the UK, but would not be enough to ensure financial stability alone. The Adam Smith Institute has backed an EFTA-style deal for the UK, but recent figures from the Office of National Statistics show that the UK is actually exporting more to countries outside the EU now than it was in 2011, so while EFTA looks like a good option, it makes sense for us to widen the net.
Option 2: The USA, Mexico and Canada (North American Free Trade Agreement: NAFTA)
In 1946, Winston Churchill coined the phrase ‘special relationship’ to describe the integrated political, cultural, economic and historical relations that the US and UK have long shared. Despite Barack Obama’s rather unwelcome appearance halfway through the pre-referendum period (the one where he said that the UK would be “at the back of the queue” in any post-Brexit trade deals) it seems that we are in fact still in the ‘special relationship’ and nothing much has changed.
Canada is currently only the UK’s 16th largest export market, and earlier this year Romania, Belgium and Bulgaria were reported to be planning to veto an EU trade deal with Canada, citing ‘unfair visa arrangements’. The UK could and should use this as an opportunity to strike a better trade deal with Canada while the EU tries to figure out a ‘one size fits all’ resolution to the issue. Canada have already said they are cautious, but see the UK as a strategic partner and so are keen on maintaining ties.
Mexico has gone one better and actually drafted a trade pact which is ready for whoever takes up the challenge of negotiating Britain’s exit after Cameron leaves.
Miriam Sapiro, ex-deputy US Trade Representative, has also said that it will be easier for the US to negotiate a trade deal with Britain post-Brexit, as we are a “like-minded” country that is more open to free trade than other EU member states. It seems that ‘back of the queue’ gag may be forgotten by the time Obama leaves office, if not before. It has even been suggested that a quick ‘remedy’ to our Brexit woes would be to add the UK to the NAFTA deal, and ensure those ties don’t break at all.
However, trade with the US comes with a warning: TTIP.
The main aim of the Transatlantic Trade and Investment Partnership is to set standards for any future trade deals done with the US and, eventually, the rest of the world. If you haven’t heard of it, that’s probably because the negotiations have not exactly been conducted in public.
The proposed deal would see the removal of tariffs and regulatory barriers to trade between the US and EU members. The British government claimed that TTIP would add around £10bn to the UK economy, and open up restrictive markets, allowing us to buy goods such as clothing and cars at cheaper rates. On the surface, that doesn’t sound so bad.
Conversely, a TTIP deal would also introduce Investor-State Dispute Settlements (ISDS), which would allow US companies to sue EU governments if their policies interfere with their profit margins. The EU itself has said that this deal would cause the loss of millions of jobs across EU member states, and critics have also pointed out that TTIP would introduce heightened surveillance of citizens under the guise of ‘anti-counterfeiting law’.
As this agreement is currently only being very quietly discussed between the US and EU, it seems that we have dodged a bullet by voting to leave. However, it is likely that TTIP will be a condition of any future trade deals between the UK and NAFTA, especially since our government is so on-board with the idea.
Option 3: The BRICS bloc
(Brazil, Russia, India, China and South Africa)
The BRICS are characterised by being BIG. Big in size, big in natural resources and big in young populations full of people wanting to work and travel. It’s no secret that this collection of nations isn’t exactly viewed as the first choice for trade agreements by many Western countries. Indeed, Russia had diplomatic sanctions imposed on it by the EU following its annexation of the Crimea. China has a questionable human rights record, and Brazil’s desperate scramble to prepare for the Olympics has thrown light on a nation with weak infrastructure and a faltering economy.
These uncertainties partly explain why the BRICS bloc is less competitive than other trading blocs and, although large companies benefit from this, small and medium-sized enterprises (SMEs) in the UK are far from making significant progress with them. Since 2013, the UK has more than doubled its exports to these countries, but there is still a legacy of British reliance on western demand when it comes to trade, and so George Osborne’s attempts to negotiate further trade have come under intense scrutiny.
Since the referendum, India has jumped straight in and is very much looking forward to striking a trade deal with the UK. Our former colony has a very positive outlook on Brexit, with Jayant Sinha, India’s deputy finance minister, claiming that ‘the UK will look to build its relationships with the rest of the world, and will seek to pursue new opportunities with India”.
This is a group of countries which may offer fantastic future opportunities for more trade agreements. However, the diplomatic ties that many countries in the West hold with this bloc will likely need to improve before they can be considered in the same league as the EU for trade negotiations. Nevertheless, it is likely that other countries will confirm their interest in trade deals with the UK in the coming weeks, with all eyes on Russia and China; more on South Africa a little later…
Option 4: Australia and New Zealand
Since the news broke that the Brits had opted to Brexit, Australia and New Zealand quickly teamed up to negotiate new trade and immigration deals with the UK as soon as possible. Our ex-colonial friends have long been trying to find a way to trade more successfully with the EU, but the UK’s withdrawal makes any such agreement a bit less attractive.
The UK has long been a significant trade partner for Australia as it provides a services-based relationship worth around £5billion. It is widely acknowledged that when the UK joined the EEC in 1973, trade with New Zealand took a hit. Having once imported a little under 80% of our dairy and meat products from NZ, the UK (like all other EEC members) rapidly became flooded with European goods, leaving little room for imports from outside the bloc.
We now only import around 20% of our meat and dairy goods from our cousins in New Zealand, and given the immense historical ties that we share with the ANZAC nations it makes sense to shore up agreements with these countries while they are open to it. These are important nations with which to secure trade deals, not only for their economic value, but for the social security of the millions of UK expats who are shared between them.
Option 5: Africa
Africa is still largely seen as the ‘final frontier’ for many multinational businesses, but more and more small and medium-sized enterprises (SMEs) are realising the huge potential that foreign investment and trade can have in this region. Historically, the African relationship with the EU has been one of forced trade and destructive agreements which have largely been blamed for the increase in poverty in many African countries.
In 2013, the UK made steps towards improving trade with Africa, with the aim of completing these improvements by 2016. The Government has so far pledged to invest £57.4 million to improve trading in Uganda and Kenya and modernise East Africa’s largest port in Mombasa. It has also promised to improve roads on a vital trade corridor between Uganda and Rwanda, and put further investment into female entrepreneurs across the region.
These initiatives do not require “EU funding” (i.e. pre-digested UK taxes) or legislation to support them. It seems logical that we take this to the next level now, and really open ourselves up to the wider continent, from Tunisia right the way down to South Africa. Ghana has already extended the UK an invitation for new trade negotiations, and it is possible that other countries will follow suit in the coming weeks.
This investment in the continent will allow many countries to continue producing crops and commodities more efficiently, and in turn give us more stable and rich economies with which to trade. Within Africa, South Africa is currently the largest recipient of UK exports, and the burgeoning middle class in this country is presenting many opportunities for UK SMEs to sell their goods. This is a growing trend in other markets, particularly Nigeria and Ethiopia which have seen dramatic growth over the past decade; now is a great time to get to know them better.
Far from the bleak picture painted during the referendum campaign, it seems that the UK actually has many options open to it at the moment. Whether we choose to negotiate a safe Norway-type model, or broaden our horizons to the BRICS, the coming months will no doubt show that we can be more outward looking than our European neighbours, and more creative in the way we form trade relationships with other nations. The important thing to note is that we are not limited to just one agreement. We now have an opportunity to make trade ties with many countries both inside and outside the EU. They are open to it – and we can be, too.