Credit: Original article can be found here
Today in a rain of activity worthy of a June downpour, Liz Truss and the Department for International Trade have launched negotiations on two very significant free trade agreements with our great and natural friends Australia and New Zealand.
The International Trade Secretary also updated MPs on the UK’s proposed membership of the massive CPTPP (Comprehensive and Progressive Trans Pacific Partnership), accounting for four continents and 13 per cent of all world GDP (16 per cent with the UK included), and which these two bilateral deals are an important bridge towards. They are the last two of the four main FTAs the UK is set on alongside the UK/EU trade talks, now the negotiations with America and Japan are well underway.
For nearly 50 years, the UK as a great global trading nation has been reduced to a bit part in EU trade talks, and an observer to the EU at the World Trade Organisation (WTO) in Geneva. But we are now free as a nation to do our own deals once more, ones that suit British jobs and the British economy best.
These opportunities have now become even more important for our recovery post-Covid.
When I served on the European Parliament International Trade committee, it was a strange anomaly that these two great democratic free trading nations, ones that share our monarchy, language, democracy, laws and customs, hadn’t started an EU trade deal. Whilst these are now well underway in terms of negotiations, the delay was because of EU political demands – particularly interference in the field of human rights and politics; and both the Australians and New Zealanders walked away on principle and stayed using WTO rules only.
There is lesson to the EU there with the UK trade deal. Now, I would be the first to admit trade deals aren’t always seemingly huge, but the benefits are actually very significant. Free Trade Agreements (FTAs) may be icing on our economic cake, but that is in normal times some huge cake. The UK economy has been on a par with India – with its 1.2 billion population – until the last year and 20 per cent bigger than the huge land mass of Russia. So, a 1 per cent or 0.5 per cent addition to that collective GDP is meaningful, and of course expands the size of that cake.
Nor, by the way, is international trade the main part of our economy. Nearly three quarters of our GDP is domestic, that is to say trading taking place within the United Kingdom. So, any increase in exports is on the basis of the quarter or more of our economy accounting for international trade. What then do these in progress Free Trade Agreements mean to us in the UK?
The value of a US trade deal to us is £15 billion in the long run on the £220.9 billion now. Assuming substantial tariff liberalisation and between 25 per cent and 50 per cent cut in non-tariff barriers equates – the Government estimates – to a rise of between 4.3 per cent and 7.7 per cent in exports to the US and a value increase of between £1.6bn (0.07 per cent of GDP) and £3.4bn (0.16 per cent).
There are significant US tariffs on British products now worth £451 million, with 30 per cent tariffs on cosmetics and textiles. The UK can escape too the penalising mini trade war between the US and EU over Airbus/Boeing subsidies, with heavy tariffs on Scotch whisky at 25 per cent, and on Pringle sweaters and UK steel. The Japan trade deal, which extends and enhances the now signed EU FTA, should add, assuming similar substantial tariff liberalisation and a deep reduction in remaining non-tariff measures and regulatory restrictions, a rise in exports to Japan of 21.3 per cent worth at £1.5bn. The value of an Australian trade deal to the UK with the same criteria broadly is a rise in exports worth £900m in the long term, an increase in exports of between 3.6 per cent and 7.3 per cent and a value increase of between £200m and £500m.
We already have UK businesses trading £18.1billion worth of goods and services with Australia last year. The UK was the second largest direct investor in Australia and Australia the second largest investor in the UK. The value of a New Zealand trade deal to the UK similarly is a rise in exports worth £100m in the long run and with an increase of between 3.8 per cent and 7.3 per cent.
These figures do not cover all the benefits delivered. Free trade deals also assist our main services economy – nearly 80 per cent of our economic activity – by eliminating non-tariff barriers such as the need for licences. They bring cheaper imports too, which can help consumers with lower food, drink and product prices (12 per cent tariffs on US jeans for example, and the EU’s 12 per cent protectionist tariff on New Zealand and other fine Australian wines, could all be swept away.). They can reduce the cost of parts in the supply chains of our manufacturing industry and make our products more competitive, assist SMEs to become exporters in new world markets (and they have a dedicated chapter in these deals), boost investment through even closer relations, open up digital sales potential, and boost real wages through higher quality jobs (worth £1.8bn in the US trade deal alone).
The benefits are also well spread around the nations and regions of the UK. Scotland, Wales and Northern Ireland are all healthy exporters, as are regions, such as the Midlands with 20 per cent of US trade now with cars being a major UK export.
On the US trade deal side, when I visited Washington on trade over a year back, I had senators staring blankly at mentions of chlorinated chicken – many knew very little about it: it is after all peracetic acid not chlorine, and only for a minority of chickens. They do not have a globalist plot to turn us all yellow or to drug us on hormones in beef – they are far more interested in British Artificial Intelligence technology, robotic engineering, data and software development, financial services. Nor is the NHS “on the table” in any of these negotiations – it is specifically excluded, as is drug pricing.
As the UK rolls out Global Britain, with Liz Truss today in the House of Commons proclaiming that “Britain is back”, opposition spokesperson Emily Thornberry tried to throw cold water by reducing the benefits of joining CPTPP to Malaysia and Brunei alone, and referring only to the ongoing UK/EU trade talks through David Frost in Number 10.
But these trade deals with our other non-EU allies are not facing the politically inspired obstacles our EU deal is facing. The comparison on all four is one between an independent sovereign nation doing a trade deal along normal world trade lines and that of disengagement from a political superstate that wants to keep the hold over us, and to seek to control and even sabotage our ability to operate freely, in order to stop the a post-Brexit UK being “supercompetitive” with the EU.
There is a commonality between them. Take the so-called “sticking points” over the UK/EU trade talks and compare them to these four other negotiation processes. While the EU insists on a so-called “Level Playing Field” with the UK, centred around having to follow EU rules, standards and even harmonised taxes with the EU, which de facto means grotesque interference in our sovereignty, there is no such sign with the UK’s other partners. They only seek reasonable measures on mutual recognition of common professional standards and technical standards.
If the UK wants to cut corporation tax to incentive business or to scrap the EU dictated tax of VAT with a different or more localised US-style tax regime, that should be our business. The UK has no interest in dictating California’s state taxes or New Zealand’s property taxes either.
On state aid rules – located under the “Competition” chapter of the proposed deals – there are no rigid demands to follow EU state aid practices. The WTO has its own state aid rules which all WTO members should follow, and these predominate.
On what is termed “Labour and the Environment” (Sustainable Development and Labour rights), the US negotiating guidelines calmly state that the US funds 22 per cent of the International Labour Organisation (ILO) and has equivalent measures where it hasn’t signed up to specific conventions so this is not a deal-breaker as it too often is with the EU.
For too long as an MEP I saw the EU put such political objectives above the core objectives of jobs and the economy. On the sticking point of fishing, this may not be relevant to these four deals in terms of direct fishing in each other’s waters, but all follow the separate United Nations process on fishing zones and rights under the UN Convention on the Law of the Sea (UNCLOS) with their maritime neighbours, as we should.
Then, on the EU disagreement over “governance”, contained under ‘Dispute Settlement’ in such deals, there is reference to negotiating an agreeable mechanism as part of trade talks based around measures in other FTAs (EU’s Canada deal Ceta has an ‘Investment Court System’, with Ceta a model for the UK-EU trade deal) or an arbitration mechanism similar to that of the World Trade Organisation (which allows “Countervailing Measures” – meaning retaliatory tariffs – under its light touch arbitration system called an ‘Appellate Body’, which is not a court with judges). There is no place for the ECJ in such deliberations.
In our negotiations, it is well worth both the EU and UK referring to these WTO based agreements for comparison and inspiration, and to avoid unnecessary and time-wasting ideological diversions.
Overall, Britain is in a great place for doing a host of valuable and important trade deals around the world, and today’s announcement is a huge stride forward.