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EU TCA and Global Britain

  1. EU deal ratification and reactions 

The European Parliament ratified the Trade and Co-operation Agreement between the UK and the EU in the last week of April and the TCA entered into force on May 1st.  The various committees and the partnership council provided for in the TCA will now work to address issues arising from its operation. (*For full list of bodies in appendix.) 

The vote for ratification was overwhelming, by 660 votes to 5 with 32 abstaining.  But mistrust of the UK was the key theme of the debate before the vote, as it seems to be generally in Brussels.  Trust is seen by many commentators as important for the success of the TCA.   

Ratification was viewed differently in Brussels from London.  PM Boris Johnson said the TCA provided "stability to our new relationship with the EU as vital trading partners, close allies and sovereign equal” and was the "final step in a long journey”. (Report, BBC). 

This contrasted with comments from Brussels.  The rapporteur for the committee on foreign affairs, MEP Andreas Schneider said in the Parliament’s press statement:  “Most importantly, today is a beginning, not the end.”  The rapporteur for the committee on international trade, MEP Christophe Hansen says: “Ratification of the agreement is… an EU insurance policy against further unilateral deviations from what was jointly agreed.” 

Much the same point was made by EU chief negotiator Michel Barnier in a lengthy memoir, published at the same time:  “Objective and precise” implementation of the Brexit agreements is as important as the negotiations that preceded them, he writes. “Brexit is a failure for the European Union – a mess for the United Kingdom and for us,” he says (report, FT). 

An early and difficult test for both sides will be the Northern Ireland Protocol, which Lord Frost has just described as unsustainable in its current form. 

Barnier’s main message is that Brexit is a warning that the EU is out of touch, has stifled local initiatives and inflamed national resentments.  “It is very late, but not too late” for the EU to learn the lesson, he says.   

Barnier’s memoire describes Brexit as “tragicomedy”.  At one point he writes: “I can’t work out what’s stopped the UK up to now from being ‘Global Britain’ except its own lack of competitiveness.” 

Barnier was both charmed and repelled by Boris Johnson’s “baroque personality” and was angered and astonished by UK negotiating tactics; and he accuses Johnson of being unaware of the UK’s negotiating position in early December 2020, when tensions were at their height.  Johnson proposed a pact on defence and security to take the sting out of a “No Deal” and was clearly unaware that he had refused to open a chapter in the TCA on that subject.  (Report, The Times.) 

He makes clear that there was no love lost between him and Frost.  Meeting on Christmas Eve 2020, he says: “This is the last time that I shall see David Frost, and the last exchange is professional and cold.  He knows that I know that right up to the last moment he wanted to bypass me.”  (Report, FT.) 

His memoire is called “la Grande Illusion”, said to be a reference to a book of the same name arguing that industrial integration meant a European war was now improbable and futile, and published in 1909.] 

        2. Global Britain, the EU and Indo-Pacific 

“Global Britain” is the term the government uses to symbolise the country’s newly-independent trading aspirations.  It is “reinvesting in our relationships, championing the rules-based international order and demonstrating that the UK is open, outward-looking and confident on the world stage”; and championing free trade: https://www.gov.uk/government/collections/global-britain-delivering-on-our-international-ambition 

Ministers have made clear that the EU is not the focus for Global Britain.  This was expressed vividly by foreign secretary Dominic Raab in February, when he told Andrew Marr that the UK should “bank the baseline of European trade” as it looks for growth in the Indo-Pacific region.  While not ignoring Europe, UK-friendly trade deals with Indo-Pacific and other countries “is the long term, sustainable approach”, he said.  Regarding the difficulties in trading with the EU thrown up by the TCA, he urged business to take a 10-year view. 

“Indo-Pacific” is a term little-used by ministers until recently, but one we will hear more of.   “The Indo-Pacific feels closer to Europe than Asia-Pacific or the Far East ever did,” notes Bill Hayton of the think tank, Chatham House.   

Hayton argues that the UK’s expected departure from the EU single market means it has little choice but to diversify its trading partners but that this was already happening, before Brexit.  The EU’s  share of UK trade fell from around 55 to 45 percent over two decades.  China and Brexit Drive the UK's ‘Tilt’ to Indo-Pacific | Chatham House – International Affairs Think Tank 

In manufacturing, the proportion of UK SMEs sending at least half of their exports to the EU has declined and stands at around one quarter (SME Finance Monitor). 

DIT trade development policy has focused on Indo-Pacific, where the UK has:  

  • applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which includes Japan, Canada, Australia, New Zealand and Singapore, where it hopes to help lead in digital trade and standards; and  

  • asked to become an official dialogue partner of the 10-country Association of Southeast Asian Nations (ASEAN). 

Sustainability is also a key focus for the Johnson government, and the UK intends to join the Agreement on Climate Change, Trade and Sustainability  (ACCTS), an initiative of five small states: New Zealand, Switzerland, Norway, Iceland and Costa Rica. 

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - House of Commons Library (parliament.uk) 

Agreement on Climate Change, Trade and Sustainability (ACCTS) negotiations | New Zealand Ministry of Foreign Affairs and Trade (mfat.govt.nz) 

The most visible aspect of the new emphasis on Indo-Pacific is the enthusiasm for a comprehensive partnership with India. Johnson twice planned to visit the country this year, only to have to cancel at the last moment due to the pandemic. The urgency may be explained by what trade expert, Professor Sangeeta Khorana of Bournemouth Business School calls first mover advantage over the EU.   

In the event, a virtual conference was held and a joint statement issued on May 4th, launching an Enhanced Trade Partnership (ETP) and ambitious plans for the future.  It is predicted to unlock new opportunities in advanced engineering, as well as food and drink, business services, education, energy, life sciences and healthcare.  There is an emphasis on a UK-India security partnership and deepening co-operation in military technologies: https://www.gov.uk/government/publications/india-uk-virtual-summit-may-2021-roadmap-2030-for-a-comprehensive-strategic-partnership 

Also announced was a strengthening of “migration and mobility” – India has been seeking increased visa rights for students and skilled workers since at least 2013, when David Cameron visited the country: https://www.gov.uk/government/publications/migration-and-mobility-partnership/mou-on-migration-and-mobility-partnership-between-india-and-the-united-kingdom 

Just four days later, the EU and India held a virtual/hybrid trade event in Porto and issued a joint statement:  https://www.consilium.europa.eu/media/49523/eu-india-leaders-meeting-joint-statement-080521.pdf  

For the UK at least, the Indo-Pacific initiatives may be as much about geo-politics as trade.  Commentators have argued that the UK’s Enhanced Trade Partnership (ETP) with India would help Britain face up to the threat of China and should be seen as part of a broader strategy to focus on the Indo-Pacific region as the future of Britain’s trade.  Integral to this shift is Britain’s changing attitude towards China.  

“Post-Brexit, the Indo-Pacific Strategy has gained prominence, and the landmark [UK] Integrated Review of Security, Defence, Development and Foreign Policy reiterated the need for this to encourage global stability in a region undergoing enormous change. This means the UK must continually turn its attention to the most important powers in the area – India, Japan and Australia.”  Even as India grapples with a growing crisis, strong trade ties with the UK are still at the top of the agenda - CityAM : CityAM  

UK-India trade deal: why the timing is crucial for both nations (theconversation.com) 

In the Queen’s Speech on May 11th, the government said:  “My Ministers will deepen trade ties in the Gulf, Africa and the Indo-Pacific.”  While a trade deal with the US has been a priority for the DIT, there has been less apparent enthusiasm from the US side and problems to do standards and with access to markets across the federated US have proved challenging.  Enthusiasm for a trade deal has been muted in many sectors – not least the machinery and component supply chain.    

Critics’ response to the government’s trade efforts so far has been mixed.  The government has been praised for the vigour of its efforts to use its new trading independence and progress made so far and some see some coherence in policy actions, even if a formal strategy is not formally stated.  Others are more cautious.  Lord Lansley, the Conservative Peer and vice-chair of the All-Party Parliamentary Group for Trade & Export Promotion, said last month: “There is an immediate need for clarity in the UK’s approach with international partners.”   

Chris Southworth, secretary general of the International Chamber of Commerce in the UK said:  “The UK desperately needs a comprehensive strategy on trade… The trade deals negotiated so far were the easy bit – simply rolling over what was already there. Now comes the real challenge and we’re not ready.  Identifying where investment is needed most and how export capabilities will be built and expanded across the UK’s nations and regions.” 

Report:  https://www.appgtrade.uk/sites/www.appgtrade.uk/files/2021-04/Trade%20Strategy%20%28APPG%20Report%202021%29.pdf 

Within government, there are encouraging signs that DIT is taking a closer interest in EU trade issues and appears increasingly to acknowledge their importance.   Since the 2016 referendum, it has dealt with “the rest of the world”, while the Cabinet Office (and previously the Department for Exiting the EU) dealt with Brussels.   

EAMA was given this official line from government at time of writing:  “DIT works with and supports exporters regardless of destination market (although of course we work with sectors to prioritise campaign activity with key markets).  Lord Frost is still responsible for implementing the Trade Cooperation Agreement (TCA,) with the EU and DIT – along with other key departments such as HMRC, DEFRA and BEIS, is working closely with Cabinet Office to help business navigate the new trading relationship.”   

Meanwhile, the UK has backed down from its determined refusal to grant the EU’s ambassador to London full diplomatic status, which was seen as corrosive.  That status is granted around the world, including in Washington and Beijing, but the UK’s position was that the EU was an international organisation, not a state.  In retaliation, the EU blocked the UK’s head of mission in Brussels from important meeting with officials. 

In early May 2021, foreign secretary Dominic Raab relented.  A statement was issued jointly, saying that full status was agreed for the EU ambassador based on “goodwill and pragmatism”:  https://eeas.europa.eu/headquarters/headquarters-homepage/97837/united-kingdom-high-representativevice-president-josep-borrell-and-foreign-secretary-dominic_en 

The EU is not the only other party in terms of EU talks, however.  Since 2016, the UK has seen two sides to Europe – the EU and the individual member states, with which it has tried to deal individually, much to the EU’s annoyance.  The UK’s engagement with member states on “EU issues” appears to have met with little obvious success but seem likely to remain and important for the future.   

        3. Impact of EU TCA on UK investment 

The business case for investment in the UK has been changed, for many companies, by the UK leaving the EU Single Market and Customs Union.   

It seems undisputed that the new trading arrangements with the EU have undermined the business case for the UK as a manufacturing and distribution hub for Europe, and the “UK & Ireland” business model.  EAMA has made that point to government (as have others) and said that the extent to which that is the case in our sector, and consequent the supply chain impact, is as yet unclear.  This impact needs in any case to be mitigated as much as possible, EAMA has said. 

At the same time, we have heard anecdotes of “Brexit bonus” manufacturing investments being planned, mostly notably in the food sector, where the UK is regarded as a sufficiently large market to justify having its own factory.  And the clarity of the TCA seems to have seen projects that were on hold now going ahead. 

The government has increased efforts to attract foreign direct investment (FDI), with Downing Street taking a lead role in the new Office for Investment.  Inward investors are considered to be strong contributors to jobs, exports and research and development.   

We have been asked for information in this area. We would welcome feedback on the following points, which will be anonymised and shared with government: 

EU deal ratification and reactions 

  1. Global Britain, the EU and Indo-Pacific 

  • applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which includes Japan, Canada, Australia, New Zealand and Singapore, where it hopes to help lead in digital trade and standards; and  

  • asked to become an official dialogue partner of the 10-country Association of Southeast Asian Nations (ASEAN). 

  1. Impact of EU TCA on UK investment 

  • Examples and data on changing patterns of trade between the UK and EU, positive or negative; 

  • Supply chain adjustments – growth and contractions; 

  • Firms choosing not to trade with the EU – or doing more.