22 December 2022

ECIPE's Henig: 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...

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