We need an ambitious vision for UK trade policy if we are to forge a truly Global Britain

We need an ambitious vision for UK trade policy if we are to forge a truly Global Britain

We have now seen the beginning of the end of the “phoney war” stage of the Brexit negotiations with the European Union. We have had sight of the EU’s initial negotiating directives and the papers have been full of speculative briefing and spin about the details of the Prime Minister’s dinner with Jean-Claude Juncker and an ever-increasing so-called “Brexit bill”.

A lot of this is just noise and initial posturing. We will have to wait until new governments are in place in the UK, France and Germany before we can really judge how well (or badly) these talks are going.

However, it is important to remember that the UK-EU negotiations are not the only, and not necessarily the most important, factor that will determine whether Brexit is a success.  Whatever government is formed after 8th June will need to have an effective plan for Brexit that extends beyond merely replacing EU membership with a new trade deal with Brussels.

As a member of the EU, the UK’s trade and commercial policy has been contracted out to Brussels for over four decades. The UK now has the opportunity and the challenge of forging a new global role for itself. Leaving the EU will give the UK greater trade policy freedom but EU membership alone cannot explain why, since 1970, in constant terms, exports as a share of GDP have doubled in the UK, but trebled in France and the United States, and grown four-fold in Germany. Brexit must spur the UK to improve the overall performance of its export game.

The task of a truly “Global Britain” will be to deepen our relationships with countries beyond the EU, defining a new trade policy as part of a wider reset of foreign policy.

Just as important as negotiating formal trade agreements will be ensuring the UK effectively exploits its extensive soft power assets – the English language, the common law system, the status of the UK judiciary and legal system, the UK’s security, development and defence reach, our world-class universities, our innovation and science. This means drawing on the UK’s deep and historic connections, the UK’s many diaspora communities, and ensuring that the UK remains open to business travellers and to international students.

But where should the UK’s focus be? Some have suggested that we should look to the major US or Japanese markets. Others argue that emerging economies in Latin America or South East Asia – perhaps Brazil, Indonesia or Vietnam – are the answer. Or that we must concentrate on what some have (rather offensively) termed Empire 2.0.

In order to help establish the UK’s priorities, and because these priorities should reflect the world of the future, Open Europe’s new report, Global Britain: Priorities for trade beyond the EU, models how the pattern of UK trade is likely to look in 2030.

We draw on a gravity model, which predicts how much trade the UK ‘ought’ to be doing with other countries based on various factors, including their economic geography, and compares this against the UK’s actual performance. The model observes the fact that countries trade more with bigger countries that are closer to them but other factors, such as diplomatic representation and soft power connections, are also considered.

There are some surprising findings. By 2030, UK goods exports would, we predict, under-perform with India, Canada, and Israel by nearly £10 billion a year. When services are specifically considered, China joins those three countries and together the four have significant untapped potential of over £17 billion of services trade. Other under-performing markets include Nigeria, Bangladesh and Pakistan. When goods and services markets are combined, the top ten under-performing markets represent untapped UK export potential of just over £41 billion in 2030.

The UK also needs to maintain and build on markets where it over-performs (the US and Japan, according to our model) so that it can safeguard, and potentially further boost, its market share in those countries. The US and Japan are both major economies with which the EU does not currently have a free trade agreement. Both represent tough negotiating targets, but bilateral deals could further improve trade with the UK.

Outside the EU, the UK should focus on its comparative advantages in services. While growth in global goods trade is slowing, service trade is expanding and demand is likely to increase in the world’s fastest growing economies. With some exceptions, services trade has been poorly supported by the EU, not least because of the limitations of the Single Market, and because of linguistic and legal differences. So, while the UK should seek to ‘grandfather’ existing EU FTAs as it leaves (with Switzerland and South Korea the most important), many of these deals neglected UK interests in services and there will be potential for deeper bilateral agreements after Brexit.

The ups and downs of talks with Brussels are likely to dominate the news agenda for the weeks and months to come, but it is vital that we do not lose sight of the need to develop an ambitious vision for Britain beyond simply its new relationship with the EU.

Photocredit: Tristan Taussac