Dr. Rebecca Harding
CEO Coriolis Technologies
The UK’s new prime minister, Boris Johnson, is not known for his attention to detail. His approach to Brexit is couched in terms of `taking back control’, which is great for grabbing attention but not for the reality that he will face as soon as he walks through the door of Number 10.
Unfortunately for Boris – and indeed the UK – trade policy, and more importantly trade politics, are at the best of times intricate and at the worst of times technical and dull. “HS code tariff exemptions”, “rules of origin” regulations, and “investor-state dispute settlement” frameworks are hardly the things that headlines are made out of. Yet failure to manage these very issues will jeopardise the chances of the UK ever reaching those sunlit uplands of the post-Brexit utopia.
The Johnson administration has two key trade problems that are existential for the UK. They are central to how our trade will function, whether it is part of a framework of future trade deals with a closer relationship with Europe, or whether it is on WTO terms with no pre-existing framework. They are about our relationship with our allies (Europe or the US) on the one hand, and on the other about the role that trade has started to play in national security strategies.
The first is of course centred around the technicalities of the UK’s post-Brexit relationship with the EU. This is fundamentally about the costs and frameworks for trade and they are horribly complicated. For example, the US imposed tariffs on iron and steel in 2018. But not all iron and steel was affected – some products were exempted because of their strategic importance to the US. This consequently created a rush within supply chains by global manufacturers to reclassify products so that they fell outside of the new tariffs. Many of these are still under dispute and suddenly sector codes (called HS codes for anyone who is interested) become incredibly important.
Similarly, rules of origin surround European-based supply chains and how they qualify as “European” within trade deals that the EU has struck with Japan. If the UK is not in the EU, then any UK-produced components of a supply chain do not then fall within that trade agreement. Given that the top of the supply chain is not likely to be a UK business – and even if it were it is probably now headquartered in Romania, Japan or Singapore anyway the costs of trading with the UK will increase as a result. The consequence? A long-term shift of supply chains towards Europe.
As to investor-state dispute settlements (ISDS), this is the ‘level playing field’ for companies investing in UK services (such as the NHS) to ensure that procurement is fair to outside competition. If it is not fair, then companies from abroad have the technical right to sue the UK government under the ISDS (and by the way, don’t google ISDS – the second definition of it is the International Sheep Dog Society).
Which leads to the second problem that Johnson’s team will face. Trade is hard-wired into the national security strategies of China and the US, and even German Chancellor Angela Merkel acknowledged at the Munich Security Conference that the world was in a “strategic competition”, which was as much economic as it was military. The United Kingdom is a small player in a world where size matters and economic, financial and technological power is as important as military prowess.
This is a very different world to the one we lived in when the UK voted for Brexit. Trade is being used as a weapon in a bigger strategic battle for dominance between the big powers – Russia, China and the US. The EU, because it is strong in trade, is a key player as well in setting technology standards and providing a first line of defence in the form of data protection, frameworks for security and intelligence information sharing and R&D that drives leading-edge protection against cyber threats.
Trade, especially as it moves into the digital space, is the channel through which many of these threats are distributed. Trade is foreign policy, it always has been; but now it is more important than ever to see it as a source of influence and strategic advantage.
The UK’s trade position has weakened. Ten years ago, the UK accounted for just under 5% of world trade. Today, that figure is just under 2.5%. This is not sufficient trade power to give us any leverage over deals either with Europe or with the US. We already make our 2% of GDP contribution to NATO so we have no leverage there when it comes to negotiations with the US, but we are not part of the emerging European security frameworks either.
In short, the challenge for the government now is to take a strategic view of trade within a framework of foreign relations – before it is too late. The key questions are obvious: who do we align with – the US or Europe? Is this a real choice that we have to make or can we do both? How does trade fit strategically within the UK’s post Brexit foreign policy? Does the UK have a foreign policy to speak of any more?
It is doubtful that Johnson’s government will take this strategic overview or, indeed, whether the complexities of trade and its existential importance to the UK are even understood. But trade is our history, our security and the source of our economic success. It is fragile, and now within a hostile global environment that is highly competitive and weaponised. It’s time to get serious.
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