15 July 2019
Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are Fellows of the UK Trade Policy Observatory.
A favourite band (of at least one of the authors of this blog) from the 1980s was the Cocteau Twins (See, or rather listen to…Sugar Hiccup) – well-known for the dreamy unintelligibility of their lyrics. Which of course leads to the dreamy unintelligibility of some of the promises being made around Brexit. Supporters of Brexit have argued that the UK need not be overly concerned with a ‘No deal’ Brexit. This ranges from positions that ‘No deal’ would not be “as frightening as people think” although there would be “some hiccups in the first year” (David Davies), and that although there may be “some disruption” Britain would “survive and prosper without a deal” (Jeremy Hunt), to arguments that the idea that ‘No deal’ would have a negative impact were “a fantasy of fevered minds” (Jacob Rees Mogg). (more…)
Charlotte Humma July 15th, 2019
Posted In: UK- EU
03 July 2019
L. Alan Winters CB is Professor of Economics and Director of the Observatory.
Last week I was challenged twice for using the term ‘no deal’. There is no such thing, I was told, because, even if the UK does not ratify the Withdrawal Agreement of 25th November 2018, there will still be plenty of deals. At the time I thought, for several reasons, that this was wrong in substance if not literally, but more recently I have concluded that it is also dangerous. Like we saw in the referendum campaign, it undermines informed debate by deliberately confusing the terminology.
‘The deal’ is an agreement between the EU and the UK ‘setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union’ (Article 50 – Treaty on European Union). ‘No deal’ is the absence of such a deal. For business and the economy, ‘no deal’ has come to mean the absence of a trade agreement under which the UK and the EU trade with each other on terms better than those provided for under the World Trade Organization. The former ‘no deal’ implies the latter – as I argue below – but the reverse is not true. (more…)
Charlotte Humma July 3rd, 2019
Posted In: UK- EU
1st July 2019
Dr Minako Morita-Jaeger, International Trade Policy Consultant and Fellow, UK Trade Policy Observatory at the University of Sussex.
The British and South Korean governments settled on an agreement in principle on ‘trade continuity’ on 10 June. Although there is no official information on its content or duration, Dr Liam Fox, Secretary of State International Trade, tweeted that it would be a base for an ‘ambitious future free trade agreement (FTA)’ when the UK leaves the EU. If so, what would be possible options for such an FTA? And how realistic are these ambitions? (more…)
Charlotte Humma July 1st, 2019
Posted In: UK - Non EU
26 June 2019
Erika Szyszczak is a Research Professor in Law at the University of Sussex and a Fellow of UKTPO
The Dispute Mechanism Systems (DMS) in many trade agreements have lain dormant because countries preferred to use the World Trade Organization (WTO), with its Appellate mechanisms, as the forum to resolve international disputes. This may change in the coming years as the confidence in, and reliability of the WTO, is slowly paralysed by the disruptive attitude of the United States. One question that emerges is whether the use of EU dispute resolution mechanisms offer a faster and clearer approach towards dispute resolution and might serve as a model for future regional trade treaties. (more…)
Charlotte Humma June 26th, 2019
Posted In: UK- EU
07 June 2019
Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory.
On Thursday last week (May 30) President Donald Trump threatened to levy tariffs on all US imports from Mexico. The UK should take note, as this has implications not only for Mexico, but for the UK as well. (more…)
Charlotte Humma June 7th, 2019
Posted In: UK - Non EU
15 May 2019
Chloe Anthony, Ffion Thomas and Emily Lydgate
In this blog, we take a closer look at the legislation that is being used to bring existing EU pesticide regulations into UK law in preparation for leaving the EU. We find that departures from EU pesticides legislation are significant. The new legislation consolidates powers to UK ministers to amend, revoke and make pesticide legislation and weakens both enforcement arrangements and the requirement to obtain scientific advice. (more…)
Charlotte Humma May 15th, 2019
Posted In: Uncategorised
30 April 2019
Dr Minako Morita-Jaeger is an international trade policy consultant and an Associate Fellow of the UK Trade Policy Observatory.
The UK managed to avoid crashing out of the EU on 12th April for the second time. But this delay extends uncertainty since the possibility of a No-deal Brexit on 31st October remains. The UK’s trade partners have been looking at Brexit uncertainty with great dismay. Japan is not an exception. Here, I highlight how this uncertainty is affecting Japanese businesses in Europe and analyse possible future UK-Japan trade relations based on the three scenarios currently in the UK political debate. This provides an update to the UKTPO blog on UK-Japan relations.
On-going Brexit uncertainty has been diminishing confidence in the UK. According to the JETRO’s (Japan External Trade Organization) annual business survey, Japanese businesses’ evaluation of UK’s political and social stability has been declining since the 2016 Referendum. In the latest survey, conducted in September-October 2018, although political anxiety over Brexit was not as intense as it is now, Japanese companies doing business in Europe regarded the UK as the most politically and socially unstable country in Europe together with Romania. The survey also shows that the UK’s relative market attractiveness in Europe is declining. For example, the UK’s expected change in business profits in comparison with the previous year ranked the 2nd lowest among European countries both in 2018 and in 2019. About 70% of Japanese businesses were concerned about economic stagnation in the UK, and 60% were worried about the UK’s post-Brexit policy and regulatory changes, namely tariff rates and regulatory consistency with the EU.
Since the 1980s, the UK has been enjoying its role as a gateway to the EU for Japanese businesses. The UK has established its position as Japan’s second to top FDI destination ($153.6 billion of FDI stock, 2017), after the US ($491.3 billion of FDI stock, 2017). Unfortunately, the continuing uncertainty over Brexit is already driving Japanese business to reconsider or restructure their business model in Europe although the degree of impact differs across business sectors and individual companies. To date, some Japanese financial services companies have already moved their EU headquarters from the UK to Germany, Netherland and Luxemburg in order to acquire financial services passport. According to the JETRO business survey, some Japanese manufacturing companies have decided, or are considering, to move their headquarters from the UK or to redesign sales and production functions.
It is generally understood that the role of an FDI host country is to provide political and institutional certainty and predictability. The Brexit saga is doing the opposite, magnifying risks and imposing unreasonable costs on its foreign investors.
In August 2017, Japan and the UK agreed to quickly create a new bilateral economic partnership based on the EU-Japan Economic Partnership Agreement (not a roll-over) when the UK leaves the EU. Since then, Japan has been preparing for the process on the assumption that a withdrawal agreement would provide a legally-binding plan of the future EU-UK trade relationship. Thus, it was a big surprise for Japan when the UK Government suddenly asked Japan to switch to a ‘No deal’ basis for the UK-Japan agreement (a ‘roll-over’) towards the end of March 2019.
Currently, two problems hinder the enactment of a future UK-Japan trade partnership. First, the Political Declaration on the future relationship between the UK and the EU is ambiguous and not legally binding. Second, the UK itself has not yet formed domestic consensus on what it wants in terms of its future relationship with the EU.
The future UK-Japan trade deal entirely depends on the result of the EU-UK future trade relationship. For example, the three likely scenarios in the UK political debate: (1) the Government’s facilitated customs arrangements in the Political Declaration; (2) a permanent customs union with the EU; and (3) Common Market 2.0 would result in a completely different type of UK-Japan trade deal. (Gasiorek and Winters explained the economics of the three options in the UKTPO blog of 3rd April).
In assessing the options, the Japanese Government would start from its request in September 2016 to maintain the status quo between the EU and the UK. These include: (i) maintaining the current tariff rates and customs clearance procedures; (ii) free movement of capital and unrestricted investment; (iii) continuous access to labour with the necessary skills from across the EU; and (iv) harmonised regulations and standards.
The facilitated customs arrangements option excludes the single market. In this case, Japanese businesses’ requests on the free movement of services, capital and people are completely neglected. Because the UK Government retains its red line of independent trade policy, this gives way for the future UK-Japan trade deal. However, the inclusion of terms such as ‘ambitious free trade agreement between the EU and the UK’ and ‘ambitious customs arrangements’ in the Political Declaration are far too ambiguous to form the basis of a Free Trade Agreement (FTA) with a third country. For example, it is not clear at all to what extent ‘free movement of goods’ with the EU would be maintained in terms of customs duties and procedures, or what kind of rules of origin would govern EU-UK trade. As for non-tariff barriers, Japan has no clue as to what extent the UK will disentangle itself from the EU regulatory framework.
From a manufacturer’s perspective, a permanent customs union with the EU would be a slightly better option than the ‘facilitated customs arrangements’. It enables the status quo of current tariff rates against non-EU countries and duty-free trade between the UK and the EU. However, Japanese businesses’ concerns on non-tariff issues, such as unified regulations and standards on goods, are completely neglected. Also, neither a single market for services nor labour mobility within the EU are included in this scenario. While the new agreement may require rolling over the tariff schedule and rules of origin part of the EU-Japan Economic Partnership Agreement, other parts of the Agreement, such as services, intellectual property rights, TBT/SPS related regulations, and data transfer, would all have to be negotiated between the UK and Japan. Like scenario 1, a degree of the UK’s regulatory alignment with the EU will determine the extent of non-tariff barriers.
This option would mean that the UK would re-join the European Free Trade Association, being a part of the EU Single Market. The two major advantages for Japanese businesses are (i) free movement of labour and (ii) unified regulations and standards between the EU and the UK. A downside is that the UK would have independent tariffs and rules of origin, which would surely affect Japanese manufactures’ regional supply chains in Europe. In contrast to scenario 2, under this option, there would be a need for a UK-Japan trade deal on goods. Among Japan’s 18 bilateral and plurilateral FTAs, there is no goods-only FTA. The Japan-US Trade Agreement on Goods (TAG), the negotiation of which starts this month, may become the first case, but this would be a special case to avoid a trade war with the US. It cannot serve as a precedent for the UK-Japan future trade deal.
Last but at least, it should be noted that while Brexit uncertainty is diminishing the UK’s relative market attractiveness in Europe and is preventing the negotiation of future UK-Japan trade relations, the EU-Japan EPA, which entered into force this February, is providing new business opportunities in the EU 27. For the UK Government, rebuilding the confidence of Japanese investors and increasing its market attractiveness relative to Europe would be the key economic issues when it comes to the trade deal with Japan.
 UK’s expected business profits in 2019 in comparison with the previous year: While 33.7% answered ‘better’, 66.3% answered ‘the same’ or ‘worse’. For comparison, Italy ranked the top 2nd, 70% answered ‘better’ and 30% answered ‘the same’. JETRO business surveys, December 2018 (above).
 JETRO Japan’s outward FDI statistics.
 Japanese business analysts debate about Brexit and the Japanese business model. For example, see ”Nihonkigyou ga eikokutettai wo kentousubeki riyuu”, in Japanese (“The reasons why Japanese companies have to consider disinvesting from the UK”), January 2019.
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.
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Charlotte Humma April 30th, 2019
Posted In: UK - Non EU
11 April 2019
Erika Szyszczak is Professor of Law at the University of Sussex and a fellow of UKTPO.
Tempting as it is to work through the lyrics of the Paul Simon song,* the latest round of Brexit talks between the UK and the EU are already translating into the movie: The Long Goodbye.
By a Decision adopted on 11 April 2019, the European Council – under the patient and saintly leadership of Donald Tusk – agreed to grant the UK a second extension to Article 50 TEU either until 31 October 2019, or, an earlier date (if the Withdrawal Agreement is ratified) or until 31 May 2019 if the UK fails to hold elections to the European Parliament. The UK has in fact put in place an Order to facilitate the organisation of the elections to the European Parliament. (more…)
Charlotte Humma April 12th, 2019
Posted In: UK- EU
1 April 2019
Dr Ingo Borchert is Senior Lecturer in Economics and Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are fellows of the UK Trade Policy Observatory.
During the first round of the indicative voting process at Parliament, the motion that proposes a permanent customs union attracted the second highest number of Ayes and was rejected by the slimmest margin of all eight motions. This result shows the prevailing preoccupation with trade in merchandise goods. Amongst other things, a customs union alone does nothing for services trade. In this blog, we set out why the continued neglect of services trade is a major concern for the UK economy. A twin-jet aircraft with just one engine on would ordinarily be bound for an emergency landing rather than for a smooth journey ahead. (more…)
Charlotte Humma April 1st, 2019