WTO: Challenges and Opportunities

This House of Commons Library research briefing by Ana Soares discusses the WTO’s role in a context of geopolitical tensions and global economic shifts. It also looks at efforts to overcome current challenges.

The World Trade Organization (WTO) is a multilateral organisation where countries meet to agree on trade rules, review trade policies, and settle trade disputes. The WTO is the main institution regulating international trade with the aim of certainty and stability in trade relations and the promotion of its members economic growth and development.

In February 2024, ministers representing all WTO members will come together at the 13th WTO Ministerial Conference  in Abu Dhabi to take stock of recent negotiations and discussions. Ministers will make decisions that may create new rules and steer WTO activities. The agenda includes WTO reform, fisheries subsidies, and agriculture.

Illustrating the legacy of Brexit, this timely Research Handbook provides a comprehensive and coherent analysis of not only the Brexit process within the UK but also what it means for both the UK and the EU within the framework of their future relationship. Bringing together contributions from leading scholars in the field, this Research Handbook considers the ways in which the legal, economic and political uncertainty brought about by Brexit through the upheaval of established norms and values will continue to reverberate for the remainder of the 2020s and beyond. The UKTPO contributes to the handbook with a chapter on ‘Not so frictionless after all: trade in goods and services in the EU-UK Trade and Cooperation Agreement’. Authors include Yohannes Ayele, Ingo Borchert, Michael Gasiorek, Peter Holmes, Anna Jerzewska, Minako Morita-Jaeger and Suzannah Walmsley.

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In this Special Report, Sam Lowe and George Riddell identify the trade tools the UK government could use to support its green ambitions in its independent trade policy. The report focuses of four key areas; international trade negotiations and cooperation; unilateral actions; decarbonising and greening international trade and supply chains; and Government incentives to support a green trade strategy. The authors set out a toolbox of the trade and regulatory policy areas that the UK should be engaging with and utilising in the development of its green trade strategy. However, they also argue that the UK cannot achieve its stated aim to be a global leader on green trade without cooperation of the entire UK Government as well as trading partners, international organisations, businesses, consumer groups and civil society. 

This eBook, edited and introduced by Ingo Borchert and L. Alan Winters, assesses the growing challenges of digitisation and discusses trade policy options to tackle them. It brings together key insights from experts around the world on new directions for digital trade policy, including concrete steps to recognise and evaluate barriers to digital trade, as well as strategic guidance on instruments and approaches to tackle current and future impediments.

The eBook presents the proceedings of a conference organised the UK Department for Digital, Culture, Media and Sport and the UK Trade Policy Observatory, and hosted by CEPR, which contribute towards a clearer overview of the challenges and opportunities facing digital trade policy-making in the future.

Read the eBook | Read the VoxEU Column | Listen to the VoxTalk

This paper looks at what the UK’s approach to tariffs will mean for developing countries’ access to the UK market, and whether the government will achieve its pledge to improve access post-Brexit. It includes a rapid assessment of the structure and the functioning of the future UK Generalized System of Preferences (GSP), in so far as it has currently been announced, and considers, in particular, how the newly announced UK Global Tariff will impinge on developing countries. In addition, it evaluates the loss in market access for Ghana and Kenya if they and the UK fail to rollover their existing EU Economic Partnership Agreements or Market Access Regulation provisions.

Read: Developing Country Trade Access after Brexit: The UK’s Plans for the Generalized System of Preferences

The Committee on Climate Change (CCC) commissioned the UK Trade Policy Observatory and the Centre for Inclusive Trade Policy, with help from Vital Economics, to write a report on Trade policies and emissions reduction: establishing and assessing options. The report will help the CCC develop its guidance to the UK Government on how to address the trade elements of its climate policy. It focuses on whether the UK should introduce border carbon adjustments (BCA) – which price the emissions embodied in imported products – and product standards, which require that imported products fall below specific embodied emissions thresholds. Both aim to extend domestic climate regulatory requirements to imported products. The UK currently applies neither but is considering the introduction of both, while the EU has recently decided to do so, in the form of a Carbon Border Adjustment Mechanism.

Read: Reducing UK emissions: 2020 Progress Report to Parliament

This report from PAN UK, Sustain and Dr Emily Lydgate of UKTPO compares current UK pesticide protections with that of two countries slated as major priorities for post-Brexit Free Trade Agreements – US and Australia – and a third country, India. The report focuses on how trade deals with these countries threaten to weaken UK pesticide standards. It also looks at ways in which these deals could increase pesticide-related harms to UK citizens, wildlife and the natural environment.

Read: Toxic Trade: How trade deals threaten to weaken UK pesticide standards

With the UK set to embark on a new era of global trade negotiations for the first time in living memory, this report highlights what small businesses need in order to take advantage of Free Trade Agreements (FTAs). The report was commissioned by the Federation of Small Businesses (FSB).

Based on a comprehensive review of recent major trade agreements, the report identifies best practice for provisions in FTAs that will help small businesses participate in international trade. Future FTAs should reduce or eliminate non-tariff measures that de jure or de facto impose fixed costs, such as procedures for registering intellectual property or accessing trusted trader regimes. Such requirements are more difficult to meet for smaller businesses. Future FTAs should also feature a SME Committee, including private sector representation, that has a meaningful say in all matters affecting SMEs including e-commerce and the protection of intellectual property rights. The report also discusses best practice for information exchange, e.g. a dedicated SME Helpdesk.

Read: The Representation of SME Interests in Free Trade Agreements: Recommendations for Best Practice

Commissioned by the Welsh Government, this report identifies issues that may impinge directly or indirectly on the Welsh economy as a result of the adoption of the Protocol on Ireland/Northern Ireland as part of the Withdrawal Agreement and subsequent Bill.

Read: The Protocol on Ireland/Northern Ireland: The implications for Wales’ external trade

Changing Lanes examines the impact two “no deal” Brexit scenarios – reverting to WTO ‘most-favoured nation’ (MFN) or unilaterally reducing all tariffs to zero – on prices and living standards.

The report finds that the average annual household spend would rise by £260, and that over three million families would experience price rises of over £500 a year. In addition, the research shows that poorer households would be most affected by a ‘no-deal’ scenario in which tariffs and prices rose.

See also: Changing Lanes Appendix

In this Briefing Paper, Ian Henry explains how policy has shaped the choices made by EV producers, a matter that has become particularly relevant following the increased government intervention in the industry in the US, the EU and China.

Read Briefing Paper 82 – TRADE POLICY AND THE PRODUCTION OF ELECTRIC VEHICLES

In this Briefing Paper, Michael Gasiorek, Justyna A. Robinson, Rhys Sandow assess the views expressed by those who responded to the Labour Party’s 2023 national consultation on UK trade policy.

Read Briefing Paper 81 –LABOUR’S PROGRESSIVE TRADE POLICY: CONSULTATIONS AND POLICY FORMULATION

In this Briefing Paper, Ruby Acquah, Mattia Di Ubaldo, Michael Gasiorek introduce a set of new indices that capture the regulatory obligations for products exported to the EU’s Single Market, and provide a background discussion of product regulations and directives and their impact on international trade.

Read Briefing paper 80: REGULATORY INTENSITY AND THE EU SINGLE MARKET: IMPLICATIONS FOR THE UK.

April 2024 – Author: Sunayana Sasmal

In this Briefing Paper, Sunayana Sasmal analyses the contribution of multilateral trade rules and recent strategic partnerships, and stresses the importance of moving away from recent fragmented approaches,  in favour of enhanced multilateral cooperation.

Read Briefing Paper 79: THE RELATIONSHIP BETWEEN CRITICAL RAW MATERIALS, THE WTO AND ‘STRATEGIC’ PARTNERSHIPS. 

In this Briefing Paper, Ana Peres analyses the latest WTO Ministerial Conference (MC13) outcomes and discusses why the WTO may need to rethink its identity. 

Read Briefing Paper 78: REFLECTIONS ON MC13: THE PRESENT AND FUTURE OF THE WTO. 

In this Briefing Paper, Nicolò Tamberi analyses literature on international trade and economic growth and provides a quick guide for policymakers on trade and growth. Trade policy is not the only tool, or the main one, to address economic growth. However, it clearly has a role to play both directly and indirectly, because inappropriate trade policy can render other growth-focused policies less effective.

Read Briefing Paper 77: TRADE AND GROWTH. 

In this Briefing Paper, Erika Szyszczak, UKTPO Fellow and Professor Emerita of Law at the University of Sussex, offers an in-depth analysis of the Open Strategic Autonomy (OSA) policy. The EU continues to argue for multilateralism and a rules-based international order yet the effect of many of these measures could infringe international law and weaken the already perilous international legal order

Read Briefing Paper 76: OPEN STRATEGIC AUTONOMY AS EU TRADE POLICY.

In this Briefing Paper, its authors consider the potential economic opportunities for the UK arising from the current CPTPP in comparison with the likelihood of further expansion in the future. They evaluate the UK’s economic opportunities with both current and potential CPTPP members, including trade in goods, trade in services, supply chain relationships and rules of origin. They also compare the CPTPP’s policies, with those of current and potential CPTPP members and explain why the UK Government should develop and articulate a strategic plan based on the political reality surrounding the CPTPP.

Read Briefing Paper 75: JOINING THE CPTPP: ECONOMIC OPPORTUNITIES AND POLITICAL DILEMMAS OF FUTURE EXPANSIONS FOR THE UK.

April 2023 – Authors: Mattia Di Ubaldo, Guillermo Larbalestier and Manuel Tong Koecklin

This year, the UK Government will replace its current preferential trading scheme for low and lower-middle income countries with the Developing Countries Trading Scheme (DCTS). This Briefing Paper looks at and evaluates two key changes in the DCTS: changes in the eligibility criteria for the Enhanced Preferences sub-scheme, and changes in the rules of origin to use preferences under the Comprehensive Preferences sub-scheme offered to Least Developed Countries (LDCs). Using a novel RoOs Restrictiveness Index, the authors find that the RoOs under the DCTS are, on average, less restrictive than those under the former scheme. They also conclude that most benefits are likely to be accrued by LDCs both in the short and long term due to more lenient rules of origin, extended cumulation rules, and being eligible for the Enhanced DCTS if they graduate from LDC status.

Read Briefing Paper 74: THE UK’S NEW (AND IMPROVED?) DEVELOPING COUNTRIES TRADING SCHEME

March 2023 – Authors: Sophie Clarke, Michael Gasiorek and Aldo Sandoval Hernandez 

New analysis presented in our Briefing Paper, The challenges facing UK firms: Trade and supply chains reveals that UK businesses are struggling with increased costs, labour and skill issues and supply shortages following the UK’s departure from the European Union.

The authors of the Briefing Paper analysed over 2,800 responses to three surveys issued by the British Chambers of Commerce (BCC), to help produce a long-term perspective on the challenges facing UK businesses. They examine the main challenges and opportunities reported by businesses over 2021 and 2022 and two specific trade-related areas. The first is on the difficulties and advantages for businesses arising from the EU-UK Trade and Cooperation Agreement (TCA). The second is on supply chain challenges. The results show that as a result of the TCA, UK businesses are reporting significant difficulties and disadvantages, including increased red tape, bureaucracy and costs as well as shipping and transport issues. Such increases inevitably lead to both shortages of products and rises in prices for the UK public.

Read Briefing Paper 73: THE CHALLENGES FACING UK FIRMS: TRADE AND SUPPLY CHAINS 

December 2022 – Authors: Nicolò Tamberi and Manuel Tong Koecklin

This Briefing Paper compares the preference utilisation rates (PURs) of both the UK and EU imports under the Trade and Cooperation Agreement. PURs tell us the amount of eligible imports that come in tariff-free (that is, preference eligible in a free trade agreement, the extent to which preferences are being used) and allow for the evaluation of the effectiveness of a trade agreement. We find that the utilisation of preferential tariffs differs between the EU and the UK. EU exporters are utilising preferences more than UK exporters and UK exporters tend to use preferences more where the value of trade is larger. The Paper analyses the distribution of PURs across products and composition issues to identify reasons for low utilisation rates.

Read Briefing Paper 72: PREFERENCE UTILISATION IN THE TCA: HOW ARE WE DOING?

November 2022 – Authors: Michael Gasiorek, Guillermo Larbalestier and Alasdair Smith

Policy discussions about the effects and opportunities of international trade recognise that some parts of the economy might be more sensitive than others to changes in trade and/or trade policy, but the concept of a sensitive industry has different meanings. In our Briefing Paper, Identifying sensitive and strategic sectors, we aim to provide a conceptual framework for considering the factors that could identify industries that may be sensitive or strategic from a trade perspective; to review the range of information that can identify these factors; and to illustrate the ways in which this information can be usefully applied. 

Accompanying the Briefing Paper is a spreadsheet file with the underlying indicators and some tools of analysis which we hope will be of use and interest to some readers. The spreadsheet also includes detailed information about data sources and any data adjustments made.

Read Briefing Paper 71: IDENTIFYING SENSITIVE AND STRATEGIC SECTORS

October 2022 – Author: Erika Szyszczak

In this Briefing Paper, we look at the European Commission’s recently proposed unilateral measures for European Union trade security. Taken together, the Foreign Subsidies Regulation and the Anti-Coercion Instrument are aimed at enabling the Commission to counteract the distortive impact of ‘third country’ subsidies on EU business competitiveness; as well as to investigate and retaliate against the perceived use of economic coercion by foreign governments against the EU, its Member States and firms. While such policies may be primarily targeted at China, they would de facto apply to all third countries including Russia, the US, and the UK. While both measures would give the Commission wide discretion in their application, the Anti-Coercion Instrument would specifically allow it to bypass the World Trade Organization dispute settlement process and possible wider international law commitments. We conclude that with continuing geopolitical uncertainty for the rules-based global trade environment – compounded by the Covid-19 pandemic and the Russian invasion of Ukraine – the EU treads a careful line between the development of a specialist trade policy and a piecemeal approach in respect of the overarching restraints of Member States, international law commitments and other stakeholders’ fundamental rights.

Read Briefing Paper 70: Trade and Security: The EU’s Unilateral Approach to Economic Statecraft

September 2022 – Authors: Peter Holmes, Anna Jerzewska, Guillermo Larbalestier 

In this paper we discuss how the customs and tax benefits central to the UK Freeports policy may undermine businesses’ export opportunities. Many of the UK’s Free Trade Agreements (FTAs) contain provisions explicitly denying preferential (duty-free) access to goods which contain imported materials on which UK customs duty was not paid (known as “duty drawback bans”). But, even in the absence of duty drawback bans, the preferential status of goods manufactured in Freeports is not guaranteed. There are other ways in which goods exported from Freeports might find themselves subject to penalties, such as anti-subsidy duties (whether under WTO or FTA rules), if partner countries consider that the regime in Freeports constitutes implicit subsidisation (e.g., via tax breaks). Lastly, we highlight the diverse experience of free ports and free zones around the world.

Read Briefing Paper 69: Exporting from UK Freeports: Duty Drawback, Origin and Subsidies

August 2022 – Authors: Camilla Jensen, Guillermo Larbalestier, Peter Holmes

In addition to the military support being given to Ukraine, efforts to halt any further Russian advancements continue to be focused on economic sanctions that aim to hamper Russia’s ability to finance the invasion. This Briefing Paper provides analysis of the pros, cons and effectiveness of current trade policy responses in terms of the short-term aim of cutting Russia’s oil rents and the long-term aim of creating a complete Energy Curtain between Russia and the West. We find that whilst current interventions may go some way in meeting the target of decoupling from Russian oil and gas, they may not be effective in the aim of impacting negatively on Russian revenues, and in the process serve to raise energy prices. While high prices on fossil fuels are beneficial for the green transition, this is only true when there are viable alternatives to fossil fuels available.

Read Briefing Paper 68: The Energy Curtain: All Eyes On Fossil Fuel Prices This Summer

April 2022 – Author: Michael Gasiorek

Despite the positive narrative around the growth in global supply chains, we currently see considerable discussion and growing concern over the issue of ‘supply chain resilience’. This Briefing Paper analyses the rationale behind greater supply chain resilience and sustainability and the policies being used to address vulnerability in certain supply chains. The author finds that policy responses do not always concern supply chain resilience and in many cases they may have been designed more to protect domestic producers. To negate the risk that supply chain resilience is used as a get-out clause for a wide range of industrial policy interventions. This Briefing Paper suggests a taxonomy for understanding different possible legitimate reasons for being concerned about supply chains and provides ten ways more international coordination could be achieved.

Read Briefing Paper 67: Supply Chain Resilience: The dangers of ‘pick n mix’

This Briefing Paper aims to further understanding of the importance of trade in services for the UK economy. In particular, to shed light on the relationship between services and manufacturing trade, including an increasingly significant form of services trade known as Mode 5. We explore input-output data, firm-level data and the links between services and manufacturing in the context of the UK’s independent trade policy. The authors provide evidence that shows that the nature of how these services interact with goods trade and the policy or market access barriers and their implications need to be understood in much greater detail for policy purposes.

Read Briefing Paper 66: Links between services and manufacturing trade in the UK: Mode 5 and beyond

December 2021 – Authors: Peter Holmes and Guillermo Larbalestier

In this Briefing Paper, the authors review the importance of the UK-US trade relationship and identify clear interests for closer economic cooperation. They discuss the main challenges for trade discussions and suggest that bilateral cooperation – primarily in ad hoc regulatory areas – has potential, but there is a lack of interest on the US side. Finally, they look at broader economic issues and systematic policy issues, such as climate change, and multilateral economic relations where the UK hopes to cooperate with the US.

Read Briefing Paper 65: DEEPENING AND MANAGING TRANSATLANTIC ECONOMIC RELATIONSHIPS

December 2021 – Authors: Camilla Jensen, Michael Gasiorek and Emily Lydgate

The idea of introducing a Border Carbon Adjustment has been raised by various countries and major trading partners of the UK, most notably the EU, with its Carbon Border Adjustment Mechanism. This Briefing Paper seeks to address the possible implications of a border carbon adjustment mechanism for the UK. We examine the potential impact on specific industries and consider implications of cooperation with the EU on ETS schemes and BCAs, the pros and cons to the UK of applying such a new type of policy tool and for maintaining trade, investment and job stability in the UK, and with trading partners, and the extent to which it might counter the problem of carbon leakage.

Read Briefing Paper 64: UK POLICY ON CARBON LEAKAGE

November 2021 – Authors: Yohannes Ayele, Guillermo Larbalestier and Nicolo Tamberi

Since the UK-EU Trade and Cooperation Agreement (TCA) came into force, firms trading with the EU have faced new costs as they learn to trade under new regulations and comply with customs formalities that were otherwise not present. In this Briefing Paper, we provide an analysis of UK monthly trade data to assess how UK goods trade has performed in the period January-July 2021. We also expand our analysis on preference utilization rates (PURs), which depict the extent to which UK exports to the EU have benefited from the tariff-free treatment agreed in the TCA as well as examining the impact of the TCA on trade in services in the first two quarters of 2021. Our analysis shows that the introduction of the TCA reduced trade between the UK and the EU, but this is not homogenous across sectors, although, whilst exports took a knock in January and have since recovered, the impact on imports has persisted. Furthermore, despite the zero-tariff, zero-quota trade agreement of the TCA, firms end up paying tariffs to avoid the bureaucratic costs of claiming zero tariff. The foregone duty saving amounts to £534.6 million.

Read Briefing Paper 63: POST-BREXIT: TRADE IN GOODS AND SERVICES (II)

October 2021 – Author: Anna Jerzewska

Leaving the EU has led to the creation of a new customs and regulatory border between the UK and the EU making it more difficult and more expensive to trade with the EU. However, the impact of Brexit on UK importers and exporters is not homogenous. This Briefing Paper identifies the factors and considerations that determine which companies are impacted, and thus why some might choose to cease to trade, while others experience no change in their trade with the EU. As more border formalities and checks are introduced, UK importers are yet to feel the full scale of the impact. As a result, issues are only going to become more widespread and deepen and new ways of responding and dealing with them are still to emerge.

Read Briefing Paper 62: THE IMPACT OF A NEW CUSTOMS AND REGULATORY BORDER WITH THE EU FOR UK COMPANIES TRADING GOODS

July 2021 – Author: Minako Morita-Jaeger

The UK’s accession negotiation to the Asia-Pacific Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade deal was formally launched in June.  This Briefing Paper aims to examine the implications that joining the CPTPP would have for the UK’s regulatory strategy and what kind of impact it could have for future trade negotiations. To examine these issues, we look at the digital trade provisions in recent trade agreements between the UK and the EU, Japan and Australia.

Read Briefing Paper 61: ACCESSING CPTPP WITHOUT A NATIONAL DIGITAL REGULATORY STRATEGY? HARD POLICY CHALLENGES FOR THE UK

July 2021 – Authors: Emily Lydgate and Michael Gasiorek

The influence of trade agreements in shaping UK food safety and standards has become almost existential in defining the UK’s post-EU identity. Acceding to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) is far from ideology-free: it symbolises the UK’s desire for regulatory independence from the EU and sets out a new post-Brexit direction. In this Briefing Paper, we look whether CPTPP accession seems likely to lower UK food standards and prevent the UK from agreeing to continued regulatory alignment with the EU. The answer is, not necessarily, if the UK Government communicates clearly and explicitly to CPTPP parties its intent to maintain its current regulatory approach, preferably through the use of so-called side letters.

Read Briefing Paper 60: CPTPP AND AGRI-FOOD REGULATION: CROSSING THE EU-EXIT RUBICON?

June 2021 – Authors: Ingo Borchert, Michael Gasiorek, Emily Lydgate, L. Alan Winters

International trade in a digital world is increasingly influenced by domestic regulation and is linked to non-trade areas such as health or climate change.  This makes it difficult for the WTO’s consensus- and trade-focused structure to make swift progress.  This Briefing Paper looks at how the G7 leadership across all four Trade Tracks could provide the necessary impetus for multilateral or open plurilateral solutions, in order to avert further fragmentation of the trading system.

Read Briefing Paper 59: G7 LEADERS SHOULD DISCUSS INTERNATIONAL TRADE (SERIOUSLY)

June 2021 – Author: Dr Totis Kotsonis, Pinsent Masons LLP

The Trade and Cooperation Agreement sets a new precedent for bilateral trade agreements by incorporating a set of so-called “level playing field” commitments that seek to maintain the Parties’ regulatory convergence in certain policy areas but without prohibiting their respective sovereign right to choose future regulatory divergence.  Instead, continued convergence is encouraged by the inclusion of robust dispute resolution mechanisms, which provide for the possibility of either Party taking unilateral trade defence measures in certain circumstances.  This Briefing Paper, by Dr Totis Kotsonis of Pinsent Masons LLP, looks at subsidy control, which forms a key part of the level playing field commitments in detail, describing the dispute resolution mechanisms that are available and analysing the effectiveness of the unilateral trade defence measures for which the TCA provides in this context.  For reasons which are discussed in the paper, the author concludes that UK subsidies might be more prone to challenges than EU State Aid and that whilst the TCA inter-Party consultation provisions might prove crucial in limiting the risk of inter-Party disputes arising, further development of the UK domestic control subsidy system is required to make it more robust and less prone to challenges.

Read Briefing Paper 58: TCA DISPUTE RESOLUTION MECHANISMS AND SUBSIDY CONTROL COMMITMENTS

May 2021 – Authors: Yohannes Ayele, Guillermo Larbalestier and Nicolò Tamberi

After decades of close economic integration, the UK’s relationship with the EU, its biggest and closest trading partner, is now governed by the Trade and Cooperation Agreement (TCA). In this Briefing Paper we look at how UK merchandise trade has performed under the new regulations in the first quarter of 2021. We employ different methodologies to quantify a TCA-effect and find that trade with the EU was hit hard in January 2021 but may have rebounded in February and March 2021, with heterogenous effects across sectors. We also investigate the extent to which UK exports have benefited from tariff-free access in EU markets.

Read Briefing Paper 57: POST-BREXIT: UK TRADE IN GOODS

May 2021 – Author: Emily Lydgate

In advance of the EU Commission’s Carbon Border Adjustment Mechanism proposal in July, this Briefing Paper offers a conceptual rubric for evaluating CBA design as a policy trilemma between environmental ambition, technical feasibility and fairness. The paper discusses each aspect of the trilemma and outlines potential tradeoffs that may be necessary between reducing emissions, navigating the complexities of calculating charges, and ensuring mechanisms are WTO-compliant and fair to developing countries. The Briefing Paper also argues that CBA also gives rise to the need for new forms of trade and climate cooperation to determine which other countries or producers have equivalent pricing, and therefore should be exempted. The upcoming G7 and COP, both hosted by the UK, provide an opportunity to make progress on these important questions.

Read Briefing Paper 56: THE CARBON BORDER ADJUSTMENT TRILEMMA

This Briefing Paper analyses the EU’s move towards a more defensive trade policy, which enhances enforcement powers and commits to including sustainable development, environmental and labour protection goals in trade agreements. The paper examines the Current Trade Disputes where the EU has commenced formal action under a Free Trade Agreement – against Algeria, Ukraine, the Southern African Union and South Korea – and discusses the EU’s review and enhancement of International Trade Dispute Mechanisms. Professor Szyszczak concludes that, until the WTO Appellate Structure is operational, the EU is setting the pace for international trade dispute resolution.

Read Briefing Paper 55: EU ENFORCEMENT OF INTERNATIONAL TRADE RULES

January 2021 – Authors: Emily Lydgate, Erika Szyszczak, L. Alan Winters, Chloe Anthony

The Trade and Cooperation Agreement (TCA) between the UK and the EU came into force on the 1st January 2021. This Briefing Paper considers the governance, subsidies and the level playing field provisions. The analysis reveals that much of the area lies outside the normal dispute settlement procedure and in some cases bespoke procedures replace or supplement it.  There are some innovative clauses concerning procedures to deal with imbalances arising from future labour and environmental policies, and the potential for review of the balance of the entire trade heading,  but these are quite unknown quantities and have the capacity to create perpetual wrangling and bad feeling between the UK and the EU.

Read Briefing Paper 54: TAKING STOCK OF THE UK-EU TRADE AND COOPERATION AGREEMENT: GOVERNANCE, STATE SUBSIDIES AND THE LEVEL PLAYING FIELD 

January 2021 – Authors: Ingo Borchert and Minako Morita-Jaeger

The Trade and Cooperation Agreement (TCA) between the UK and the EU came into force on the 1st January 2021. This Briefing Paper looks at the main changes to trading services. The authors find that provisions in the TCA are a major setback for services sectors (compared to the conditions for trading services within the Single Market or during the transition period), particularly for financial and transportation services. As a service-driven economy, this is a weak deal for the UK. A general ramification is that services trade with the EU may have to rely increasingly on commercial presence rather than cross-border supply. This shift, though by no means costless, will be relatively easier for large businesses that may already have affiliate enterprises within the EU-27. Furthermore, the TCA is an incomplete agreement in the sense that the precise conditions under which services can be traded with the EU still need to be worked out in a number of areas, including financial services, cross-border data flows, and mutual recognition of professional qualifications.

Read Briefing Paper 53: TAKING STOCK OF THE UK-EU TRADE AND COOPERATION AGREEMENT: TRADE IN SERVICES AND DIGITAL TRADE

January 2021 – Authors: Yohannes Ayele, Michael Gasiorek, Peter Holmes, Anna Jerzewska, Suzannah Walmsley

The Trade and Cooperation Agreement (TCA) between the UK and the EU came into force on the 1st January 2021. This Briefing Paper focusses on the provisions on trade in goods. It provides an analysis of the changes in tariffs; customs and trade facilitation; rules of origin; mutual recognition of testing and certification and takes a close look at one sector – fisheries – that was so contentious during the negotiations. The TCA is highly unusual in that it is an agreement which raises barriers to trade, and whilst it offers complete elimination of tariffs and quotas many other costs relating to trade have not been successfully minimized.

Read Briefing Paper 52: TAKING STOCK OF THE UK-EU TRADE AND COOPERATION AGREEMENT:  TRADE IN GOODS 

In this paper, the authors update their previous analysis of Brexit to reflect the presumed Free Trade Agreement (FTA). They assess the costs of Brexit with such an FTA and ask how much benefit the FTA will deliver relative to ‘No Deal’.  This paper improves on previous analyses by including more detailed modelling of the costs of doing trade and of the barriers to services trade that the exit from the Single Market will introduce.  Even with a deal, Brexit increases UK-EU trade costs, reduces trade between the two partners, and requires resources for form-filling, queuing, etc. The net effect is that the UK’s GDP will be 4.4% lower than in the absence of Brexit, compared with 5.5% lower if there had been no deal.

Read Briefing Paper 51: The Costs of Brexit

December 2020 – Authors: Minako Morita-Jaeger and Yohannes Ayele

The UK-Japan Comprehensive Economic Partnership Agreement has been presented by the UK Government as the first Free Trade Agreement (FTA) for the UK as an independent trading nation. This Briefing Paper provides an analysis of this new agreement in relation to the Japan-EU EPA and draws two major lessons for the UK’s future free trade agreements.  First, the authors find that it mostly replicates the Japan-EU EPA, with the UK failing to break new ground after independence from the EU trade regime. Second, they argue that substantive and inclusive policy discussions with a range of stakeholders need to take place to enable public scrutiny and discussion of the implications of policy positions, before negotiating with trade partners.

Read Briefing Paper 50: The UK-Japan Comprehensive Economic Partnership Agreement: Lessons for the UK’s future trade agreements

November 2020 – Authors: Emily Lydgate and Chloe Anthony

The House of Lords are currently debating the controversial Internal Market Bill. In so doing, they are highlighting the ways in which the Bill threatens to undermine the devolution settlement. In this Briefing Paper, Emily Lydgate and Chloe Anthony spell out the issues that the Internal Market Bill raises for the relationship between England, Scotland and Wales in the critical area of food standards. The authors conclude that the overriding outcome is the consolidation of power in the central UK Government, raising significant – and still unresolved – constitutional and trade questions.

Read Briefing Paper 49: MAINTAINING THE UK INTERNAL MARKET FOR FOOD STANDARDS: FRAGMENTATION, COOPERATION OR CONTROL?

September 2020 – Authors: Pierluigi Montalbano, Silvia Nenci, Nicolo Tamberi and L. Alan Winters

This Briefing Paper considers how Brexit will impinge on the African, Caribbean and Pacific (ACP) countries currently governed by the Economic Partnership Agreements (EPAs) negotiated by the EU. The authors explore whether the new Brexit-induced frictions on UK-EU trade will reduce the demand for ACP inputs – such as Cocoa products – into the goods that the UK and EU trade with each other. They conclude that the economic effects of even a ‘No Deal’ Brexit on ACP countries’ trade will be tiny in aggregate, because ACP countries supply only small amounts of inputs into the products involved in UK-EU trade.

Read Briefing Paper 48: THE “BEARABLE LIGHTNESS” OF BREXIT ON THE ACP COUNTRIES’ TRADE: GLOBAL VALUE CHAINS AND RULES OF ORIGIN

September 2020 – Authors: Emily Lydgate and Chloe Anthony

The UK is the first major economy to commit to a net-zero emissions by 2050 climate target, and it also has ambitious trade policy goals of providing multilateral leadership and concluding major new trade agreements. This Briefing Paper examines the coherence of UK trade and climate goals in regards to whether the UK Government has set out a clear strategy for integrating trade and climate policy, is acting on areas of mutual supportiveness, and is addressing areas of potential conflict. The authors find room for improvement in relation to all three areas. They identify a lack of cross-cutting strategy in UK climate legislation and in its approach to free trade agreements,  and suggest the UK reforms its approach to fossil fuel subsidies and builds on its efforts in regard to environmental goods. Finally, the authors underscore the need for ambition and transparency for green subsidies and carbon pricing.

Read Briefing Paper 47: CAN THE UK GOVERNMENT BE ‘WORLD-LEADING’ IN BOTH TRADE AND CLIMATE POLICY

July 2020 – Author: Minako Morita-Jaeger

This Briefing Paper examines the underlying issues related to the Japan-UK Free Trade Agreement negotiation. The author argues that there are two significant challenges underlying the Japan-UK FTA negotiation: the EU-UK FTA and the timeframe. The paper then discusses what should be prioritised to make the Japan-UK FTA ambitious, taking into account the unprecedented short negotiating timeframe, and proposes a possible mechanism to cope with unfinished business in order to make the agreement truly valuable in the long-term.

Read Briefing Paper 46: THE JAPAN-UK FREE TRADE AGREEMENT – CONTINUITY OR NO CONTINUITY? HOW CAN IT STILL BE AMBITIOUS?

July 2020 – Authors: Michael Gasiorek and Julia Magntorn Garrett

The UK’s negotiation of a Free Trade Agreement with the EU will necessarily involve defining rules of origin, and before long negotiations with countries such as the US, Japan, and Australia will face the same task. In this Briefing Paper, the authors outline what rules of origin are, why they are needed, why they are complex, and which sectors in the UK may be most vulnerable to more restrictive rules of origin. They also discuss why the EU is highly unlikely to agree to the UK’s proposal on cumulation in rules of origin and argue that the obvious solution to this is for the UK to agree to the EU’s Pan Euro-Mediterranean Rules of Origin (PEM) which are the basis of the EU’s cumulation arrangements with a wide range of its neighbours. Any other outcome is likely to reduce the UK’s take up of trade preferences in its FTA with the EU.

Read Briefing Paper 45: WE’RE GOING TO MAKE THEM AN OFFER THEY CAN REFUSE: RULES OF ORIGIN AND THE UK-EU FREE TRADE AGREEMENT

July 2020 – Authors:  Yohannes Ayele and L. Alan Winters

In this briefing paper, Dr Ayele and Professor Winters look at whether the immediate effect of the result of the Brexit referendum –  the depreciation of sterling relative to all major currencies and the failure to increase UK exports after 2016  – could have been foreseen. They provide a brief description of recent UK trade history, followed by a review of different studies of the effect of exchange rate changes on trade prices, consumer prices and trade quantities. Finally, they explore the apparent effect of the sterling depreciation in June 2016 on UK trade and price behaviour.  The authors show that the pass-through of exchange rate changes to trade and consumer prices and thence to trade quantities is rather complex, and hence difficult to predict with any confidence. They conclude that the failure of UK exports to boom was in part due to the dramatic increase in trade-policy uncertainty that the Brexit result heralded.

Read Briefing Paper 44: SHOULD THE BREXIT STERLING DEPRECIATION HAVE BOOSTED EXPORTS? HOW EXCHANGE RATES AFFECT TRADE AND PRICES

July 2020 – Authors: Peter Holmes, Julia Magntorn Garrett, L. Alan Winters

The UK’s draft text for the Free Trade Agreement with the EU indicates a vision of where the Government wishes to take the UK’s trade relationship with the EU. In some areas, the UK is unwilling to agree such deep integration as the Political Declaration foresaw and which the EU is seeking. However, in other areas, the UK is asking for more integration than the EU ordinarily offers partners in simple FTAs. This paper discusses four of these extensions in detail and provides further analysis of the implications for the negotiation process and future UK-EU trade.

Read Briefing Paper 43: UK-EU FREE TRADE AGREEMENT: PLEASE, SIR, I WANT SOME MORE

June 2020 – Author: Erika Szyszczak

State aid is a delicate issue in the current EU-UK trade negotiations. Whilst the EU is seeking dynamic alignment of any set of future UK State aid rules with the EU rules to maintain a ‘Level Playing Field’ (LPF) in areas relating to access to the Internal Market, the UK takes the stance that it would introduce its own regime of subsidy control. The UK prefers to adopt a more relaxed process for international trade based upon the rules in the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM) but relying on WTO rules would not create a robust domestic system of state aid control. To maintain a close trade relationship with the EU, the UK must manoeuvre into a position where it gives effect to a State aid regime equivalent to that maintained by the EU, with an effective and robust independent enforcement process, but the UK has taken a different view. The reaction of the UK Government to the COVID-19 crisis has revealed the need for transparency in the granting of subsidies as well as accountability in procurement and yet the current situation is very opaque.

Read Briefing Paper 42: STATE AID: NOT ONLY ABOUT TRADE

June 2020 – Authors: Michael Gasiorek and Anna Jerzewska

In this Briefing Paper, Michael Gasiorek and Anna Jerzewska provide an analysis of the UK’s recently published Command Paper. They argue that it highlights significant differences between the UK and the EU and does not fully address the challenges which come from the special situation around the border in the Irish Sea.  As a result, they warn that businesses should expect more paperwork, bureaucracy and additional costs on trade between Northern Ireland and Great Britain when the transition period ends in seven months’ time. Among the key stumbling blocks between the UK Government and EU that the Command Paper fails to resolve are the criteria for determining when a good is not at risk of moving into the EU market and would therefore not be subject to tariffs. Furthermore, permitting goods from Northern Ireland to freely enter Great Britain, could impact on the UK’s trade relations with third countries and even lead to WTO disputes.

Read Briefing Paper 41: THE UNRESOLVED DIFFICULTIES OF THE NORTHERN IRELAND PROTOCOL

May 2020 – Authors: Simon Evenett and L. Alan Winters

This Briefing Paper sets out a new basis for reciprocity in what might be deemed essential goods, of which the medical kit and equipment associated with COVID-19 are examples. The authors propose a trade policy bargain that, although time-limited at first, could evolve into a multilateral or plurilateral deal. As governments of net exporting nations realise that export bans do little to end shortages of medical kit in a world of international supply chains, and do much to antagonise trading partners and to embolden economic nationalists at home and abroad, this proposal provides them with a rationale for embracing a more collaborative approach that generates a commercial edge for their exporters of medical supplies. For nations reliant on foreign deliveries of these goods, this proposal provides greater reassurance that supplies will be forthcoming when they are needed—thereby diminishing the case for devoting scarce resources to an import substitution drive on medical goods. The authors describe the underlying commercial logic of this bargain, its elements, and their WTO compatibility. The paper also discusses this proposal in relation to other recent joint trade policy initiatives in this critical area of world trade.

Read Briefing Paper 40: PREPARING FOR A SECOND WAVE OF COVID-19: A TRADE BARGAIN TO SECURE SUPPLIES OF MEDICAL GOODS

The UK left the European Union on January 31, 2020. As the UK Government begins to develop the UK’s independent trade policy for the post-transition period, one part of the preparations is to establish the UK’s independent tariff schedule that will apply to goods imported into the UK. In February 2020, the Department for International Trade launched a public consultation concerning the UK’s applied Most Favoured Nation tariffs. This briefing paper outlines the proposals under consideration, discusses their potential implications, and provides our recommendations on the issues that we believe are important for the UK Government to consider when formulating the UK’s trade policy going forward. We explore the structure of the UK’s MFN tariff as a member of the EU and then analyse the potential impact of simplifying the tariff structure for firms, households, the environment and domestic policy objectives.

Read Briefing Paper 39: RECOMMENDATIONS ON THE UK GOVERNMENT’S GLOBAL TARIFF PROPOSALS

The importance of EU rules to maintaining open borders within Ireland has been at the centre of UK and EU negotiations. Yet what is less appreciated is the significance of those rules for achieving frictionless trade between England, Scotland and Wales. In this Briefing Paper, the authors highlight that leaving the EU could create new border trade barriers inside the UK, and opens up questions about how – and whether – the devolved nations will unite with England on external trade agreements. They argue that a US trade negotiation poses a serious threat to the unity of the United Kingdom because it would likely require changes to UK domestic legislation in very sensitive areas, including drug pricing and food safety regulation, which Scotland, with its large Remain-voting majority and stated desire to maintain alignment with EU regulation, would strenuously oppose. The authors argue that devolved nations should have a formal role in the setting of UK negotiating objectives, to ensure, among other things, that external trade agreements do not lead to internal trade barriers.

Read Briefing Paper 38: DESTRUCTION OF THE UNION: TOO HIGH A PRICE TO PAY FOR A US TRADE AGREEMENT

As set out in the EU Withdrawal Act (2018) the government’s approach to Brexit is to transfer EU law into UK law and address any deficiencies in that law by secondary legislation.

This Briefing Paper examines post-Brexit food safety legislation and finds that the UK’s post-Brexit  safety rules fall short of the level of protection currently provided by the EU and, in some cases, they give ministers broad discretion to make future changes without full parliamentary scrutiny.  This would provide a relatively clear path for a UK Prime Minister to overcome parliamentary opposition to any new trade agreements that cover agricultural and food products, such as US-UK FTA. Also, Brexit food safety legislation allows for devolution which could undermine both the UK’s ability to undertake a unified approach to external trade agreements and also the maintenance of the UK’s internal free movement of goods.

Read Briefing Paper 37 BREXIT FOOD SAFETY LEGISLATION AND POTENTIAL IMPLICATIONS FOR UK TRADE: THE DEVIL IN THE DETAILS

Since the 2016 Brexit Referendum, the strategic importance of increasing UK exports to outside of the EU has been heightened in the pursuit of new sources of future national growth. With this aim, the UK Government has put renewed priority on developing the UK’s export credit agency (UKEF) as a vital component of its new export strategy. Yet securing new export opportunities to support is increasingly challenging in the current trading environment of global export stagnation. Furthermore, although export credit support is seen as the fuel that powers the international trading system, in competing for overseas contracts there is a potential for governments to use public resources to provide unfair subsidies to exporting firms in the form of export financing.

This Briefing Paper examines the export credit support options open to UKEF, with specific reference to its international legal obligations under the OECD and the WTO. Leaving the EU will not change the UK’s obligations under either, but the UK Government will make and defend its position towards official export credit support as a single country, rather than within a bloc. The paper examines the rationale for official export credit support, and the rationale for regulating any such public support, then focuses on the UK ECA – the UKEF – from within the current international market for official export credit support.

The paper concludes that in a changing financial and regulatory environment, there is a two-fold challenge for the UK government. First, it needs to identify new ways to promote economic efficiency and competitiveness while avoiding corporate welfare. This is necessary to secure UK export markets for UKEF to support, whilst respecting international rules on subsidies, ethical standards, and environmental, social, and human rights. Second, there is a need for collective action to regulate export subsidies effectively, which requires the UK to work with renewed effort internationally to develop more comprehensive rules for regulating official export credit support and promote competition in the international trading global system.

Read Briefing Paper 36 – HAPPY CENTENNIAL BIRTHDAY UKEF: FIT FOR THE FUTURE?

August 2019 – Authors: Ilaria Fusacchia, Luca Salvatici and L. Alan Winters

A great deal of attention has been devoted to the consequences of different forms of post-Brexit trade policy for UK exports. But focusing on the gross value of UK exports – e.g. the decline in exports of completed cars as the cost of exporting to the EU rises – is only part of the story because it misses the effects on the sectors and other countries that supply inputs into UK goods. In this Briefing Paper, the authors unpack value chains to identify which sectors and countries create the value that is embodied in UK flows of exports and imports, and hence to identify how the changes in trade induced by a ‘No deal’ Brexit will affect the value contributed (i.e. the incomes generated) by different sectors and countries.

Studying only the effects of ‘No deal’ on the costs of conducting goods trade, but following them throughout the British economy, the authors find that ‘No deal’ could reduce UK GDP by 4% relative to remain. Moreover, because of the decline in incomes and the fact that services are key inputs into manufactured exports, the incomes generated in services sectors would also be around 4% smaller.

Read Briefing Paper 35 – BREXIT AND GLOBAL VALUE CHAINS: ‘NO-DEAL’ IS STILL COSTLY

Within days of Mr Johnson becoming Prime Minister, President Trump announced that talks about a “very substantial” trade deal with the UK are under way. In this joint Briefing Paper with colleagues from Georgetown University and UKTPO fellows, we consider the effects that Brexit uncertainty is likely to have on the capacity of the UK to agree a deal with the US and ask whether a deal is politically even possible in the UK.  We investigate key issues in negotiating a bilateral agreement: the backstop and the problems posed by the EU and US standards regimes. The paper also explores the prospects and pitfalls of the US Government guidelines for negotiations between the US and the UK; the US’s potential strategic position on services and the declining importance of the UK and Europe as traditional places of spending for US multinational corporations especially in the areas of information technology soft- and hardware. Overall we conclude that while the governments involved see obvious political attractions in a UK-US free trade agreement, a quick and economically significant conclusion to the talks seems unlikely.

Read Briefing Paper 34 – THE FUTURE OF UK-US TRADE: AN UPDATE

Economists have long argued, and with good justification, that international trade brings overall benefits to economies. However, increasing trade is likely to create losers as well as winners. As the UK prepares to leave the EU and have an independent trade policy it is important to understand how future trade agreements, or policy changes, may affect economic outcomes such as prices, productivity and output, and through these, individuals and regions.

In this Briefing Paper, the authors provide a conceptual background of how trade changes may result in winners and losers – be these consumers, workers, regions, or industries, and give an overview of what the empirical evidence tells us about how developed economies have adjusted to changes in trade. They also consider potential policy responses that could help losers from international trade adjust, and ensure that the winners can take advantage of the new opportunities created by trade liberalisation.

Read Briefing Paper 33 – WINNERS AND LOSERS FROM INTERNATIONAL TRADE: WHAT DO WE KNOW AND WHAT ARE THE IMPLICATIONS FOR POLICY?

Launch and Panel Discussion at British Academy, 18 July 2019

June 2019 – Author: Mattia Di Ubaldo

Post-Brexit, the UK will offer preferential market access to developing countries under a Generalized System of Preferences (GSP). To allow developing countries to export to the UK after it leaves the EU on the same terms as the present, the UK Government’s plan is to replicate the GSP of the EU. This paper shows that simply rolling over the EU’s GSP, in particular, the rules for preferences removal (graduation), will determine changes in market access due to the uneven distribution of developing countries’ trade between the UK and the EU27 bloc. The country most affected would be India, which would lose trade preferences in the UK on a volume of trade worth approximately € 1.27 billion per year. Adjustments to the GSPs of both the UK and the EU, necessary to avoid the loss of trade preferences, are also discussed.

Read Briefing Paper 32 – A POST-BREXIT GENERALIZED SYSTEM OF PREFERENCES FOR THE UK: HOW TO GUARANTEE UNCHANGED MARKET ACCESS FOR DEVELOPING COUNTRIES?

June 2019 – Authors: Julia Magntorn Garrett, Minako Morita-Jaeger and L. Alan Winters

In the case that the UK manages an orderly Brexit and has a transition period until the end of 2020, rather than just rolling over the existing agreements, what would be the possible options for future Free Trade Agreements?

In the case of a future UK-Korea deal, the UK could potentially negotiate a new FTA built on the Korea-EU FTA (KorEU) or negotiate a completely new FTA modelled on the Korea-US FTA (KORUS). Our comparative analysis of KorEU and KORUS in services reveals that the two agreements took very different approaches for services trade liberalisation. Both achieved “GATS-plus” liberalisation commitments from Korea. KORUS seems to have achieved slightly more than KorEU. However, KORUS is more complicated and less transparent than KorEU. It also contains more WTO-inconsistent features. The KORUS option would enable the UK to better pursue its own specific needs since it would not be directly bound by KorEU. On the other hand, the WTO-inconsistent aspects of KORUS would need to be avoided, based on a clear vision of UK’s contribution towards the future multilateral trading system. Either way, the UK would face two stumbling blocks: the UK’s lack of negotiating power and the Most Favoured Nation (MFN) clauses in KorEU and KORUS (and other FTAs involving Korea). Whatever the scenario, the UK Government is urged to build its trade negotiating capacities to cope with these challenges.

READ BRIEFING PAPER 31 – CAN THE UK DO BETTER THAN JUST ROLLING OVER THE TRADE AGREEMENT WITH KOREA?

May 2019 – Author: Erika Szyszczak

Investor-State Dispute Settlement (ISDS) mechanisms have been globally criticised as out-dated and inappropriate fora for the settlement of disputes involving States. Attempted reform is underway at the United Nations Commission on International Trade Law (UNCITRAL) Working Group III, at which the EU is a key player. The role of the EU as a significant moderniser of trade agreements will have implications for the UK in negotiating any future trade deals with the EU. For example, the consequences of the recent Opinion 1/17 on the legality of a new form of court system to handle investor-state disputes in the EU-Canada Agreement (CETA) are significant in analysing how the CJEU was persuaded to reach the conclusion that new judicial fora in international Treaties may be compatible with EU law. The litigation around the modern trade agreements of the EU is a warning signal that conducting trade agreements from scratch with the EU is not painless, with ratification potentially being very prolonged when there are challenges to the agreement at the national and EU level.

Read Briefing Paper 30 – Opinion 1/17: Towards A Modern EU Approach to Investor-State Dispute Settlement

March 2019 – Authors: Michael Gasiorek and Julia Magntorn Garrett

This paper assesses the possible consequences of the Government’s proposed No Deal tariff regime. While there have been numerous previous assessments of the economic impact of a ‘No Deal’, the tariff proposal by the UK Government provides a new set of tariffs which have not been assessed in the existing empirical literature. In this briefing paper, the authors explain carefully the Government’s proposals and identify how much of UK trade would be affected by the changes in tariffs in a ‘No Deal’ scenario and provide an empirical assessment of the scale of the economic challenge which could face UK industries in the event of ‘No Deal’. They find that a ‘No Deal’ Brexit will pose a significant challenge to the UK economy with a negative impact on output, exports and imports driven largely by the increased cost of trading with the EU. The results highlight that in the event of ‘No Deal’ the Government’s room for policy manoeuvre is somewhat limited.

Read Briefing Paper 29 – Deal or ‘No Deal’? The economic consequences of the UK’s ‘No Deal’ tariffs

February 2019 – Authors: Ilona Serwicka and Peter Holmes

Since the EU referendum, there has been a growing interest in the reintroduction of free zones in the United Kingdom. Those advocating free zones believe that they will help to boost British trade after Brexit and promote economic growth. This briefing paper presents a history of free zones in the UK and US and then looks at the EU context. Although there are potential benefits and savings that businesses can accrue from simplified customs procedures and relief on customs duties and tariff inversion, the authors explain that such benefits will be very limited in the UK context. This is due to state aid rules which limit the scale of assistance possible. The UK would still be affected by these in some way post-Brexit. Thus, while there is a scope for free zones shaping an export-oriented place-based regional development programme, policymakers should devise measures that counteract possible diversion of economic activity from elsewhere, and offer a wider set of incentives than just free zones, while keeping within our WTO and any ‘level playing field’ obligations that arise from our trade agreements.

Read Briefing Paper 28 – What is the extra mileage in the reintroduction of ‘free zones’ in the UK?

This briefing paper explores the likely content of a market access agreement for financial services between the UK and the EU. Despite the UK Government’s early hopes that all trade issues could have been settled in the Withdrawal Agreement, the actual situation is that this Agreement addresses only those trade issues necessary to ensure an open Irish Border.  The accompanying Political Declaration on the future relationship between the UK and the EU lays out some broad non-binding principles on which negotiations around financial services access are intended to proceed during the transition period, but important details are undefined. During the negotiation of the Political Declaration itself, some counter-briefing took place as to the meaning of some of these principles. The existence of such counter-briefing suggests that when these negotiations commence, the rules of access for UK financial services will again be a contentious issue. This paper uses what we know now to analyse the options that may emerge and the likelihood of their adoption.

Read Briefing Paper 27 – EQUIVALENCE, MUTUAL RECOGNITION IN FINANCIAL SERVICES AND THE UK NEGOTIATING POSITION

This study focuses on the economic shocks that a ‘no deal’ Brexit would entail across the constituencies of Hampshire and Sussex. We take estimates of the effects of a ‘no deal’ Brexit on output and employment in different sectors of the UK economy and using the composition of employment in each constituency, estimate how each constituency will be affected. The novel feature of our analysis is that we allow for commuting and so convert the Brexit shock from referring to workers in a constituency to referring to residents in the constituency. With the South East region the most heavily engaged in cross-border trade, after allowing for the fact that people often live and work in different places, we estimate that the shock to residents of Hampshire and Sussex could be equivalent to the loss of about 43,000 jobs. Given that Brexit decisions will ultimately be taken on the floor of the House of Commons, this Briefing Paper provides a base from which Hampshire and Sussex MPs can start to assess the impact of Brexit on their constituents.

Read Briefing Paper 26 – THE BREXIT BURDEN: A CONSTITUENCY LEVEL ANALYSIS FOR HAMPSHIRE AND SUSSEX

See also: Online Appendix and subsequent work repeating the exercise for the full list of 632 Parliamentary constituencies in Great Britain. A discussion of the (very slight) differences between this paper and the full results is here and the full results are in ‘no deal‘ and ‘soft deal‘ Brexit

The UK government has high expectations about future services trade deals with non-EU countries. Yet, in practice, Free Trade Agreements (FTAs) typically only provide greater legal certainty about current applied policies rather than bringing about actual trade liberalization in services.This Briefing Paper looks at why it is so difficult to achieve actual liberalization in service negotiations and what FTAs, in practice, can offer. The authors argue that based on other countries’ experiences, the UK government will face several significant challenges and complexities in negotiating services FTAs with non-EU countries. To make progress on FTAs, the UK government will need to encourage many bodies across government.

Read Briefing Paper 24 – THE UK’S FUTURE SERVICES TRADE DEALS WITH NON-EU COUNTRIES: A REALITY CHECK

OCTOBER 2018 – Authors: Ilona Serwicka and Nicolo Tamberi

The United Kingdom has historically been one of the main recipients of inward foreign direct investment (FDI), attracting more greenfield investment than other large European economies. However, the Brexit vote has introduced considerable uncertainty over the future growth potential of the UK market, and the ease of cross-border flow of goods and services. Following a peak of inward investment activity in early 2015, the number of FDI project announcements for the UK and the UK’s share of the European market for FDI have been falling.

In this Briefing Paper, we provide an analysis of inward FDI to the UK before and after the EU referendum, looking at the main foreign investors, which sectors they invest in and how trends in inward FDI have evolved over time. Our work suggests that following the Brexit vote, inward investment has been 16-20 per cent lower than it would have been if the UK had voted to remain a member of the EU, but that this impact differs depending on the sector.

Read Briefing Paper 23 – NOT BACKING BRITAIN: FDI INFLOWS SINCE THE BREXIT REFERENDUM

SEPTEMBER 2018 – Authors: Ingo Borchert and Nicolo Tamberi

The UK is one of the most services-oriented economies in the world, both in terms of production and exports.  Services inputs embodied in manufacturing exports constitute an important but under-appreciated kind of services exports, so-called mode 5 services trade.  This Briefing Paper provides the first estimates of mode 5 services trade disaggregated by UK region and industry, respectively, and over time.  UK manufacturing exports entailed over £70 billion worth of domestic services inputs in 2017, which play an integral role in the competitiveness of UK manufacturing exports.  Since these services are produced locally, changes in the trading environment for manufactures have direct implications for domestic employment in services sectors.

Read Briefing Paper 22 – THE ENGAGEMENT OF UK REGIONS IN MODE 5 SERVICES EXPORTS

JULY 2018 – Authors: Michael Gasiorek and Suzannah Walmsley

Leaving the EU will involve some possible combination of changes in tariffs, non-tariff measures, and also the amount of fish quotas that can be caught by the UK and the EU. The aim of the Briefing Paper is to detail the policy environment, and the policy considerations facing the UK government in the Brexit negotiations. Secondly, it provides an empirical assessment of what the impact on leaving the EU might be on the seafood industry. As the nature of the UK’s future trade relations with the EU are still uncertain, this paper explores several simulations which aim, broadly speaking, to capture the key variants of Brexit that appear to be under discussion.

Read Briefing Paper 21 – Fishing in deep waters

July 2018 – Authors: Marc Busch, Michael Gasiorek, Peter Holmes, J. Brad Jenson, Rod Ludema, Emily Lydgate, Anna Maria Mayda, Pietra Rivoli, Jim Rollo, Stephen Weymouth, Rorden Wilkinson and L. Alan Winters.

Both US President Donald Trump and UK Prime Minister Theresa May have stated their keenness to negotiate and agree the groundwork for a bilateral trade agreement after Brexit. This briefing paper looks at what the key issues are likely to be and what a transatlantic agreement may, or may not, comprise. First, we explore the extent to which a trade agreement between the US and the UK would have popular support at a time when debate about trade on both sides of the Atlantic is contested. Second, we consider what the benefits of such an agreement might be by considering the aggregate economic case. Finally, we probe where problems and tensions may lie, focusing primarily on the regulatory aspects of a transatlantic commercial tie-up.

Read Briefing Paper 20 – The Future of US-UK Trade: What case for a bilateral trade agreement?

As the UK contemplates new trade agreements, it needs to develop mechanisms to ensure that these uphold its commitment to environmental protection and high labour standards.  This paper examines approaches to integrating sustainable development objectives into the negotiating process and reflecting these objectives through trade agreements. The UK’s ability to take leadership in this area will hinge on its ability to develop a robust framework to ensure that the negotiation process is transparent and allows for public consultation, and that the impact of new trade agreements – including on the environment and vulnerable populations – are assessed and addressed. In this respect, the UK can draw from, and improve upon, the EU’s experience with Sustainability Impact Assessment.  The paper also highlights implications of the UK’s inheritance of the EU’s ‘cooperative approach’ to trade and sustainable development through the continuation of its trade agreements.

Read Briefing Paper 19 – Integrating sustainable development objectives into UK trade policy

March 2018 – Authors Julia Magntorn and L Alan Winters

In the search for a framework for a future UK-EU trade relationship, the Comprehensive Economic and Trade Agreement between the EU and Canada (CETA) has come under the spotlight. To inform the debate surrounding a potential ‘Canada plus’ model for the UK post-Brexit, this briefing paper provides an overview of the extent to which the EU restricts imports of services from Canada under CETA. The authors identify areas where ‘pluses’ may help to preserve existing levels of services trade between the UK and the EU post-Brexit, and discusses whether these are achievable. Further, the extent to which the EU’s commitments in CETA improve on pre-existing regimes is evaluated by comparing the degree of liberalisation in CETA with the EU’s prior commitments in the GATS.

Read Briefing Paper 18 – Can CETA-plus solve the UK’s services problem?

March 2018 – Author, Michael Gasiorek

There is much discussion about what the UK government wants in terms of the post-transition relations between the UK and the EU, and the Labour party has now also provided a little bit more clarity on its position. However, to what extent are the different UK-EU Brexit options achievable? Dr Michael Gasiorek explores two key concerns. The first concerns the issue of the compatibility or not of the different UK-EU Brexit options, with the issue of the border between the Republic of Ireland and Northern Ireland. The second issue concerns the subtleties of the difference between being in “the” EU Customs Union, in comparison to being in “a” customs union with the EU. While it might appear a small difference, in practices the differences may be substantial.The aim of this briefing paper is to consider what difference these developments make, to examine under what circumstances might the UK governments current position on future arrangements with the EU be possible (or not), and to offer some recommendations and reflections for the way forward.

Read Briefing Paper 17 – UK–EU trade relations post Brexit: binding constraints and impossible solutions

Trade in manufactures constitutes 65% of the UK’s trade with the EU and nearly 50% of the UK’s exports of manufactures go to the EU. In this new Briefing Paper, we look at the possible effects of Brexit on UK manufacturing in much greater sectoral detail than has been done before. For 122 manufacturing sectors, we estimate the exposure of these sectors to different versions of Brexit. Our projections depend on whether we assume the UK leaves the Customs Union and the Single Market, and on whether the UK makes a free trade agreement with the EU and is able to carry over existing free trade agreements with non-EU countries. In all cases, we find that introducing tariff and non-tariff barriers raises the prices that UK consumers and producers will face, and leads to reduced UK exports; but for some sectors, the increase in protection leads to higher UK output. The impact of Brexit is likely to be significantly different between high-tech and lower-tech sectors.

Read Briefing Paper 16: Which Manufacturing Sectors Are Most Vulnerable to Brexit?

Read the online Appendix and Appendix 2 – Simulation Results

January 2018 – Authors Peter Holmes and Nick Jacob

Rules of Origin (RoOs) are used by importing Customs authorities in the international trading system to determine if a product is considered as sufficiently linked to the exporting country to count as originating there, in order apply preferential or MFN (Most Favoured Nation) rates of tariff to the goods, and to check for quota, anti-dumping and related compliance. The importance of RoOs is due to the fact that duties and restrictions in many cases depend upon the source of imports. Proving origin will be a far bigger issue than it is now for UK business exporting to the EU after Brexit. With all businesses likely to have to rethink their compliance with Rules of Origin post-Brexit, this paper, based on a study carried out with the support of the British Chambers of Commerce, outlines the current Certificates of Origin regime and the options for change after Brexit.

Read Briefing Paper 15- CERTIFICATES AND RULES OF ORIGIN: THE EXPERIENCE OF UK FIRMS and the Online Appendix

January 2018 – Authors Ingo Borchert and Nicolo Tamberi

The UK’s exit from the European Union (EU) is likely to have significant ramifications for services trade because the Single Market has been particularly salient for facilitating the international exchange of services.  Yet the discussion of potential effects on the British economy of Brexit has largely been confined to manufacturing sectors at the national level.  Less attention has been paid to services sectors, even though the UK economy is particularly strong in exporting services. To address this void, this Briefing Paper describes the rich pattern by which UK regions are exporting different kinds of services.  In particular, it traces the extent to which UK regions export services relatively intensively to EU countries relative to other destinations outside the EU.

Read Briefing Paper 14 – BREXIT AND REGIONAL SERVICES EXPORTS: A HEATMAP APPROACH and the Online Appendix.

December 2017 – Authors: Michael Gasoirek and Peter Holmes

Rolling over the 37 Free Trade Agreements (FTAs) with more than 60 countries that the UK currently has through the EU will be a monumentally complicated task and one that needs to be completed by March 2019. This Briefing Paper outlines why it may not be easy to get agreement on grandfathering with the FTA partner countries, and why even if agreement could be reached it is unlikely that trade will continue on the same basis as previously. A key point which emerges is that with regard to several key issues – Rules of Origin (RoOs), Most Favoured Nation (MFN) clauses, mutual recognition, and tariff-rate quotas – grandfathering the agreements is unlikely to happen without some engagement or negotiation with the EU. Hence what you might think is a bilateral issue between the UK and a given FTA partner, becomes a trilateral issue which also involves the EU.

Read Briefing Paper 13 – GRANDFATHERING: WHAT APPEARS BILATERAL IS TRILATERAL

November 2017 – Author: Peter Holmes

Consumers face many challenges post-Brexit. The new UK Trade White Paper published by the Department for International Trade in October 2017 has stated that it will give a major priority to consumers, but details remain to be spelled out. Increasing scepticism about free trade puts at risk the classic gains from trade – lower prices and better choice – and gives rise to fears of job losses from increased imports. On the other hand, some fear that Brexit – and potential trade agreements with third countries – will weaken or undermine consumer protection. In the addition to these substantive issues there are procedural questions too – how is consumer interest represented? This briefing paper addresses these issues of trade policy and consumer interests.

Read Briefing Paper 12 – TRADE AND CONSUMERS AFTER BREXIT

November 2017 – Author: Erika Szyszczak

The UK is searching for a framework for its post-Brexit trade arrangements with the EU. A clean Brexit from the EU has always been unrealistic and the EU is limited in the kind of trade arrangements it offers to third countries. This briefing paper examines the EU-Ukraine Association Agreement (AA) suggesting how a similar agreement may offer a way forward for the UK-EU negotiations. The EU-Ukraine AA reveals that the EU is willing to adapt previous Agreements to new circumstances. A similar UK-EU Agreement could provide access to the Single Market, maintain inward investment incentives and provide an attractive location for establishment of firms and enterprises, especially in the services sector – an area the UK is keen to protect. For the UK, the adoption of this approach would require less unravelling of existing UK laws, but offer some room for independence in negotiating future issues.

Read Briefing Paper 11 – A UK BREXIT TRANSITION: TO THE UKRAINE MODEL?

September 2017 – Authors: Emily Lydgate and L. Alan Winters

The EU Customs Union and Single Market created a significant volume of trade between the UK and the EU and stimulated the development of European value chains.The UK government has stated its intention to leave the Single Market and Customs Union and this remains the position of the leadership of both main political parties. Yet both enable a degree of integration far exceeding that attainable through any simple tariff-free Free Trade Area (FTA). In this briefing paper we examine the possibilities for maintaining some of these benefits in key sectors. WTO rules are drafted and applied in such a way that the UK and the EU27 could design a WTO-consistent trade agreement that goes some way towards preserving current trading conditions in a subset of sectors. We discuss how this might be achieved and also some of the limitations that such an approach entails.

Read Briefing Paper 10 – AN A UK-EU FREE TRADE AREA PRESERVE THE BENEFITS OF THE SINGLE MARKET AND THE CUSTOMS UNION IN SOME SECTORS? 

May 2017 – Authors: Kym Anderson and Glyn Wittwer

The UK has accounted for a major share of the world’s wine imports for centuries, and wine currently accounts for more than one-third of UK alcohol consumption. Its withdrawal from the European Union (Brexit) therefore will affect not only UK wine consumers, producers, traders, distributors and retailers but also suppliers of those imports. Based on a model of the world’s wine markets, the impacts of various alternative Brexit scenarios are determined through to 2025, involving adjustments to UK and EU27 bilateral tariffs on wine imports and any changes to UK income growth and the value of the pound over the period of adjustment. The research finds that in the main scenario considered, for consumers in the UK the price of wine in 2025 is 22% higher in local currency terms than it would be without Brexit, the volume of UK wine consumption is 28% lower, and the value of UK imports is 27% lower because of Brexit. Such a sales reduction in the UK would be a blow to participants in UK wine bottling, transporting, storing, wholesaling and retailing businesses, as well as restaurants and pubs.

Read Briefing Paper 9 – WILL BREXIT HARM UK AND GLOBAL WINE MARKETS?

March 2017 – Author: Kamala Dawar

This briefing paper looks at some of the legal issues that will affect the UK’s public procurement laws and policies following Brexit. When the UK leaves the EU, it is unlikely to be able to simply rollover its current procurement coverage under the WTO Government Procurement Agreement. However, this opens up the possibility of pursuing horizontal policy objectives, such as promoting SME or green public procurement, which is possible under the WTO GPA obligations, but will also need to comply with other multilateral rules. Brexit could offer the UK the possibility to craft a procurement system flexible enough to incorporate the devolved procurement legislation, under the supervision of the Competition and Markets Authority. Such an integrated approach would be beneficial for value for money, legal clarity, and enforcement. It would help to ensure conformity to WTO commitments, while acting as a counterweight against fragmentation.

Read Briefing Paper 8 – BREXIT AND GOVERNMENT PROCUREMENT

January 2017 – Author: Alan Swinbank

EU policies have directly influenced UK food supplies and prices, the profitability of farm businesses, and the rural environment and land use. While Brexit offers the UK an opportunity to design a more efficient agricultural policy that would benefit farmers and the environment, this new policy could have possible implications for consumer prices and will have to conform to World Trade Organization (WTO) rules. This Briefing Paper explores the issues around existing and continuing support for farm businesses and the rural environment, and the UK’s future agri-food trade relations.

Read Briefing Paper 7 – WORLD TRADE RULES AND THE POLICY OPTIONS FOR BRITISH AGRICULTURE POST-BREXIT

November 2016 – Author: Ingo Borchert

Trade in services is economically significant for several reasons; it directly affects UK consumers’ welfare in such sectors as telecommunications, health or retail distribution; producer services such as finance, transportation or professional services are inputs into both the production and international exchange of goods; and it makes a positive contribution to the UK’s current account. Brexit will have important repercussions for the UK’s economic ties with the EU in the realm of services markets. This paper highlights how Brexit might directly and indirectly affect UK services trade and policy-making in this area.

Read Briefing Paper 6 – SERVICES TRADE IN THE UK: WHAT IS AT STAKE?

November 2016 – Authors: Michael Gasiorek, Peter Holmes, Jim Rollo

This briefing paper provides an evaluation of the feasibility of different options for post-Brexit trade relations. With the EU accounting for close to 50% of the UK’s imports and exports of goods and services, the focus in this paper is on the UK’s future trading relations with the EU itself. Whilst all of the options listed in this paper are problematic, the aim is to examine the limitations of what may be feasible and – in so doing – to suggest a way, or ways, forward. Given that the UK’s objectives take the form of seeking to impose certain constraints on the post-Brexit outcome, we look at the extent to which each option is consistent with these ‘red lines’.

Read Briefing Paper 5 – UK-EU TRADE RELATIONS POST BREXIT: TOO MANY RED LINES?

October 2016 – Authors: Erika Szyszczak and Emily Lydgate

Article 50 of the Treaty on European Union (TEU) will govern the UK’s withdrawal from the EU. Several aspects of the interpretation and application of Article 50 TEU pose particular challenges, including domestic controversy regarding the constitutional requirements for triggering Article 50 TEU, the short time-span of negotiation, and the uncertain role for the UK in trade negotiations with the EU and the rest of the world during the withdrawal process. This paper outlines these issues, focusing in particular on the EU and international trade dimensions of withdrawal, in order to provide clarity and highlight potential pitfalls affecting both the EU and the UK.

Read Briefing Paper 4 – TRIGGERING ARTICLE 50 TEU A LEGAL ANALYSIS

October 2016 – Author: Peter Holmes

This briefing paper summarises two issues that a post-Brexit United Kingdom would face if it re-joined the European Economic Area (EEA). It introduces the concept of the EEA+EU as a ‘regulatory union’ within which products, once approved in one country, can circulate freely. Secondly, Rules of Origin (RoOs) — which in effect specify the domestic share of value-added — would need to be adhered to, raising concerns about the viability of supply chains with UK links.

Read Briefing Paper 3 – ROOS AND RULES: WHY THE EEA IS NOT THE SAME AS MEMBERSHIP OF THE SINGLE MARKET

September 2016 – Authors: Emily Lydgate, Jim Rollo, Rorden Wilkinson

This paper discusses the challenges for the UK as it attempts to redefine and renegotiate its post-Brexit foreign trading relationships. This briefing makes the assumption that the UK will not, after leaving the EU, remain part of the customs union. On this basis, the paper examines the nature of such trade negotiations; the scale of the negotiating tasks confronting the UK; and potential approaches that may reduce the immediate negotiating load. It also identifies the countries that should be prioritized for trading negotiations, and examines the likely resources that will be required to undertake these.

Read Briefing Paper 2 – THE UK TRADE LANDSCAPE AFTER BREXIT

July 2016 – Authors: Jim Rollo, Ingo Borchert, Kamala Dawar, Peter Holmes, L. Alan Winters

By electing to leave the European Union, the United Kingdom has chosen – among many other things – to leave the customs union (and the single market that includes all member states) and reassert its status as an individual member of the World Trade Organisation (WTO). In doing so, it will take sole responsibility for the control and governance of its external trade policy with all other WTO members (including the EU) within the framework of WTO rules. This paper explores the nature of those WTO commitments and how they might impact the UK from the date of its exit from the EU.

Read Briefing Paper 1 – THE WORLD TRADE ORGANISATION: A SAFETY NET FOR A POST-BREXIT UK TRADE POLICY?

Professor L Alan Winters, Lord O’Donnell and Amar Breckenridge discuss the future of UK trade policy in a Trade Knowledge Exchange Webinar, recorded on 20 July 2018.

Listen to the full recording of the session.

Read a digest of the webinar in ‘Five things to know about UK Trade Policy after the White Paper‘.