Introduction
Following the UK’s departure from the EU, the UK Government has the power to seek to negotiate and conclude its own trade deals. This blog explains what trade agreements are, how they are made, and sets out the current state of play of the UK’s trade agreement negotiations.
The significance of EU exit for UK trade policy
When the UK was part of the EU, the European Commission managed trade and investment relations with non-EU countries on behalf of the UK Government (and the governments of all other member states). This meant that trade policy was made, and the negotiation and conclusion of international trade agreements undertaken, at EU level. According to the European Commission:
By acting together as one, EU countries benefit from increased negotiating power when making trade deals with other countries.
Following the end of the implementation period at the end of 2020, the existing trade deals negotiated by the EU ceased to apply in the UK. As a result, the UK became responsible for setting its own trade policy. At the time, the UK Government negotiated the ‘rollover’ of existing deals negotiated by the EU, as discussed later in this blog. Had these deals not been rolled over, the UK would have had to revert to trading with some countries on World Trade Organization (WTO) terms.
In 2016, in preparation for leaving the EU, the UK Government created the Department for International Trade. In 2021, the UK Parliament passed the Trade Act (‘the Act’) which, according to the Explanatory Notes, “provides key measures that are required as the UK Government develops its trade policy for the UK now it has left the European Union”. These include powers for UK and Scottish Ministers to ensure the UK Government and devolved governments can implement the UK’s obligations under a variety of trade agreements, including through changes to domestic law.
The Act also establishes the new Trade Remedies Authority (TRA), the role of which is to investigate whether new trade remedies (e.g. additional duties on imports) “are needed to prevent injury to UK industries caused by unfair trading practices and unforeseen surges in imports”. The Act also grants a power to the Secretary of State to appoint members to the Trade and Agriculture Commission (TAC), a body which scrutinises whether new trade agreements are consistent with the maintenance of UK levels of statutory protection in relation to UK animal and plant health, animal welfare, and environmental standards. Under the Act, the UK Government has a duty to seek advice from the TAC regarding the impact of trade agreements on agricultural product standards.
International relations (including international trade) are a reserved matter under the Scotland Act 1998. This means that the Scottish Government has no formal role in the development of trade policy, nor in negotiating and signing international treaties. The Scottish Parliament also has no formal role in the scrutiny and ratification (i.e. approval) of trade agreements. The roles of the Scottish Government and Scottish Parliament will be discussed in more detail in a future SPICe blog.
What is a trade agreement?
A trade agreement is a treaty between two or more countries which aims to remove barriers to trade (such as tariffs and quotas and non-tariff barriers such as different standards and SPS rules) between those countries, increasing access to one another’s markets.
Free trade with fewer non-tariff barriers can have benefits for the economy, for example, by: enabling lower prices for consumers, increasing exports, and providing a greater choice of goods. However, there may also be disadvantages to frictionless trade, such as: reduced tax revenue from imports; increased competition from overseas firms; an increased likelihood of outsourcing jobs; and greater potential for a trade-off of regulatory standards, such as for the environment, animal welfare or workers’ rights.
How are international trade agreements made?
The UK Government can negotiate, sign, ratify (approve), amend and withdraw from international treaties (including trade agreements) under its prerogative powers (executive powers that are usually exercised by Ministers on behalf of the King).
Once the UK Government has negotiated the terms of the agreement with one or more other countries and signed an agreement, it is generally required under the Constitutional Reform and Governance (CRaG) Act 2010 to lay treaties before parliament for at least 21 days of parliamentary scrutiny. According to the UK Parliament website:
If no action is taken by Parliament during the 21 day period, the government can proceed to ratify the treaty.
If, within the 21 day period either House decides that the treaty should not be ratified, the responsible Minister must issue a statement setting out why they believe the treaty should nevertheless be ratified. The statement resets the 21 day scrutiny period. There is no limit to the number of times this procedure can take place.
Once the final 21-day scrutiny period has been completed, the UK Government can proceed to ratify the treaty. According to the House of Commons Library, if implementing legislation is required, the UK Government will not ratify the agreement until both processes (the CRaG scrutiny process and the passing of implementing legislation) have been completed.
Figure 1 (below) illustrates – in simple terms – the treaty process from negotiation to ratification. The UK Parliament’s role in the ratification of treaties has been explained in more detail in a House of Commons Library briefing paper.
Once the domestic ratification processes of all parties to the treaty have been completed and the agreement has been approved by all parties, the treaty can come into effect.
Figure 1 – The process for the creation of a bilateral treaty. The ratification process required by the CRaG Act 2010 is denoted in blue.
What is the UK Parliament’s role in scrutinising trade agreements?
Beyond its ability to indefinitely delay the ratification of treaties through the provisions of the CRaG Act, and its ability to scrutinise implementing legislation when required, the UK Parliament’s role in scrutinising trade agreements is limited.
While the UK Government has made a series of non-statutory commitments to facilitate parliamentary scrutiny of treaties – for example through providing sight of its negotiating objectives and impact assessments, and allowing Parliament to debate its objectives and final agreements – there are few legal requirements to this end. In a report on parliamentary scrutiny of free trade agreements, the House of Commons International Trade Committee expressed its view that “the statutory provisions for parliamentary scrutiny [are] insufficient and that the additional commitments the Government has made do not go far enough or have enough force”. It concluded and recommended that:
Despite the Government’s prior commitment to do so, Parliament has not been ‘consulted’ before or during FTA negotiations—rather, Parliament has merely been informed of decisions and outcomes after the fact. This needs to change. While we recognise the prerogative of the Government to conduct trade negotiations, we ask it to consider as part of its review how it can involve Parliament and its committees more closely prior to negotiations.
House of Commons International Trade Committee, ‘UK trade negotiations: Parliamentary scrutiny of free trade agreements’, 18 October 2022
What new trade agreements has the UK signed since leaving the EU?
According to the UK Government, “As an independent trading nation, the UK now has over 70 trade agreements in place”. Many of these are ‘continuity’ or ‘rollover’ agreements, which generally replicate most of the terms of the deals the UK previously had as a member of the EU. However, they are not always identical. For example, the UK in a Changing Europe have explained that the UK’s continuity agreement with Japan “went beyond rollover terms with Japan in areas such as financial services. However it is less advantageous on export quotas for agricultural products”. For the purposes of this blog, continuity agreements are not considered ‘new’ free trade agreements.
At the time of writing, the UK has signed two comprehensive new trade agreements (i.e. agreements not limited to, for example, digital trade such as the UK’s Digital Economy Agreement with Singapore):
- The UK-Australia Free Trade Agreement was signed by the UK and Australian governments in December 2021, making it the first ‘new’ UK trade deal signed since EU exit.
- The UK-New Zealand Free Trade Agreement was signed by the UK and New Zealand governments in February 2022.
Both agreements have completed the ratification process in the UK as required by the CRaG Act 2010 (see Figure 1) but require implementing legislation before the UK Government formally ratifies them and their terms can take effect. In the UK, the Trade (Australia and New Zealand) Bill must be passed by the UK Parliament to enable the full implementation of these agreements. The domestic ratification processes of Australia and New Zealand will also need to be completed before the respective agreements come into effect.
The UK Government has said that both of these deals will “complement the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)”, which is discussed below.
What trade negotiations are currently in progress?
The UK is currently undertaking trade negotiations with several countries and trading blocs. Notably, the UK became the first country to apply to join the CPTPP – a pre-existing trade agreement between 11 countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The UK applied to join the CPTPP on 1 February 2021 and started negotiations in September 2021. The Department for International Trade has published its strategic approach to UK accession to the CPTPP.
The UK had also conducted trade negotiations with the United States of America (USA), which was an early priority for the UK’s post-EU trade policy. The countries undertook five rounds of negotiations between May and October 2020. At present, negotiations are suspended, and the UK is not expected to reach an agreement with the USA soon. The UK has signed Memorandums of Understanding with some individual states (for example, Indiana) but these do not amount to formal trade agreements.
In addition, negotiations are currently in progress between the UK and:
- India
- Canada (to replace the existing continuity agreement)
- Mexico (to replace the existing continuity agreement)
- The Gulf Co-operation Council (representing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates)
- Israel (to replace the existing continuity agreement).
What future negotiations is the UK Government considering?
The UK Government has held public consultations to seek input on potential future negotiations with Switzerland (the consultation for which closed on 22 June 2022) and South Korea (which closes on 2 February 2023). The UK already has trade continuity agreements in place with Switzerland and South Korea, but the UK Government hopes to negotiate new, “enhanced” trade agreements with both countries.
Sean Taheny, SPICe Research