The future of trade in a post-Brexit Britain
With just over a year until Brexit deadline day, the government has been preparing for life as a third country outside of the European Union. Trade negotiations are still in the preliminary phases with the EU and have been halted, formally at least, with the rest of the world due to the exiting process, but we have seen glimmers of deals recently that could be particularly positive for the future.
The overall outlook for a post-Brexit Britain alters depending on who you are talking to; however, what isn’t up for debate is the central role the manufacturing and engineering sectors will play in the UK’s future economic success. In our latest blog, we’re exploring the potential trade deals on the table and the effects these could have on these industries in the years to come.
The UK's position
Although the feeling amongst businesses in the UK about Brexit is largely centred around uncertainty, there is the undoubted potential for new opportunities to open up to those who are dynamic when the Brexit process is complete. The Department of International Trade (DIT) has set up 14 trade working groups across 21 countries in order to explore the best ways of developing Britain’s trade relationships across the globe.
The DIT commented in 2017 that it was early days in the UK’s quest to sign new global trade deals, but recent talks around the Trans-Pacific Partnership (TPP) suggest that the UK is finally starting to implement a strategy to secure an effective global trading position, to replace the one lost as a result of Brexit.
Securing worldwide trade deals is top of the priority list, alongside achieving a viable deal with the EU. The US has already given a nod towards a deal with a post-Brexit UK, as has China and as well as others outside the EU.
Where do manufacturers and engineers stand?
Despite what is often presented in the media, the engineering and manufacturing sectors are big contributors to the UK’s economic picture. The industries makes up about 10% of the UK’s economy, but contribute around £280bn to the gross added value of the UK; equal to around 20% of the total. The sectors also account for 45% of UK exports and directly employ 2.7 million people. It is therefore without doubt that securing a good deal for the engineering and manufacturing sector will be at the forefront of UK negotiators’ minds.
A recent survey undertaken by the EEF and insurers AIG revealed that manufacturing companies are actually at their most optimistic about the global economic outlook since 2014. The Executive Survey showed that 40% of manufacturers are planning for growth in their industry in 2018, compared to 19% predicting deterioration.
The survey indicated manufacturers ended 2017 in an upbeat mood and growth across the industry is set to outpace the rest of the UK economy again in 2018, as the development in global trade continues to gain momentum.
In the run up to the Brexit vote and when the result was indeed revealed, many believed that this would mark a time where a significant number of companies would up sticks and move their manufacturing processes elsewhere in the EU bloc. The reality of these statistics have shown that while 38% of companies fear the potential loss of EU citizens due to Brexit, and 7% are planning to move production to elsewhere in the bloc, 12% do in fact plan to move production back to the UK from the EU and 22% are increasing UK investment.
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Potential Trade Deals
Recently, Britain has been looking at the potential of joining the controversial TPP; which sees countries that border the Pacific ocean create a new single market, significantly reducing tariffs and trading costs between them. If Britain were to join, it would be the first country introduced to not border the Pacific. This is; however, reportedly not an issue for the members involved as they wish to see the group grow.
While the talks have only been at an informal stage due to restrictions applied by the EU until the UK has officially exited, the potential of this deal has been met with scepticism as the UK may not be a significant member in terms of trade power within the group.
The potential of the trade deal although small, would work well for the manufacturing and engineering industry in the UK. Most eyes will be on the main trading relationships with the likes of China, the US and Germany, but Japan, for example, is one of the UK’s significant export partners and our working ties could be deepened and unrestricted simply by joining the group.
Another option that has been considered is the so-called ‘Norway Model’. If Britain were to follow this, it would mean becoming members of the European Free Trade Association (EFTA) and the European Economic Area (EEA). As well as Norway, the EFTA also comprises of Lichtenstein, Iceland and Switzerland, and allows free trade between all four.
The UK left the EFTA in 1972 in favour of the EU, but the option to re-join is back on the table. Though the offer has been dismissed by the government, supporters have argued that membership would allow the UK to “have its cake and eat it”, because while remaining a member of the single market, deals could still be struck elsewhere in the world with non-EU member states. On the other hand, the deal would mean sticking to EU rules and keeping borders open to allow free movement – two things that were strongly rejected by many leave campaigners.
For manufacturers, the option of joining the EFTA could be a positive one. It would allow them to have access to a sustainable supply of employees with the right skills, from across the EU, and secure existing orders with member countries, as well as win new ones with others further afield.
The recent trade agreement between Canada and the EU (CETA) is one of the most ambitious ever concluded by the bloc. It comes without the ties demanded of closer neighbours; such as Norway, and has abolished tariffs on 98% of traded goods and opened up public procurement contracts to companies from both sides, but has completely excluded the trading of services.
A replica of this deal wouldn’t be as effective for the UK, who enjoyed a £14bn trade surplus with the EU in services during 2016. Instead, UK Brexit minister, David Davis, is suggesting that a “CETA Plus Plus Plus” deal should be the cornerstone of the revised relationship, including services and individual arrangements for the likes of aviation, nuclear and data industries.
Although the British government is prohibited in their ability to formally form new trading partnerships with any country outside the EU, it hasn’t stopped them scoping out new connections; one of the most important of which is with the US.
Much has been said about closer trade links between the two countries post-Brexit, and as the US stands as our largest export receiving country; it would be advantageous to create a trade deal that strengthens these ties.
There has been a "joint scoping exercise" where UK ministers visited Washington to explore the potential of a free-trade deal between the countries, and US Members of State visited the UK in return in 2017 – prepping for the UK’s impending exit of the EU.
With the newly released government Industrial Strategy, innovation in engineering and manufacturing is a large part of future plans for Britain, along with the rapid up-take of artificial intelligence. Securing investment and closer ties with the US will bring the UK closer to further improving and strengthening its engineering and manufacturing position on the world stage.
The overall outlook around trade in a post-Brexit Britain is clearly still uncertain; however, the current growth of the engineering and manufacturing industries, largely founded on increasing global exports, demonstrates the central role these key sectors will play in a post-Brexit UK economy.
Stephen Phipson, Chief Executive of EEF, the manufacturers’ organisation, has a positive attitude towards the future of UK industry and recently announced a strategy aimed at making the UK “the world’s most innovative nation by 2030”, thanks in part to the broad range of potential talent.
Those businesses that can take advantage of the global trade opportunities outside the EU, afforded by Brexit, stand the greatest chance of success. The potential trade deals on offer for Britain after 2019, hint towards a new, unencumbered and positive climate for our manufacturing and engineering businesses to flourish on a global level. For now though, it is very much watch this space!