WPI Economics has identified the top 10 non-EU nations the UK should prioritise when seeking trade deals.
Through an analysis of the UK's trading statistics of combined goods and services with our largest non-EU partners, combined with an original in-depth analysis of previous trading relationships, WPI Economics has created the Trade Prospects Index.
Out Trade Prospects Index highlights how potential trade agreements rank against each other in terms of ease of agreement, speed of agreement, and benefit gain for the UK.
Trade deals with some countries (Canada, Singapore, Australia) can be achieved quickly for a small benefit, whilst others (China, India, Japan, USA) despite taking more time to finalise, would provide a measurably more lucrative deal.
Methodology
We identified and assessed three key factors to determine the extent to which a trade deal should be prioritised:
Level of likely benefit
Barriers to actualising trade limit the beneficial nature of a trade agreement whereas nations with greater trade route expansion or flexibility showcase higher potential benefits. This is on top of whether the deal would dramatically increase trading amounts from current figures.
Feasibility of agreeing a trade agreement
A track record of inability to negotiate trade deals due to unresolvable conflicts scores feasibility negatively, whereas options to deviate from previous EU positions which prevented deals from being reached score a higher feasibility.
Speed of agreeing a trade agreement
Countries with a track record of quickly and easily agreeing to trade deals receive higher scores, whereas those who typically take longer receive lower scores.
SOUTH KOREA ranks 1st on the Trade Index due to a likely deal being highly achievable and of high benefit
South Korea ranks 1st on the Trade Index due to its strong economy and desire to seek a separate free trade deal.
Key Points
- South Korea has made the strongest overtures to the UK in the wake of Brexit.
- South Korea has experienced consistent growth in the imports of financial and business services rising by 23% from 2009-2014.
- Implementation and enforcement of intellectual property laws was an issue in EU negotiations as South Korea is one of the largest exporters of counterfeit goods in the world.
- South Korea has left out rice tariffs from previous deals (i.e with USA) to protect Korean rice producers
USA ranks 2nd on the Trade Index due to the likelihood of a deal being of high benefit and moderately achievable
The USA rank in 2nd place due to its strong economy, key relationship with the UK and shared environmental and labour standards
key points
- President Trump has indicated a great level of support for bilateral trade deals, and support for the UK leaving the EU; leaders such as Speaker Ryan are in favour of further trade links.
- The US and the UK share relatively common regulations and standards making potential integration of these areas and reaching a trade deal much easier than TPP or TTIP.
- Key campaign pledges by the President focused on ensuring the US gets a better deal from existing trade agreements - finding compromises in a new deal may prove tricky.
- America's 50-state federal structure and its varying regulations acts as a significant non-tariff barrier for British exporters.
Brazil ranks 3rd on the Trade Index as a trade deal would be moderately achievable, quick, and of high benefit to both parties
Brazil ranks in 3rd place due to its dynamic economy, willingness to begin negotiations, and flexibility to maneuver around CAP obstruction of tariff discussions.
KEY POINTS
- Brazil is currently experiencing a recession and the President was impeached in late 2016: this casts doubt on how quickly a meaningful agreement can be reached.
- Tariffs on imports to Brazil are high and not currently covered by agreements the UK is party to.
- A Trade deal with Brazil presents one of the largest value-add opportunities.
- The UK may need to make concessions in agricultural tariffs and consider impacts of such on domestic producers as Brazil insists on access to agricultural markets.
- Talks with the UK could be used as leverage fro Brazil's negotiations with the EU - the dynamics of the negotiations may change quickly depending on EU action.
China ranks 4th on the Trade Index as a trade deal, whilst being moderately achievable and quick, would be of very high benefit
China ranks 4th in the Trade Index due to the very lucrative nature of a trade agreement if it were to take place. The high value of a trade deal with China makes it a high priority.
KEY POINTS
- Whilst the EU's attempts at agreeing on a trade deal with China has faltered on the issues of tariff barriers and labour costs, the recent FTA agreements with New Zealand could provide a strong platform to base negotiations around.
- The issue of "dumping" from Chinese ultra-low price exports are also a key issue in negotiations - concessions would be sensitive in industries such as steel.
- Trade with China has been growing strongly and consistently. Tariffs on UK exports are high compared to domestically produced goods or services, and the demand for services will only increase as the economy moves further up the value chain.
Australia ranks 5th on the Trade Index as a trade deal whilst being of low marginal benefit, would be quick and easily achievable
Australia ranks in 5th place due to its enthusiasm for a quick agreement with high level discussions having already began.
KEY POINTS
- Australia has been greatly interested in signing a trade deal with the UK most promptly.
- Australia has strong regulatory protection for products that align well with UK regulation. Strong pre-existing business links are prevalent.
- By being more lenient on agricultural exports, an issue which had been troublesome for Australia in its discussions with the US and the EU, the UK may be able to secure a deal quickly.
- The hitherto low tariffs between the two nations means that the comparative benefit from a trade deal would be significantly lower than for other options.
In order to secure a stable path forward, The British Government needs to...
Be SMART about new trade deals
Prioritise countries that are willing to act immediately, and focus on trade deals that maximise value.
Be BOLD about deciding trade-offs
The Government must make sacrifices to secure a deal that is good for the UK as a whole. Working out what these will likely be, and how losers can be compensated will be key.
Be PREPARED for increased trade flows
Increased trade gains will require the UK to act swiftly on decisions to allow such an increase, such as approving infrastructure constructions.
Be REALISTIC about immediate prospects
UK will need to temper its immediate expectations and realise that the gains from trade will take time.
To read the full report, please click here.
