In 2021, the United Kingdom (UK) exited the EU’s legal regime to become an independent entity for trade purposes – given this, the year witnessed the operation of the Trade and Cooperation Agreement (TCA) which governs the relationship between the UK and the European Union (EU), the negotiation of at least two other free trade agreements (FTAs) ( the UK-Australia FTA and the UK-New Zealand FTA), an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) along with the establishment of the Trade Remedies Authority (TRA) and the issuance of its first decisions. The present note summarises these key developments (and more) in UK trade over the past year.
Free Trade Agreements
A key focus for the UK in 2021 has been its effort to show dividends from having exited the European Union, by pursuing negotiation of free trade agreements with alternative partners.
From the perspective of private parties, the UK’s ambitious trade negotiation agenda offers multiple opportunities to express views and to provide inputs into the direction of overall trade policy, with a view to reconstructing UK export markets and to ensuring continued access by foreign producers for imports into the UK.
Private entities can ensure that their voices are heard in these negotiations both through engaging with the relevant trade association that sits on the Trade Advisory Groups informing the government’s negotiating stance (see here), as well as through direct outreach by the government. It is important for private entities to ensure that any proposed negotiating objectives are both concrete and achievable if they are to maximise the probability that such demands are incorporated into the government’s own negotiating stance.
TCA: Ironically, the most significant of the free trade agreements entered into by the UK in 2021 was the Trade and Cooperation Agreement – which governs its relationship with the EU. This was provisionally applied from January 2021 until April 2021, when it was ratified by the EU (having already been ratified by the UK). The agreement sets up a Partnership Council to oversee and facilitate its implementation (supported by a range of committees). Its provisions govern the trade in goods and (to a limited extent) services and contain level playing field provisions, such as a state aid regime and non-regression clauses on environmental and labour standards.
In theory, trade in goods between the EU and the UK under the TCA is now tariff-free. However, significant regulatory barriers remain. Managing the red tape of necessary customs, origin and regulatory conformity declarations in practice has proved a significant drag on erstwhile seamless trade between the UK and the EU, notably for small and medium-sized enterprises and parties used to shipping small orders to individual customers (which in many cases have become uneconomic due to border costs).
One key source of tension arising out of implementation of the Withdrawal Agreement has been the Northern Ireland Protocol, a side agreement negotiated to address the specific challenge of avoiding the re-instatement of a hard customs border on the island of Ireland. The Northern Ireland Protocol seeks to respect the terms of the Good Friday Agreement by maintaining an open border between Northern Ireland and the Republic of Ireland whilst providing regulatory autonomy to the UK outside the EU . It achieves this by keeping Northern Ireland in the EU regulatory space, while establishing a customs and regulatory border down the Irish Sea. In effect, this means that goods shipped between Britain and Northern Ireland are now subject to customs declarations and verifications. The result has been a jump in cross-border trade between the Republic of Ireland and Northern Ireland in 2021, but also a predictable snarling of trade relations between Northern Ireland and Britain. Faced with the difficult politics of this outcome, and rather than engage on ‘fine tuning’ the implementation of the protocol, the UK spent the better part of the year seeking to renegotiate the deal (please see our blog, here).
UK-Australia FTA: The UK and Australia also signed a free trade agreement in December 2021 which will undergo a period of scrutiny by the UK parliament before it is formally ratified in 2022. The UK government had announced a deal “in principle” in the summer of 2021, but it took until the end of the year for the parties to agree to actual text on all chapters. The agreement removes tariffs on all UK goods in phases, with tariffs removed on almost all Australian exports to the UK. The deal retains certain safeguard measures for UK agriculture including the application of tariffs to some imports above a certain threshold for a number of years. However, many UK agricultural groups believe the protections and gains for farmers are inadequate – an issue likely to arise in parliamentary scrutiny of the agreement in 2022. Moreover, the overall impact of the deal for the UK in terms of increase to GDP will be negligible, on the UK Government’s own assessment. In addition, Australia and the EU launched free trade agreement negotiations in 2018. It will be interesting to see to what extent Australia will seek to hold back offering the EU any trade liberalization it now has offered the UK, and the ultimate outcome of such negotiations.
CPTPP: In February 2021 the UK also applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Negotiations to this end were initiated in September 2021 with a preliminary call. The UK also launched negotiations for a digital trade agreement with Singapore in June 2021 and an agreement in principle was reached in December 2021. An agreement in principle was also announced in October 2021 between the UK and New Zealand on a free trade agreement, while text of the agreement remains pending. The UK also intends to re-negotiate its current “rollover” agreements with Canada and Mexico.
UK-US FTA: Finally, the UK over the course of 2021 sought to engage with the United States to kick-start negotiations for a UK-US Free Trade Agreement. However, the new US administration and the UK’s attitude towards the Norther Ireland Protocol have proved significant roadblocks: the US has repeatedly made clear that any steps on the UK’s part to undermine the Good Friday Agreement, including through reneging on the terms of the Northern Ireland Protocol, will scupper any potential UK-US trade deal. In any event, the US does not seem to be minded to negotiate and sign any significant trade deals with any haste, leading to a stalemate over the course of 2021 in UK-US trade talks, and not suggesting the prospect for further progress in 2022. In any event, any UK-US trade deal would inevitably give rise to issues of the UK’s regulatory alignment: either the UK will reject US calls to recognize the US’s different plant and food safety standards, and significant trade barriers will remain between the two countries notwithstanding any deal; or the UK will agree to recognize US standards, and see its producers immediately face significant new barriers in their traditional export markets in the EU.
Others: In 2021 the UK also continued to negotiate and roll over the trade agreements to which it had previously been a party to as part of the EU. The UK will also continue to work on expanding its repertoire of trade agreements in 2022 as it also hopes to begin negotiations with the India and the Gulf Cooperation Council in 2022.
The past year also witnessed the formal establishment of the UK’s Trade Remedies Authority (TRA) (which had previously been subsumed within the Department of International Trade as the Trade Remedies Investigation Directorate), as well as the publication of the TRA’s first decisions (e.g. statements of essential fact and recommendations). In its decision in welded pipes and tubes, the TRA recommended dropping existing trade measures against Russia. In its decision concerning the UK steel safeguard, the TRA recommended dropping the safeguard on a number of steel products. However, following objections by the UK domestic industry, both decisions are currently in the process of being reconsidered by the TRA. More recently, the TRA issued its statement of essential facts in the biodiesel anti-dumping and countervailing duty cases against the US in which the order was dropped against one product.
The decisions of the TRA contrast sharply with parallel EU cases, where the anti-dumping order against welded tubes and pipes was maintained against Russia, where the steel safeguard order was maintained against all products and where the biodiesel anti-dumping and countervailing duty orders were similarly maintained against all products. The TRA thus far has thus been (and may continue to be) more respondent friendly than other investigating authorities around the world, including the EU Commission, assuming the UK will not overturn the two decisions it is reviewing. This may flow from the TRA’s status as a new agency trying to find its feet and not wanting to see any decision it takes challenged before the World Trade Organization at this early stage of its existence. Of note, when the UK was still an EU Member State it often voted against the imposition of trade defence measures, so this does not necessarily signal a change of policy from the UK perspective.
This year, a number of cases will come forward which will be important to the ceramics industry and to the steel industry (including an anti-dumping transition review of heavy plate from China, and a series of cases on hot rolled products from China, Russia, Ukraine, Brazil and Iran). In 2022, given the TRA’s approach, it will be important for domestic industry to ensure it fully engages with every case to seek preferred outcomes in any transition review. Conversely, overseas exporters are likely to be encouraged by the respondent friendly practices of the TRA and may well participate more in reviews than has hitherto been the case.
Other trade matters
Two significant pieces of legislation received royal assent in 2021: (i) the Trade Act (amongst other things, this Act establishes the UK’s power to create regulations to implement the Government Procurement Agreement (GPA) and rolled-over EU free trade agreements); and (ii) the National Security and Investment Act (NISA) (which increases the UK’s powers to investigate and intervene in mergers, acquisitions and other transactions which potentially pose national security issues). In 2021, secondary legislation was introduced under the Trade Act to modify various public procurement regulations to ensure their compatibility with the GPA as well as enact a number of mutual recognition agreements embodied in FTAs and otherwise. Any further changes to UK regulations required under “roll-over” EU FTAs will be enacted in a similar way. NISA came into force on 4 January 2022. Although targeted at foreign investment, the regime applies to UK and non-UK investors. It therefore will be important for both overseas and domestic investors to be familiar with its provisions.
In June 2022, the US and the UK managed to strike a deal to suspend retaliatory tariffs in June 2022 regarding a long running dispute over support for large civil aircraft. On 19 January 2022, both parties also announced the start of bilateral discussions to address international steel and aluminium excess capacity, including the US Section 232 tariffs and the UK’s own retaliatory tariffs. This may provide an important opportunity for industry to provide its views to government on these issues. The US and the EU had already announced a separate a deal on this issue on 31 October 2021 in the context of US Sections 232 tariffs on EU steel and aluminium and retaliatory EU measures, as a result of which the UK industry was placed at a competitive disadvantage in the absence of a US-UK deal.