The Brexit campaign was punctuated by anti-trade rhetoric. Germany is the UK’s largest export market, after the United States. More than 50% of British trade exports are destined for European countries. It is not surprising that the Remain camp thought Brexit was bad for the United Kingdom, as it will lose its tariff-free access to the European Union, in addition to common commercial policy, flexible movement of labour and freer movement of investments.
Britain on the World Stage
Although average tariffs in the EU are relatively low, there are disturbing peak tariffs on certain products, such as cars. After Brexit, the UK will have to compete with American and Japanese cars for the EU market without the duty-free advantage they currently have. Notably, cars constitute about 9.6% of the UK’s exports.
Theresa May appreciates the consequences of Brexit, hence not long after the change in the US administration, she paid Donald Trump a visit. Trump has portrayed himself as a trade sceptic, but also acknowledges the need for preferential rules in today’s global scene. After their highly publicised meeting, there were talks of a possible UK-US trade deal.
However, the imminence of such talks is impeded by the Treaty on the Functioning of the EU, which effectively denies the UK the ability to negotiate on trade matters within the EU Commission’s competence until it exits the EU. This pushes the commencement of such talks to at least late 2018 if Britain and the EU are able to agree on an exit deal by then.
In the meantime, the EU and the US negotiations on the Trans-Atlantic Trade Partnership (TTIP) were effectively put on hold after the change of administration in the US. This would have placed the UK ‘at the front of the queue’ for US prospective trade deals. However, the US Secretary of Commerce recently opened the door for resuming talks with the EU, and commencing talks with China and Japan.
TTIP, if negotiated, would not only give American goods and services better terms of access to the EU vis-à-vis the UK, but would also lower other barriers to trade which are currently prevalent. Other competitors for the EU market include China, Japan and South Korea. The EU is currently negotiating a free trade agreement (FTA) with Japan, and already has an FTA with South Korea. These trade deals, in addition to the recently-signed deal with Canada, affects many UK products’ access to the EU market, including beloved Scottish whisky.
Out in the Cold?
Noting the shift from product specialisation to specialisation in tasks, FTAs have become more important than ever. They enable producers to benefit from preferential rules of origin, hence companies favour them as destinations for regional/cross-regional value chains. The UK will have to start from scratch, and for now, it can only hope that the EU does not make substantial progress with the TTIP negotiations before Brexit takes effect.
Otherwise, the UK will be left in the cold, with no allies with which to enjoy whisky – at least for a while.