The UK Trade Strategy: Fit for the World?

The UK Government launched two major strategies in a week – the Trade Strategy following the Industrial Strategy by just a couple of days. Both are very much to be welcomed and publishing them (more or less) at the same time makes sense because they are so closely interrelated. Indeed, the Industrial Strategy makes clear that “the UK will continue to be a champion of free and fair markets, as the best route to prosperity” and the Trade Strategy states that “we remain resolute in our belief that fair and open markets are the best route to growth”. Those two statements make clear that the underlying primary objective of both strategies is that of economic growth.

The Trade Strategy provides more detail on quite what it means for the current government for the UK to be a champion of free and fair trade and open markets (itself a bold commitment in the current global context).

On the positives:

• Having a trade strategy is a very positive step in itself. The Trade Strategy will provide a basis for discussion, feedback and analysis of policy which has long been missing. It is also positive that there is linkage with the Industrial Strategy, and the IS-8 sectors in that strategy, as this will increase the coherence of the UK’s domestic and international policy priorities.
• Overall, the strategy can be characterised as pragmatic. This in itself seems to mark a normalisation of the UK’s post-Brexit role on the world trade stage and recognition of our role as a middle power (even if a large and influential one).  It contains some very good discussion and diagnosis of the UK context, its relationship to the international economy, and the broader global context (supply chains, geopolitics, climate change etc).
• The importance of services for the UK economy, and the linkage between services and goods, is explicitly recognised. This is important not simply because of the size of the service sector in the UK and the level of service exports, but because of the complex relationship between services and goods – they are by no means separate activities and frequently happen ‘jointly’ in various ways.
• In the aftermath of Brexit, much trade policy focused on increasing UK exports. While there is a lot of focus on exports, which is par for the course in trade strategies, we welcome the explicit recognition of the importance also of imports – for supply chains, competitiveness and consumers. It is too easy to forget that much of the benefit from trade comes from imports and not from exports. There is a nice quote from Adam Smith towards the beginning which captures this.
• It is good to see the focus on the barriers for businesses, the need to improve the export support services and export finance.  These are issues which come up time and time again from businesses and business surveys. Within this, it is positive to see the recognition of the importance of regulatory barriers – be they with regard to goods or services.
• For too long, trade policy has been seen through the lens of free trade agreements (FTAs). The strategy explicitly recognises that FTAs are only a part of the toolkit and rightly discusses other forms of cooperation and engagement with other countries.

However, no strategy is perfect and there are some issues which raise concerns:

• There is quite a lot of ambition and statement of objectives relative to clear policy levers, and there is still some risk of internal contradiction between elements of the strategy when the details get ironed out (what could be described, for those with long memories, as mild cake-ism).
• These arise particularly with respect to the UK’s commitment to open trade and the WTO. The strategy commits to both and acknowledges their benefits to the UK. But this seems conditioned by a pragmatic willingness to break rules where necessary. This is summarised by the sentiment that “… we need an agenda for trade that is not only free, but also fair, accountable and – insofar as is practical – governed by rules” (my bold italics). One reading of this is “we will try to abide by the rules of international trade, but reserve the right not to do so”.
• For example, a commitment to export finance, overall, is a good thing, but risks shading into illegal export subsidies. Also, little detail is provided about a proposed trade defence legislation, which will give the UK a stronger hand in retaliating against other countries. This risks being controversial with UK trade allies and contravening WTO rules. Finally, a strong emphasis on making deals outside the traditional Free Trade Agreement (FTA) context could also contravene the WTO, especially if the UK’s recent ‘Economic Prosperity Deal’ with the US is an indication of what is to come. In sum, some of this may be WTO compatible, some may not be, but the UK’s investment in open trade suggests that it should proceed with caution.  
• The discussions of regulatory barriers cover a lot of ground but without much detail on the priorities – be they with regard to policies, markets (especially the EU) or sectors. Little detail is given on the proposed Ricardo Fund.
• The final chapter on “Accountable Trade” is, in principle, very welcome. This chapter covers both non-growth objectives (environment, labour rights, corruption, support for Less Developed Countries), as well as internal UK governance arrangements. With regard to both, whilst there are warm words, commitments are lacking in substance. With regard to governance, UK trade strategy in the past has faced criticism regarding its approach to trade negotiations, stakeholder engagement, devolved nations and oversight from Parliament. Many have called for Labour to make formal changes to legislative and governance processes in order to create a more consultative approach. While some changes and commitments have been made, largely under the previous government, such as supporting Parliamentary debate of FTAs (time allowing) and establishing an inter-ministerial group on trade, this new Trade Strategy largely preserves the status quo. The most concrete change is to give Parliament twice as long (20 days) to scrutinise new comprehensive FTAs and making negotiators more available to Parliamentary select committees (a controversial issue in the last Government), but these are not significant reforms.

In sum, the strategy is welcome and contains many valuable elements, and some areas which fall short of what we might have hoped. The next important question has to do with its implementation. It is unclear how elements of the strategy will be prioritised or what are the proposed timelines for delivery are, and this is another area in which it would also be useful to have more clarity.