PM May Advised to ‘Ruthlessly Prioritise’ Trade Negotiations. How Should Commonwealth Small States Respond?

 

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FRANHENDY ATTORNEYS TRADE ALERT (Click here for PDF)

Ruthless Prioritisation

Given her severely constrained resources, UK Prime Minister  Theresa May has been advised by Global Counsel (GC), which is headed by ex-European Union (EU) Trade Commissioner, Peter Mandelson,  to adopt a policy of ‘ruthless prioritisation’ to manage the UK’s ambitious post-Brexit trade negotiation agenda.

The basis of GC’s conclusion was a consideration of the following five questions:

  1. Which global markets have been expanding the fastest?
  2. Which markets have the highest barriers to trade?
  3. In which markets has the UK failed to exploit opportunities?
  4. Where is there already substantial British direct investment?
  5. Where does the UK already have a strong comparative advantage, for example, in the area of trade in services?

Countries were then assigned a number which was informed by their overall ranking against the questions posed. Perhaps it should come as no surprise that China, the US and Japan scored the highest. The strongest performers within the Commonwealth were Singapore, Hong Kong and India. Rounding up the bottom were Israel, ASEAN and Mercosur.

In practical terms, the recommended UK policy of ‘ruthless prioritisation’ would mean that the UK should focus on concluding new trade agreements with those markets which performed best in the overall rankings; namely China, the US and Japan. It also suggests that the UK should ignore its Commonwealth Small States (CSS) trade partners, at least until it has concluded its deals with the three top-ranking non-Commonwealth countries proposed by GC.

   Country Metric 1
Imports
Metric 2
Barriers
Metric 3
Peers
Metric 4
Investment
Metric 5
Strengths
Average
1. China 22.6 43.9 23.1 3.3 9.7 20.5
2. USA 26.5 7.5 45.0 16.2 19.0
3. Japan 1.5 7.4 15.3 17.4 8.3
4. Russia 1.7 20.7 1.1 1.8 5.0
5. Brazil 5.8 7.3 3.0 5.6 4.3
6. Singapore 6.8 14.3 4.2
7. Turkey 1.7 15.0 1.5 1.0 3.9
8. Hong Kong 7.0 8.6 3.2 3.8
9. Mexico 7.4 6.8 1.5 1.2 3.4
10. Switzerland 6.1 2.0 8.4 3.3
11. India 0.8 12.4 0.4 2.7
12. Australia 0.9 2.0 6.1 2.1 2.2
13. Saudi Arabia 5.4 3.4 0.4 1.8
14. Korea 0.9 3.7 4.5 1.8
15. Egypt 5.5 2.9 0.6 1.8
16. UAE 4.1 2.9 1.4
17. Vietnam 6.4 1.3
18. Philippines 1.3 1.3 0.4 3.1 1.2
19. Malaysia 0.9 1.5 1.4 0.9 1.0 1.1
20. Indonesia 0.9 2.2 0.6 1.4 1.0
21. Thailand 1.6 2.2 0.4 0.8
22. Taiwan 1.5 2.3 0.8
23. Canada 2.1 0.8 0.6 0.7
24. Macao 3.1 0.6
25. Israel 1.9 1.3 0.6
  ASEAN 9.9 2.5 4.9 8.7 19.9 9.2
  Mercosur 0.0 6.6 9.6 3.0 5.6 5.0

How Should CSS Respond?

The preferential trading agreements that have been brokered by the European Commission (EC) which allow CSS developing countries access to the EU Single Market will cease to apply to the UK once that country is legally disconnected from the EU. While it is uncertain what form of relationship the UK will broker with the EU, as there are at least six models to choose from, it is clear that once the UK government triggers Article 50 of the Lisbon Treaty, and the two-year deadline to negotiate ‘exit terms’ begins, it is unlikely that securing a ‘new deal’ with any but the UK’s biggest trading partners will be top of mind until those post-Brexit trading arrangements are in force. Indeed, the GC report suggests such an approach.

To manage and mitigate the severe disruption in trade expected once the UK exits the EU, the UK’s CSS trading partners will need to conclude ’bridging’ trade agreements before the transition from the EU’s preferential trading dispensation is complete.  As a matter of trade negotiating strategy it will be necessary for the CSS to negotiate a few baseline terms en bloc since this would expedite the conclusion of interim trade access and other important measures with the UK.

It is not clear whether the agreements the UK negotiates post-Brexit will seek to maintain the status quo as far as possible, or whether there will be significant policy divergences to enhance the UK’s post-Brexit international competitiveness or to re-enforce compliance modalities. Whatever the approach, however, it is certainly the case that PM May, who is determined to make ‘Brexit mean Brexit’, will be concerned that whatever else Brexit may mean, it must deliver economic prosperity for the UK. The IMF has already predicted slower GDP growth for the UK in light of the Brexit vote and various econometric studies have also forecasted lower GDP growth for the UK economy post-Brexit, which vary depending on the type of post-Brexit-EU arrangement the UK eventually negotiates with the EU-27.

To the extent that CSS talks with the UK are envisaged to be conducted alongside the UK’s discussions with its large Commonwealth partners and non-Commonwealth parties, the list of potential trade negotiations is extensive. As the GC report and others have highlighted, the benefit to the UK from trading relations with the CSS is not significant. This suggests that CSS must engage the UK in a manner that is not only practical and creative. It must also be timely. CSS should aim to button-down at least their transition arrangements based on an expedited timetable. This will require a set of proposals to the UK which will provide a template that allows that country to consider them on a fast track basis to minimise the trade dislocation that Brexit will cause.

We are persuaded that this is an approach that should be explored by the CSS if they wish to find workable solutions to the issues that have already surfaced from Britain’s decision to leave the EU-27

Key Take-Away

Building on the work started in 2009 to create the environment for dialogue between the CSS and relatively ‘closed’ organisations like the G20 and the OECD, the Commonwealth Secretariat has already redoubled its efforts to better align the expectations of CSS and their larger counterparts in relation to matters of pressing concern to both sides.

To the extent that the UK is a member of both the G20 and the Commonwealth, and in light of the fact that the G20 has placed greater emphasis on their role in supporting the realisation of the Sustainable Development Goals, the attainment of which depends on the quality of treaty-based trading relations, we are satisfied that the Commonwealth Secretariat ought to play a central role as facilitator of the early dialogue between the CSS and the UK.

 

 

 

 

 

 

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