Following Brexit, the UK is free to strike its own deals for buying and selling goods and services around the world.
That includes the European Union (EU). Over the summer, negotiations will “intensify” in order to try to reach a trade deal by the end of the year.
But why is a UK-EU trade agreement so important, what happens if talks break down and what other deals is the UK working on?
What is a free-trade deal?
A free-trade deal aims to encourage trade – usually in goods but sometimes in services too – by making it cheaper. This is often achieved by reducing or eliminating tariffs – charges for trading across borders.
Trade agreements also aim to remove quotas – limits on the amount of goods which can be traded.
Trade can also be made simpler if countries have the same rules, such as the colour of wires in plugs. The closer the rules are, the less likely that goods need to be checked.
Where does the UK trade?
% of total UK trade in 2018
So why have tariffs and quotas at all?
While free-trade agreements aim to boost trade, too many cheap imports could threaten a country’s manufacturers.
In order to protect local car makers, for example, a country could impose tariffs on vehicles from other parts of the world.
Why does the UK need an EU trade deal?
A post-Brexit trade deal will stop new tariffs and other trade barriers coming into force after the transition period ends on 31 December 2020.
During the transition period, the UK remains part of the EU’s trading arrangements – the single market and the customs union. That means no tariffs, quotas or checks will be introduced.
The point of the transition is to give both sides some breathing space while a trade deal is negotiated, and to give businesses time to get ready.
What about a Canada-style deal?
Prime Minister Boris Johnson has spoken in favour of an EU trade agreement that builds on the deal that Canada has.
Tariffs on most Canadian goods, such as machine parts, have been eliminated. However, there are some additional checks, such as customs and VAT.
Services, like banking, are much more restricted.
The financial sector is important to the UK economy – so getting a deal in this area will be a priority.
- What is a ‘Canada-style’ trade deal?
- What is the transition period?
How easy will it be to negotiate a UK-EU trade deal?
Right now, the UK and the EU share the same rules in areas like workers’ rights, competition and environmental policy – they’re known as level playing-field rules.
While the EU insists the UK must stick to these rules – so UK businesses don’t gain an advantage – the UK government says it wants the freedom to move away.
Access to fishing waters has also proved to be a major sticking point.
Even if a trade deal is agreed, it will not eliminate all checks, because the EU requires certain goods (such as food) from non-EU countries to be checked.
What happens if UK-EU trade talks fail?
If negotiators fail to reach a deal, the UK faces the prospect of trading with the EU under the basic rules set by the World Trade Organization (WTO).
If the UK had to trade under WTO rules, tariffs would be applied to most goods which UK businesses send to the EU. This would make UK goods more expensive and harder to sell in Europe.
Having WTO terms would also mean full border checks for goods, which could cause traffic bottlenecks at ports and lead to significant delays.
And the UK service industry would lose its guaranteed access. This would affect everyone from bankers and lawyers, to musicians and chefs.
What trade deals has the UK done so far?
While it was an EU member, the UK was automatically part of around 40 trade deals which the EU had struck with more than 70 countries.
So far, 19 of these existing deals, covering 50 countries or territories, have been rolled over. This represents just over 8% of total UK trade.
All of the following agreements are expected to take effect at the end of the transition period, according to the Department for International Trade:
|Which deals are expected to take affect at the end of the transition?|
|Country or territory||Value of trade with the UK in 2018||Country or territory||Value of trade with the UK in 2018|
|Central America||£1.1bn||Pacific Islands||£163m|
|Eastern and Southern Africa||£2bn||South Korea||£14.8bn|
|Georgia||£123m||Southern African nations||£10.2bn|
|Jordan||£448m||The Faroe Islands||£252m|
The government says it is still in negotiation with a further 18 countries which have existing EU trade deals, including Canada and Mexico.
In addition, the UK government is also holding trade talks with the US, Australia and New Zealand.