As 2022 comes to an end, IOE&IT’s Kevin Shakespeare, director of strategic projects and international development and Hunter Matson, trade policy and research specialist, look ahead and consider the big trade policy challenges and opportunities for the year ahead
Q: What is the biggest trade challenge for the UK government next year?
A: At the top of the agenda has to be the ongoing trading relationship with the EU. Owing to its physical proximity, as well as the demand for exchange of goods and services, the EU remains the most important region for UK trade. The challenges traders have faced since Brexit are well documented and are going to continue next year. They could grow, as UK domestic regulation diverges from EU regulation.
In 2023, the UK government must address the NI Protocol, engage in regular and robust conversations around updating the EU–UK Trade and Cooperation Agreement (TCA) to make sure it is working for businesses, and crucially working together to ensure technology solutions being developed for international trade, such as Single Trade Window (STW) and Ecosystem of Trust (EoT) in both jurisdictions are interoperable.
But government also has to ensure engagement with industry to maximise digital trade opportunities . In addition to STW and EoT, the Electronic Trade Documents Bill is due to receive Parliamentary approval. This provides the opportunity for the UK to become a leader in digital trade and trade facilitation, but only if it engages with industry and ensures implementation in a manner which industry can buy into.
On free-trade agreements (FTAs), the Sunak government has shifted to a policy of substance, rather than speed. It’s also worth noting that secretary of state Badenoch has commented publicly that DIT will explore other instruments for increasing international trade flows, including signing MOUs with individual US states and other agreements, such as an MRA and extending the SMA with Switzerland. We should expect this current government to explore more alternatives to FTAs moving into 2023.
And finally, inflation and currency fluctuation need addressing. The UK has a negative balance of trade in goods, and fluctuations in the pound make it more expensive to buy imported goods. With the UK headed into recession, price pressures on imports could strain UK trade further.
Q: How will the IOE&IT support government and industry in meeting these challenges next year?
A: Our aim is to remain the partner of choice on piloting and implementing new initiatives such as EoT, STW, the Target Operating Model (TOM) and Electronic Trade Documents Bill. But we also want to develop and deliver education and training for government officials, trade intermediaries and businesses, especially MSMEs, to understand how to use the existing and upcoming legislative and trade agreement frameworks to increase trade, particularly UK exports.
Q: What are your causes for optimism for the UK going into 2023?
A: The UK’s emphasis on digital trade and trade facilitation is a genuine cause to be positive, but only if there is engagement with industry. Initiatives such as NCTS 5 on Transit provide an opportunity for enhancing how we trade. It is only through education and bringing everyone along that we can succeed. We can be optimistic because of the resilience of our members, but we also have to recognise that there are considerable headwinds and challenges ahead. But if the engagement with business is right, there is an opportunity for this to be a major year in the digitalisation of trade.
Q: What are the most pressing issues at the international level?
A: Keeping member states engaged with the large global trade bodies is a major challenge. The WTO could benefit from reform, something members agreed to at MC12, but as of yet there is no consensus on what reform looks like. While bilateral FTAs and regional trade agreements, such as the CPTPP are permitted under WTO rules, the proliferation of such agreements means that more trade is taking place outside the WTO rulebook.
It is vital that we keep a lid on fragmentation. The WTO and WCO have spent considerable time over recent years trying to develop international standards and frameworks on things such as customs single windows, digital standards. They have worked in partnership with other organisations like UNCITRAL, to create model laws on electronic trade documents. Uptake and implementation of these standards requires more emphasis, and as countries look to invest in their digital trade infrastructure, there is little deference being given to these international standards.
Concerns such as cyber security and austerity of domestic sectors are causing member states to look inward and re-shore, near-shore or friend-shore supply chains, especially for critical technologies such as semiconductor chips. This may lead to fragmentation of design, access to supply, and ultimately issues with interoperability, all of which will add complexity and cost to traders trying to engage with disparate systems and technologies when conducting international trade.
On a global level, there is also a major role for supporting developing countries and other disadvantaged groups in trade. Increasing multipolarity and the rise of trade wars risk splitting the world into separate spheres of influence. While economists agree we are not seeing genuine deglobalisation occur, the shift in global supply chains has potential to have adverse effects on developing countries.
For example when ocean-delivered LNG demand in Europe spiked after Russia’s invasion of Ukraine, prices soared and the increased demand from Europe (and its ability and willingness to pay) created a shortage of LNG in Pakistan. Similar issues have occurred with grain exports from Ukraine, and developing countries not being able to afford to source from alternative, more expensive, markets. Liberalised trade is about raising the standard of living for everyone, everywhere. The WTO is proud of the statistic that more than 1 billion people have been raised out of poverty since 1990. A major challenge in 2023 and beyond will be to ensure the world doesn’t backslide on that trend.
