Brexit: UK-EU trade deal still awaited, but agreements reached with Canada and Japan

We are approaching the final month of the Brexit transition period and talks between the UK and EU continue remotely, with a deal yet to be agreed. In contrast, the UK has made notable progress elsewhere by striking key trade deals with Japan and Canada.

26 November 2020

There are only five weeks until the end of the Brexit transition period. However, no progress has been made on the key sticking points of competition, fisheries and governance. If a deal is not reached, the UK faces trading with the EU under the rules set by the World Trade Organisation.

Both sides have been urged to step up planning for a no-deal Brexit. This includes increasing pressure on the EU from Belgium, France and the Netherlands. Contingency measures could include emergency legislation to keep transport moving and energy flowing between the UK and EU.

There has, however, been progress on the UK's trading relationships with other important trading partners. On 23 October the UK Government signed a new trade agreement with Japan. This is the UK’s first major trade deal as an independent trading nation. The deal is catered to both economies which means key benefits for digital and data, financial services, food and drink, and creative industries. Under the deal, 99% of UK exports to Japan will be free of tariffs, resulting in an estimated annual boost of more than £15 billion to trade between the two countries. The agreement also includes a promise from Japan to support the UK joining the Trans-Pacific Partnership, one of the world’s largest free trade areas, covering 13% of the global economy and more than £110 billion of trade in 2019.   

The UK has also agreed to continue its existing trading relationship with Canada, which is worth £20 billion per year. The two countries have agreed to begin negotiating a new, more ambitious deal as early as 2021. This agreement brings the UK closer to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada is a member. CPTPP helps businesses secure more opportunities in 11 key Pacific markets and is a vital part of the UK’s trade negotiations agenda.

In under two years, the UK Government has agreed trade deals with 53 countries.

The UK Government is still holding trade talks with countries that do not currently have EU trade deals, including the US, Australia and New Zealand. The UK’s trading relationship with the US is considered the most important given that the US is the single country with which the UK does the most trade. Incoming US president Joe Biden has linked a future UK-US trade deal to safeguarding peace and stability in Ireland. This puts increased focus on the highly controversial UK Internal Market Bill affecting Northern Ireland which is already facing a number of challenges, including being the subject of a formal infringement process against the UK by the EU. The European Commission deemed the UK Government’s failure to withdraw the contentious parts of the Bill a breach of its obligations under international law. In particular Part 5 of the Bill, which would allow the UK Government to make regulations that remove or modify the domestic effect of provisions in the Northern Ireland Protocol, relating to trade and state aid. Despite the House of Lords not normally voting on amendments until the report stage, Part 5 of the Bill was removed at the committee stage. Additional amendments were made on the devolution aspects of the Bill at report stage and further examination is expected in December. However, the UK Government has vowed to reinstate any parts of the Bill removed by the Lords, when the legislation returns to the House of Commons.

Our trade and commerce team has a broad range of experience in advising UK and multi-national businesses operating across all sectors, assisting clients with ongoing business and trading requirements. This is our third in a series of short bulletins released in the lead-up to 31 December, offering high-level overviews of trade developments.

If you would like further advice on this or another related matter, please get in touch with Alison Rochester or Roddy Forgie, of our trade and commerce team, or your usual Shepherd and Wedderburn contact.

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