Post-Brexit trade deals

International Trade Secretary Liam Fox and South Korean counterpart Yoo Myung-hee signed a free trade agreement (FTA) in order to maintain trade arrangements after Brexit, BBC reported.

This is the first post-Brexit trade deal the UK has agreed with an Asian country and is on similar terms as the ones already established through the existing European free trade agreement the UK currently has with Korea.

South Korea is the fourth largest economy in Asia, producing electronics, steel and auto industry. In just 2018, South Korea exported $6.36bn (£5.0bn) worth of goods to the UK.

With the Brexit deadline set for 31 October, and the UK possibly leaving with or without a deal, the UK realises that it needs to provide continuity in its trading relationship with other countries so that businesses in the UK can be prepared, find the necessary support to maintain growth and productivity.

As Mr Fox said: "The value of trade between the UK and Korea has more than doubled since the EU-Korea agreement was applied in 2011. Providing continuity in our trading relationship will allow businesses in the UK and Korea to keep trading without any additional barriers, which will help us further increase trade in the years ahead. As we face growing global economic headwinds, our strong trading relationship will be crucial in driving economic growth and supporting jobs throughout the UK and Korea."

 

Exporting to South Korea

The secured deal covers South Korean exports such as cars and auto parts. It exports cars and ships to the UK and the UK exports to Korea crude oil, cars and whisky.  The deal will be ratified by the end of October and implemented in November.

According to Andrew Walker, BBC World Service economics correspondent, “Tariff-free trade with South Korea is certainly worth preserving. British goods exports to Seoul climbed sharply after the EU's deal with South Korea was implemented in 2011. Last year the UK sold about £6bn worth of goods there.” South Korea is one of the bigger countries that the UK has enjoyed access through an EU trade deal, with UK goods imports from South Korea exceeding £4bn. The UK is South Korea's second largest trading partner from the EU.

The South Korean international trade secretary, Ms Yoo said: "The deal is significant as it eased uncertainties sparked by Brexit, amid the already challenging environment for exports on the escalating trade row between Washington and Beijing.”

 

Brexit and trade

With the Brexit deadline looming, the UK is trying to seal more agreements with trading partners. If it leaves without a deal, the UK would lose many of the existing trade agreements it currently has as a member of the EU, something that will disrupt 11% of the UK’s total trade.

According to the UK government website, the UK has signed continuity trade agreements with non-EU countries so trade is not disrupted after Brexit. The UK has signed trade agreements with Israel, Iceland and Norway, Switzerland and Chile, among others.

 

UK Importing and Exporting

As the UK government is trying to secure more trade agreements with other countries, Brexit will continue to affect the economy and the political landscape. As an international company importing and exporting goods to and from the EU, you most possibly have been using a foreign exchange company to transfer your funds internationally. Universal Partners FX can help you save time and money on imports and exports, especially when you have to do frequent international payments.

 

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UK exports to Europe

Brexit has caused a lot of uncertainty for UK importers and exporters. The difficulties facing many British companies trading overseas have become an inseparable part of Brexit debates. For many, the issue lies with the UK’s decision to leave the EU.

In an article on the Guardian, Gareth Stace, director general of the trade association UK Steel, argues that leaving the EU has the potential to cause a great deal of damage to exports and weaken the sector more.

British Steel

In an attempt to present his views and the general steel industry’s position when it comes to its current issues and Brexit uncertainty, Stace admitted:

“There can be no doubt that the ongoing Brexit uncertainty has contributed significantly to British Steel’s problems. Unable to decipher what the UK/EU trading relationship will be in just five months’ time, planning has become fiendishly complicated for both UK exporters and their EU customers.” He also added that things have become more complicated with the EU’s recent measures seeking to prevent steel imports surging, a move that reflects a more general protectionist turn seen elsewhere.

As Stace wrote, “Post-Brexit, UK steel exports to Europe will be restricted by these measures, with a disorderly no-deal Brexit affecting them particularly badly.”

No deal Brexit is bad, but what about an orderly Brexit?

Stace elaborated on the question of whether a well-organised Brexit would improve things for steel exporters. For example, he questioned those who claim that with the UK being outside the EU, the government would support extensively the steel industry. As he argued, “the UK steel sector has no interest in operating under the support of state subsidies (we are vociferous critics of this practice in places such as China).”

He emphasised that the UK’s ability to provide state support was restricted nonetheless, due to its WTO membership, “which bans certain subsidies outright, and allows others to be counteracted by other WTO members with the imposition of ‘anti-subsidy duties’ – effectively closing off important export markets.” He also pointed out that the EU has already aligned itself in terms of state aid rules, so any agreement between the UK and EU would not be beneficially better. Similarly, other countries such as the US would also want to align themselves with the current provisions when they strike trade agreements with the UK, so the UK would not, in essence, enjoy any special treatment.

“Brexit would not provide greater trading opportunities”

The Brexiters’ mantra has been, since the beginning, based on the premise that the UK’s withdrawal from the EU would come with the promise of striking limitless deals. Boris Johnson used this slogan in many occasions, but the “freedom to do our own trade deals,” as many Leavers have proclaimed, is not an easy fit. This is also the case for the steel industry. Stace clarified that Brexit would not come with the opportunity to strike many deals. As he said: “WTO tariffs on steel in developed countries are already zero, and the EU’s expanding list of FTAs is providing tariff-free access to many others. There is little advantage any new UK FTAs could offer.” Additionally, as UK-produced steel “qualifies as EU steel under complicated rules of origin within the EU’s FTAs,” this means that any European country can use it, whereas, after Brexit, UK steel “would be classified as UK not EU, reducing the attractiveness of it to EU manufacturers.”

In essence, Stace explained, “Brexit will not improve the situation for the steel sector but it has the potential to cause a great deal of damage.” For him, the biggest priority is to secure a withdrawal agreement as soon as possible. And this is what most businesses are also demanding.

International trade after Brexit

The future of the UK’s international trade is still uncertain as Brexit looms and the terms of the UK’s departure are not yet set in stone. Financial Director reported that the future relationship of importers and exporters with Europe and the world after Brexit continues to be the subject of much debate.

What has been happening?

Brexit has indeed already tarnished the economy and is affecting UK exports, despite the wishes of many Brexit supporters who had claimed the opposite. It was perhaps partly due to Brexit that, in February 2017, Secretary of State for International Trade, Dr Liam Fox, had changed the Conservative government’s expectations of “doubling UK exports to £1 trillion by 2020.”

While not up to £1 trillion, Fox would later change the Government’s target to increase exports as a percentage of GDP from 30% to 35%, after positive ONS figures were released for the period between November 2017 and November 2018. In particular, it was shown that the number of SMEs exporting to overseas markets increased by 6.6% to 232,000 (9.8% of all SMEs), and of larger businesses exporting increased by 6.1% to 3,500 (41.7% of all large business). The UK’s total exports increased to £630bn in November 2018. While towards the right direction, problems still remain and many exporters are considering costs and how to grapple with the changing landscape, while continuing to develop their business.

Stirling volatility

According to SMEs, a volatile market is one of their biggest problems. As the Institute of Export and International Trade reported, “While it was expected that a weaker pound would make UK exports more competitively priced, this was offset for many SMEs by both more expensive imports and currency volatility. In fact, (34%) said at the time that currency volatility was the greatest challenge they faced.  So, whilst a weak pound may have had a positive impact, the uncertainty certainly didn’t help SMEs manage their currency costs or importing foreign goods and services.”

Alongside worries about the effects of a weak pound, businesses have been concerned with “export licences, customs declarations and VAT invoices” in order to protect themselves and comply with legislation.

Brexit

Brexit is a major disruptor of international trade. According to government statistics, the EU is currently the UK’s main trading partner, with 44% (£274 billion) of UK exports to the EU each year. UK imports from the EU were estimated to be 53% (£341 billion).

In terms of VAT and customs duty, Brexit will affect taxes and result in higher import taxes and more complex administrative procedures. Brexit also means defining the trading relationship between the EU and the UK, which will demand further negotiations, as well as the trading relationship of the UK with other countries.

Additionally, currency traders are currently worried that a hard Brexit—exiting the EU without a deal—might even be back if Nigel Farage’s Brexit party does well in the European Parliament elections. A large Eurosceptic vote would open the path for Boris Johnson to succeed Theresa May, analysts have noted.

Universal Partners FX

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