The Pacific Powerhouse
09 Aug 2017
One of the first projects I worked on when I joined the SWA in
2004 was the Scotch Whisky industry's priorities for a future
European Union (EU) Free Trade Agreement (FTA) with South
Korea. As we tend to take a long term view, that work was
done well before even the decision to negotiate was taken.
The EU/South Korea FTA has now been in force since 2011. Given
the growth and jobs it has created, it is likely to be one of the
UK Government's top priorities for what is known in the business at
the moment as the 'transitional adoption' of EU FTAs by the
UK. In other words, the maintenance of the preferential
access that UK exporters currently enjoy to a number of key markets
outside the EU.
In the case of Scotch Whisky, the countries where there are
existing EU FTAs account for approximately 10% of total global
Scotch Whisky exports, which are worth just over £4 billion
annually. The most important markets for us can be surprising to
people outside the industry. To take one example, the
EU/Colombia FTA delivers significant benefits to Scotch Whisky
exporters in a market worth £26 million in shipment value alone
last year, up 14% on 2015. With longstanding tax
discrimination and other trade barriers being addressed as a result
of current formal consultations in the World Trade Organisation
(WTO), we expect Colombia to continue to grow strongly as a Scotch
Whisky market. In a highly competitive environment, the
return of Colombia's 15% tariff on imported spirits would be a
large step in the wrong direction.
So, from a trade policy perspective, the first priority for the
UK must be to keep what market access we have to the EU and to
those third country markets where the EU has secured preferential
access over the years. That presents a range of technical and
political challenges, some better known than others. For
example, it may seem straightforward just to sign an identical
agreement with a partner country. But, setting aside how you
make that happen technically, any trade agreement is a complex
balance of trade-offs. UK economic interests may be different
from those of the EU, depending on the sector and market in
question. What worked for the EU might not make so much sense
for the UK and partner country. The answer might be to find a
short term 'fix' to maintain the current arrangements in order to
secure business certainty, while committing to review the balance
of the agreement in time.
Looking to the future, Brexit also represents an opportunity for
the UK to take a different approach to trade negotiations with new
partners. This should be both short and long term,
opportunistic as well as strategic.
Rather than starting negotiations from scratch, in the early
days, it makes sense to look for existing agreements that would
result in meaningful economic benefits for UK exporters relatively
quickly. That is something that a bespoke agreement simply
The best example would be the 'Trans-Pacific Partnership'
(TPP)¹. This is a high quality, 'WTO Plus' agreement
negotiated between 12 countries representing 40% of global trade
and 25% of the world economy. There is no reason why the UK
could not join an agreement that was specifically designed for new
members to accede over time.
The largest member, the United States, pulling out of the deal
at the turn of the year has, I admit, changed the dynamic.
But it has been interesting to see most of the other parties
expressing various degrees of interest in going ahead with a
'TPP11' arrangement, for example at the APEC Summit in Hanoi.
Trade policy practitioners, like the Scotch Whisky industry, take a
long term view. It takes years for a trade agreement to
mature. We think that an implemented TPP may yet prove
attractive to the US in time.
A specifically UK approach to trade negotiations could also look
at the totality of economic relations between both sides. For
many emerging economies, for example, tariffs can be a significant
source of government revenues. There is an opportunity for UK
development assistance to support the modernisation of tax regimes
such that internal tax revenues more than make up for those lost
through tariff liberalisation under an FTA.
And the UK could adopt its own rhythm of negotiation. WTO
rules require FTAs to cover 'substantially all trade', which
results in a 'single undertaking' approach to bilateral trade
negotiations that mirrors the traditional GATT/WTO Rounds, where
nothing is agreed until everything is agreed. That takes
years to deliver results. It's not the sort of thing you can
achieve on 'one tank of gas'.
An alternative might be to tackle specific regulatory issues and
facilitate mutual recognition of standards piecemeal, which could
become mini-deliverables as the negotiations progress over time
towards that grand bargain at the end. The Pacific
Alliance². is an interesting example of just such an
approach. This also appears to be a model that is under
consideration for EU/US trade relations at present. That
would generate many photo opportunities for political leaders;
rather more importantly, it would also lead to early economic
gains, increased prosperity and jobs.
The passion for new bilateral negotiations continues in Asia,
but has rather lost momentum in Europe and the United States.
A decade ago, the WTO was at the centre of trade liberalisation
negotiations, before the current bilateral agenda took off.
Increasingly, there is a sense that the global rules-based trading
system embodied in the WTO is a better, fairer place to talk about
trade. It may be time for the WTO to return to the
A final task for post-Brexit UK trade policy is surely for the
world's fifth biggest economy to act as an advocate for the
multilateral system and open markets.