The Department for International Trade (DIT) has successfully led the delivery of a challenging and intense programme of trade negotiations to a tight timeframe, but it needs to manage potential risks associated with negotiating and implementing multiple trade agreements, according to a new report from the National Audit Office (NAO).
Following the UK’s exit from the EU, the UK is responsible for its own international trade policy for the first time in almost 50 years.1 The UK government is now responsible for negotiating multiple free trade agreements (FTAs)2 at the same time as developing an independent trade policy, new functions, and capabilities across government. DIT has made significant progress in building its capacity to run multiple trade negotiations. It has increased the number of staff supporting trade negotiations and has worked with other departments3 to set up effective governance and project management arrangements, develop capability and agree a trade negotiations plan.
Ahead of the EU transition period deadline of 31 December 2020, DIT worked with other departments to successfully transition 33 of the 39 existing EU trade agreements (98.6% by value) that the UK was previously party to, with three further deals agreed during 2021. The transitioned deals include an agreement with Japan which ensured market access for UK and Japanese traders and went further than the existing EU agreement in some areas, including provisions to allow data to flow freely between the two countries.
DIT has also made progress with an intense programme of negotiations with new trade partners. In June 2021, DIT signed an agreement in principle4 with Australia, and in October 2021 with New Zealand. In 2021 the UK began trade negotiations to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an FTA between 11 countries around the Pacific Rim.5 DIT also undertook public consultations on planned negotiations with India, the Gulf Cooperation Council6, Canada and Mexico. DIT has also progressed negotiations with the US, a trading relationship representing 16.8% of UK trade in 2020, but the US administration is reviewing its approach to trade policy generally, including with the UK.
However, the speed and intensity of the negotiations puts pressure on resources across government. It also compresses the time available for analysis to support decision making, and for consultation with Parliament, stakeholders and the wider public.
64% of total UK trade is with countries now covered by FTAs (including agreements in principle), against DIT’s aim of bringing 80% of trade under FTAs by 2022. By 15 years after implementation the FTAs are projected to contribute between 0 and 0.16% of GDP (0 – £3.4 billion). DIT estimates that the UK’s agreement with Japan will add 0.07% (£1.5 billion) to GDP each year. If signed, the UK’s agreement with Australia will add up to 0.02% (£500 million) and with the US up to 0.16% (£3.4 billion). FTAs may deliver other benefits such as supporting broader geopolitical objectives or achieving greater global influence on key issues, but these are more difficult to measure.
The success of an FTA depends on DIT and other departments supporting UK exporters to seek new commercial opportunities using these agreements.7 However, indicative data suggests that UK businesses’ use of FTAs may be low. In 2020-21, 24% of DIT’s total spend was on supporting exports. In 2021-22, DIT’s initial budget for supporting exports was £127 million, 19% of its total budget, and the 2021 Spending Review provided additional funding to improve services for exporters and investors. DIT needs to have the right balance of effort between negotiating new deals and ensuring that secured agreements deliver benefits.
As DIT’s programme of trade negotiations progresses to the next stage, the NAO recommends that DIT should bring together its trade strategy in one place. This would help to clarify how the government’s international trade ambitions help it achieve domestic and wider policy objectives. DIT should work with other departments to develop a clear plan setting out how it will implement and promote each new FTA. It should also continue to improve the effectiveness of its engagement with businesses, consumers, the public and Parliament.