International

A renewed focus on global economic relationships, with the business community at their heart

There are many reasons to be optimistic about global trade opportunities. The UK is one of the best places in the world to do business and has many areas of international excellence. But businesses across sectors are clear that the approach the government takes to both the UK-EU negotiations and wider international policy making will affect the UK's reputation as a place to do business and underpin the new global framework. Government and business must therefore work together to prioritise the most beneficial new deals and the nature of those deals so they support investment and growth across the economy.

For the whole economy, the UK's reputation in the world is crucial, and entwined with the EU negotiations

Every opportunity should be taken to champion the UK as a place to work, invest and trade. Although business optimism is currently improving, it is low [1] , and as such it is more important than ever to champion the areas where the UK is a global leader. The UK is the seventh best place in the world to do business [2] . It has a rapidly growing hub for creative industries and technology, with universities that consistently rank among the top in the world. It is the world leader in many financial services, and a setter of global standards in a range of professional and business services. All the UK's interactions on the international stage should be an opportunity to showcase these strengths.

Maintaining the UK's positive reputation as a place to do business is important for companies at a number of levels. In the boardroom, the UK's standing is vital for international investment. Companies in advanced manufacturing, life sciences and energy have all reported concerns from global headquarters about the UK's attractiveness for investment as a result of the vote to leave. Uncertainty at board level has knock on impacts for the industries that deliver investments: construction and real estate are particularly sensitive to confidence.

The UK's international reputation also affects business relationships. Anecdotal evidence from agriculture, manufacturing, transport, distribution and logistics sectors show international suppliers and customers of UK businesses reacting with caution to the referendum result.

And the UK's reputation is vital for attracting skilled individuals and jobs which can be based anywhere in the world. There is fierce international competition for these jobs and for highly-skilled individuals. The UK's success in attracting these is linked to productivity. There have been reports since the referendum of skilled individuals choosing not to work in the UK. These wide-ranging impacts mean a deliberate strategy is needed to signal the UK's openness to the world.

The overwhelming priority for the UK's international trade agenda is the UK-EU deal. Additional trade agreements are a long-term ambition for most sectors

Businesses prioritise the negotiation of a new UK-EU relationship over a deal with any other market. The EU is the UK's largest and most important trading partner, and will continue to be. There are also other reasons why businesses prioritise the UK-EU deal. Firstly, until the UK has formally exited the EU, it cannot launch formal trade negotiations with any third country. Secondly, business understands that all future trading relationships will depend on formal acceptance of the UK's schedules at the World Trade Organization. The process of submitting new UK and EU schedules to the rest of the WTO for approval will happen in parallel to UK-EU negotiations. It is expected that new international trade deals will be negotiated subsequent two these major milestones, and will take some years to go through negotiation, translation, legal scrubbing and implementation. New international trade agreements are therefore viewed as a long-term benefit, secondary to both the UK-EU negotiations and the necessary process of getting independent UK schedules approved by the WTO.

For the short-term, business sees opportunities to work with government to boost the UK's export performance within current arrangements. The Britain is GREAT campaign has made good progress in showcasing the UK market, as well as making companies aware of the opportunities for them to grow through exporting and supporting them to do so. Giving even more companies in every sector the support to export their goods and services will help businesses grow and create jobs. And business and government should work together to develop programmes of targeted support for firms that don't currently export but have the same characteristics as those who do. Together, business and government can make sure that this work is aligned with the efforts to create a modern industrial strategy that maximises our strengths as a trading nation.

Because there are multiple views between sectors on the priorities for the UK's international trade agenda, business must be consulted thoroughly

Close cooperation between government and business will be required to ensure the new international trade agenda is right for the whole economy. Overall, businesses most value Free Trade Agreements that remove both tariffs and non-tariff barriers, through cooperation on market access, regulation and trade rules. Focusing on delivering these comprehensive deals is the best way to keep costs down and deliver cheaper products and services for consumers. However, there are a range of views across sectors when it comes to the detail, and care must be taken to get it right.

The government will have to strike the right balance between the numerous benefits of international trade and concerns in some areas about more liberalised imports. There are challenges from further opening of UK markets to imports, as well as the benefits of lower prices, greater choice domestically and new opportunities for UK exports. The government will have to balance different interests, opportunities and challenges across sectors with care. Consultation on new opportunities for international trade will have to take place across the full breadth of the economy.

Once the UK's trading arrangements with the EU and at the WTO are clear, the challenge for government is to decide on the key markets to approach. Through EU membership, companies in many sectors – including food and drink, retail and manufacturing – have benefited from current preferential trade deals and mutual recognition agreements. These cover over 50 markets [3] . Additionally, through current WTO commitments (under the EU's Generalised System of Preferences) the UK also facilitates competitive access to the UK's markets for certain developing countries. Avoiding disruption to these deals is critical, as they guarantee companies preferential trade. If UK businesses established in these markets can no longer benefit from such treatment, they will be put at a competitive disadvantage to companies from the EU27, and there will be implications for the entire supply chain. Additionally, the effort UK industry invested in the potential opportunities provided by Trans-Atlantic Trade and Investment Partnership should be recognised. A trade agreement with the USA has emerged anecdotally as a priority in our consultation from the chemicals and plastics sector and the creative industries.

Markets which have most benefits for the whole economy should be carefully prioritised. As there is limited resource and capacity for negotiation at home and abroad, it will be important for the business community and government to undertake comprehensive quantitative research into international markets. These calculations should also consider the capacity of the aviation, transport, distribution and logistics sectors – as changes in international trade volumes may require adaptation to current infrastructure arrangements.

A number of sectors have highlighted the EU's role in international regulation as an important area for the government to prioritise in its planning

Before the UK leaves the EU, it must have a plan in place for areas where the EU currently influences, implements and enforces international agreements. There are, at present, a number of areas where EU mechanisms implement international regulations. That includes regulations for financial services agreed by the Basel Committee on Banking Supervision; environmental agreements that encompass energy and utilities; and health and safety agreements affecting life sciences, chemicals and plastics. It also includes agreements and regulations on aviation and on the free flow of data.

The UK's exit from the EU must not disrupt its involvement in or enforcements of international obligations. In the short-term, interim arrangements may be required to ensure this. In the long-term, the UK government may need to make appropriate resources available to handle new international agreements independently.

Recommendations: International

The UK government should have a renewed focus on global economic relationships, with the business community at their heart:

1. A deliberate strategy is needed to promote the UK's openness and reputation as a place to work, invest and trade

2. A firm partnership between business and government will help make the most of opportunities to boost international trade, both in the short-term and the long-term

3. There must be a plan in place for the continuity of international regulations as the UK leaves the EU


References

[1] CBI, October 2016 Industrial Trends Survey

[2] World Bank Group, Doing Business Survey 2016

[3] House of Commons Library, List of EU trade agreements

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