UK economic team looks beyond Europe

Business Times

2 days ago

THIS week marks the 50th anniversary of the United Kingdom's June 1975 referendum of its membership of the European Common Market, the precursor of the European Union (EU). Yet, some five decades later, the trade policy of the UK is increasingly looking beyond Europe, post-Brexit.
In the last few weeks alone, the UK government has agreed a new trade deal with India, plus also a tariff agreement with the United States. UK ministers, including Chancellor Rachel Reeves, have said that this further deal could be finalised swiftly in the form of a new trade agreement with the Gulf Cooperation Council (GCC) comprising Saudi Arabia, United Arab Emirates (UAE), Bahrain, Oman, Qatar and Kuwait.
While the GCC economy is, collectively, not nearly as large as that of the United States or even India, the deal would be a significant prize with the Middle Eastern bloc's total GDP of around US$2 trillion in 2022. According to the World Bank, if the GCC continues to grow at a business-as-usual rate, combined GDP would grow to about US$6 trillion by 2050.
A second reason why the UK government would celebrate a deal is that the GCC has signed relatively few such agreements to date, including a pact with South Korea. A further big prize for London of a GCC deal could be further, open access to investment from Gulf sovereign wealth funds which tend to be cross-sector investors who often take a long-term multi-decade economic perspective.
Total UK-GCC bilateral trade is currently worth around £60 billion (S$104.5 billion). This makes the GCC bloc as a whole equivalent to the UK's fourth largest non-EU export market behind the US, China and Switzerland.
A UK deal with the GCC is forecast to add as much as £1.6 billion to this existing bilateral trade in the short term. The UK government hopes that the value will rise by an additional £8.6 billion a year by 2035.
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Wider developments
It is possible that wider developments could reinforce this dynamic of closer UK-GCC economic cooperation. This includes potential steps toward implementation of a proposed India-Middle East-Europe Corridor to foster connectivity and integration with Asia via a proposed route from India and into Europe.
The corridor – which would comprise vast road, railroad and shipping networks – was given new impetus in September 2023 at the G20 summit in New Delhi. A memorandum of understanding was signed to try to develop the project by the governments of India, United States, UAE, Saudi Arabia, and several key European nations.
The potentially imminent new UK-GCC deal underlines, yet again, the emphasis London is putting on consolidating ties with key non-European Union nations, post-Brexit. One of the key ideas of some leavers in the 2016 EU referendum was rediscovering the UK's heritage as a formerly strongly-focused global trading nation.
This includes former parts of the British Empire and now-Commonwealth, such as India and Singapore; plus other key emerging markets like the GCC states; and key industrialised countries such as Australia, Canada and the US. However, ambitious as much of this agenda is, some of it is a long way from being fully realised.
Perhaps the best example is the apparently remote possibility of any UK trade deal with either of the two world's biggest economies: China and the US. For instance, while there has been much fanfare over a potential new UK-US trade deal, any such agreement looks unlikely. This even under the pro-Brexit Trump administration in the period to early-2029.
Multiple challenges
Equally, while London and Beijing have both been impacted by the disruptive diplomacy of the Trump administration, there are multiple political and economic challenges that appear likely to prevent any deal in the short to medium term. Certainly, a UK-China accord is not one of the deals closest to the finish line compared to potential others like South Korea, Switzerland, Canada, and Mexico, a number of which may potentially be concluded during the current UK parliament ending probably in 2028 or 2029.
There are also human rights concerns about some of the agreements, including the GCC and India ones. The UK Trade Union Council has recently slammed such economic agreements with 'countries that abuse human rights and workers' rights, and violate international law'. It also welcomes the recent UK's decision to suspend trade talks with Israel because of the accelerated military offensive in Gaza and the country's decision to limit the amount of aid allowed into the Palestinian territory.
A wider critique of the UK's post-Brexit trade deal strategy came last month in a report from the Tony Blair Institute for Global Change. It argues that the UK government's hyper focus on traditional broad-based trade agreements is misaligned with the country's service-based economy.
The think tank, which is chaired by former UK prime minister Blair, asserts that time-consuming, goods-focused trade agreements offer diminishing returns on investment and are poorly matched to the UK's core strengths in services and digital trade. So, rather than doubling down on such slow-moving, broad trade pacts, it advocates instead a movement towards more targeted services-orientated, market access deals that can be negotiated faster and deliver bigger economic impact.
The Blair Institute report highlights that, between 2020 and 2024, London inked only three new trade agreements, which are expected to boost exports by a comparatively small £9.5 billion in the long run. In contrast, over the same period, successive UK administrations resolved some 640 market access barriers, whose strategic bilateral market gains increasingly have the potential to deliver higher value, faster.
One example cited as good practice is the UK's digital economic agreement with Singapore. This was negotiated relatively quickly in 2022, and leverages UK strengths as a tech and services leader.
With the GCC agreement almost finalised, the Blair Institute recommendations are unlikely to significantly influence the end game of that negotiation. However, there could be scope for bringing the insights into wider negotiations with countries including South Korea, Switzerland, South Korea, Canada, and Mexico. This may require the UK Department for Business and Trade to reallocate resources and focus efforts on areas with the greatest potential return with a clearer strategic framework for driving new deals.
Taken overall, Brexit is therefore offering new opportunities for the UK to reinvent its world role, especially in the context of trade relations. However, despite the flurry of recent deals, it will probably not be clear for some time exactly how successful this ambitious agenda proves to be, not least given the services orientation of the UK economy.
The writer is an associate at LSE IDEAS at the London School of Economics