Does the UK Have a Trade Deal with China?
Trading is an essential part of any county’s economy. The United Kingdom has enjoyed the benefits of trade that are synonymous with being a part of the European Union for years. However, the membership also prevented the country from engaging in similar deals with other territories external to the union.
With the UK’s decision to leave (termed Brexit), the possibilities for the establishment of such deals are somewhat endless. China, for example is well on its way to taking the United States’ top spot as a global superpower. Establishing trade deals with such a country is both strategic and beneficial.
Current UK-China Trade Status
To understand the current status, you need to first look at the current relationship between the European Union and China. The EU is currently China’s largest trading partner, while China is the EU’s second largest trading partner behind the United States. Based on this, the union is committed and open to establishing a trade agreement with China. The issue is that the EU is not comfortable that China is trading fairly, respecting intellectual property, or meeting the required obligations as a member of the World Trade Organization (WTO).
China joined the WTO in 2001 with an economy that needed some restructuring. Therefore, it agreed to liberalize and to reform parts of its economy. The Chinese have made significant progress on this agreement, however, there are a few glaring problems that remain, which have placed a block on the EU’s confidence to move forward. These problems include:
- Lack of transparency.
- Poor policies for the enforcement and protection of intellectual property rights.
- Non-tariff measures and industrial policies that show discrimination against foreign companies.
- High government intervention In the Chinese economy, which results in a position of dominance for state-owned firms, plus inequalities in access to cheap financing and subsidies.
Back in 2016, the EU adopted a new strategy where China is concerned, which mapped out the relationship between the two over a five-year period. The point of the strategy is to promote a level playing field, reciprocity, and fair competition in all areas of cooperation. The strategy also contains a trade agenda, which has a strong focus on the improvement of market access opportunities.
The result of all this is that while progress is being made, there is still no formal trade agreement between the EU and the Chinese.
As the Brexit deadline has been extended to October 31, 2019, the UK still operates under the umbrella of the EU. Since the EU currently does not have a free trade agreement with China. By the transitive property, this means that the UK does not have a trade deal with the Asian territory either. The possibility of such a trade deal emerges once Brexit has officially taken place.
Potential for the Future
In fact, China has made it abundantly clear that it is willing to establish such an agreement with the UK. The possibility has even been further incentivized as the Chinese promised a “top notch” deal if the agreement should come to fruition. As stated before, having China in its corner has a great deal of benefits for the UK. The Chinese are involved in the manufacturing of many useful products and components than can go a long way in boosting the UK’s manufacturing, as well as other sectors.
The only issue here is that China and the UK are not the only variables involved in this equation. This is the part that many analysts of this trade situation do not cover well enough or at all.
Once Brexit has happened, the most likely scenario is that London values a free trade deal with the United States more than it does one with China. This is understandable based on the USA’s current status, which can result in massive gain for the UK once EU ties are cut. A huge dependence on industry 4.0 can be expected at that point. This means a need for state-of-the-art technology for investment into areas such as CNC machining, engineering, and digital manufacturing. A deal with the United States is a big step in facilitating this, which is why the prioritization is understandable.
There is no expectation of any direct challenges in securing such a deal with the USA, however, it is likely that such a deal has conditions set that London must meet. The United States must secure its position and its own terms with China. This means that it is likely that the conditions of a UK-USA deal end up dictating that any UK-China agreement has similar conditions to any established between the USA and China. This is a bit of a grey area considering that there is still yet to be a concrete agreement on US-China tariffs. Incidents such as the Trump Administration’s soft ban on dealings with Chinese suppliers such as Huawei only serve to lengthen the process.
For the UK, this means that establishing a free trade agreement with China likely cannot occur until the United States has first established one. Also, based on the discussion concerning the stipulations, London’s deal with China must follow the US-China one. The major reason this is likely is because without placing such restrictions on the UK, the USA risks the possibility of Britain becoming a de facto Chinese warehouse for various Chinese goods. Alternatively, it could end up becoming a “soft” port of entry for many of the Chinese products entering the United States. Of course, this could potentially occur at lower tariffs that those agreed to by Washington.
Currently, you could say that the shots surrounding UK trade are being called by Brussels. With the passing of Brexit, the reigns are simply handed over to Washington as they then become the ones who impose the do’s and don’ts on London where trade is concerned.
If all this is correct, then the only thing that British businesses can do is watch what is happening between Washington and Beijing closely to get some clues and to attempt to ascertain the most likely trade deal blueprint.