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Brexit

Britain will have its work cut out to forge a trade deal with China

Andrew Hood says warm words are a good start, but the UK must tread carefully in its quest for a workable agreement in the post-EU scenario

PUBLISHED : Thursday, 11 August, 2016, 11:13am
UPDATED : Thursday, 11 August, 2016, 6:06pm

The free-trade agreement that China signed with New Zealand in 2008 saw bilateral trade double by 2014. Clearly such agreements bring huge economic benefits and so it is unsurprising that both the British and Chinese governments have indicated that they want to reach a trade deal. But warm words are the easy part. The reality of reaching an agreement will be much more difficult.

First, there has to be the political will. Former British prime minister David Cameron and chancellor George Osborne invested heavily in developing the “golden era” of UK-China ties, epitomised in last year’s state visit by President Xi Jinping (習近平). The current chancellor, Philip Hammond, continued that trend with an early visit to China and encouraging noises about a future trade deal.

Prime Minister Theresa May, however, appears to have taken a slightly different tone, most notably in her recent decision to pause the approval of the Hinkley Point nuclear power station over reported concerns about the national security implications of having Chinese investors.

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There remains a strong political imperative for the UK to be looking for new trading arrangements – it was a core argument for its voters who wanted to leave the EU. The appointment of a staunch “Leave” supporter as head of the new Department for International Trade is a clear political signal that the UK will look for more trading opportunities to take advantage of being outside of the EU and fill the economic gap that Brexit will bring.

But any new deal the UK makes is going to depend heavily on what its new relationship with the EU looks like. The outcome of negotiations with the EU will be crucial to the UK’s economic future and will govern the scope and nature of any agreements the UK is able to reach with others. So, talks on a deal with China are unlikely to start in earnest until after the scope of the discussions with the EU are settled.

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The UK will also be very aware of ongoing talks between the EU and China to deepen trade ties. The UK will want to tread carefully in beginning talks with China and other major trading powers for fear of setting an unhelpful tone in its discussions with the EU.

Finally, any agreement will be dependent on the UK’s capacity to undertake the negotiations. There is no existing EU-China agreement which could be used as a starting point. China is an experienced and formidable negotiating partner, whereas the UK’s membership of the EU means it does not have the institutional know-how of trade negotiations ready to deploy in sufficient numbers, at least not yet.

Andrew Hood is a senior lawyer in the International Trade and EU Team at Dechert LLP. He was formerly the legal adviser to David Cameron and is a former negotiator for the UK of bilateral investment treaties