Benefits from post-Brexit trade agreements extremely uncertain while risks of slipping standards, increased costs and revenue losses remain, say MPs

In a report today the Public Accounts Committee says “there is no guarantee” that the new international trade agreements being negotiated by the Department for International Trade “will deliver actual economic benefits” and it remains opaque and secretive about the deals it is negotiating – publishing its own “impact assessments” of new trade deals prior to implementation but not setting any associated targets or providing the information to Parliament and the public to allow them to assess the practical, real-world impact of the new deals, or if the interests of businesses and the public are actually being served.

The PAC casts further doubt on the benefits that might actually be realised in the new trade deals unless DIT “provides vital support to help businesses use the agreements, particularly for smaller businesses wanting to export worldwide.”

It says DIT must “ensure that its approach to trade has coherence and that there is sufficient clarity about how government is making trade-offs across different policy areas, such as agriculture, the environment and human rights.”

In particular, in the strategically critical agriculture sector, UK farmers are concerned about competition from imported products including beef and lamb, and the environmental impact of increased trade with countries at a distance from the UK remains uncertain. 

Sir Geoffrey Clifton-Brown, Deputy Chair of the Public Accounts Committee, said: “The Department for International Trade seems to have forgotten that its first and core duty is to deliver for UK consumers, business and our environment - to create deals that will deliver real economic benefits while offering the choice of food, goods and services at the standards and prices they expect and have long enjoyed. The PAC has previously expressed concerns that our consumer protection system is unable to deal with the new arrangements, and recent reports of tax fraud and modern slavery breaches cast doubt on capability in other critical parts of the trade system. 

“The Department needs to communicate what benefits we might expect from this brave new world we’ve entered and what trade-offs we face. The Department is really struggling to point to tangible wins for British business, consumers or our own agriculture sector - even as the pandemic and energy price crises demonstrate the critical importance of robust trade arrangements. DIT is constrained by the deliberations and choices of our biggest trading partners - this is a problem of its own making, and for it to fix: families struggling out of the pandemic and into a massive cost-of-living crisis must not be the ones to pay. As well as negotiating new FTAs the Department must concentrate more on enabling small and medium-size companies to export, often for the first time.”

PAC report conclusions and recommendations

5. The Department for International Trade faces significant challenges in meeting its target for 80% of UK trade to be covered by FTAs by the end of 2022. As of January 2022, 64% of UK trade was covered by FTAs including the UK’s Trade and Cooperation agreement with the EU which represents 47% of UK trade. As well as concluding an agreement in principle with New Zealand, the Department’s programme for the coming year includes negotiations on existing agreements with Canada and Mexico, on a new agreement with India, and to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  Achieving the 80% target will be challenging as joining the CPTPP and a deal with India will only contribute 0.4% and 1.5% respectively to the target. Prioritising and sequencing the programme of negotiations is important but the Department is not in full control of its negotiating timetable - a key deal with the US, representing 16.8% of UK trade, is on hold because the US decided to pause negotiations. In the meantime, the government is seeking to promote trade with the US through other means, such as by improving market access through US state to UK trade relationships. It has also negotiated to end US bans on UK beef and lamb.  Defra estimates that lifting the lamb ban could generate more than £30 million of economic benefits over five years. In addition to its programme of trade negotiations, the Department’s workload includes implementing signed agreements and meeting commitments to review transitioned EU agreements. 

Recommendation: The Department should write to the Committee within 12 months to update on progress with the programme of trade negotiations, including:  

                                            i.progress against the overall target and an updated plan for the future programme; 

                                           ii.progress in securing state level market access agreements and the potential value of these; and 

                                         iii.impact on the agriculture sector and the UK economy versus forecast from the ending of the US ban on UK beef and lamb imports. 

6. The Department has not set out how it will measure the benefits and outcomes of its programme of trade negotiations. The Department has published impact assessments, including projected economic benefits for each of the new FTAs it is pursuing, and has set out metrics that aim to demonstrate its progress in securing trade agreements in its Outcome Delivery Plan (ODP). However, the ODP measures projected, rather than secured, benefits and outcomes of each concluded trade agreement, and the Department has not set any associated targets. The Department acknowledges that these are forecasts and also that they do not cover potential wider benefits of trade deals such as productivity or geo-political impacts. It has committed to publishing regular monitoring reports for the new trade agreements with Japan and Australia and conducting comprehensive evaluations within five years to assess what has actually been achieved.  However, we are concerned that without outcome-based targets, Parliament will not have the information it needs to hold the Department accountable. When considering this, the Department may wish to emulate the six-monthly reporting exercise now being undertaken by the Department for Transport in relation to High Speed 2 following recommendations from this Committee. 

Recommendation: The Department should develop a set of clear and measurable outcome-based metrics with targets for its programme of trade negotiations. It should commit to regular reporting of progress to Parliament, including actual benefits and value achieved versus initial forecasts. 

7. The Department is not doing enough to help businesses, particularly SMEs, to take advantage of opportunities offered by new trade agreements. Businesses need to understand and take advantage of the opportunities arising from trade agreements if agreements are to deliver their predicted benefits. However, UK businesses’ use of existing agreements may be relatively low. For example, less than a third of surveyed UK businesses knew whether the goods they most frequently exported were eligible for reduced customs duties.  We raised concerns in 2020 that the Department was not doing enough to support small and innovative businesses to export. The Department’s November 2021 export support strategy sets out a new approach, aiming to bring its export support services together in one place. To promote the new agreement with Japan, the Department conducted a virtual trade mission with around 250 businesses, but it could not tell us if this event had led to new export opportunities. 

Recommendation: The Department should write to the Committee within 12 months to set out how it has supported businesses, particularly SMEs, to take full advantage of existing and newly negotiated trade agreements. It should: 

                                            i.regularly measure and report the preference utilisation rate for UK exports (the rate at which exporters use preferential tariffs) for each of its trade agreements; 

                                           ii.consider how it can reduce burden and costs for SMEs; and 

                              iii.set out initial progress with its new export strategy. 

8. The farming industry has concerns about the effect of significant competition from imported Australian meat, and there is a lack of clarity on the potential environmental impacts from increased trade with Australia. The FTA with Australia signed in December 2021 removed tariffs and quotas on many agricultural products imported from Australia. There are four safeguards to protect the agriculture sector, including a 15-year safeguard to protect UK beef and lamb from a rapid rise in Australian imports following implementation of the deal. The Department says that the safeguard is adequate given the length of the transition period and because the increase in imports is expected to be small relative to the size of the UK market. However, the National Farmers Union remains pessimistic about the impact of competition from Australia on farmers who may lose out in exchange for gains in other areas of the economy. Defra expects imports from Australia to largely displace existing imports, for example from the EU, and says that it is doing a lot to help the agriculture sector export, such as setting up a food and drink export council. The Department and also Defra tell us that they have modelled the environmental impact of the deal with Australia, and do not expect there to be changes in greenhouse gas emissions of UK production, or that transporting goods from Australia will have a big impact on carbon emissions when compared to other parts of the production process. However, the departments acknowledge that more needs to be known about carbon emissions and the interaction between transport and trade. 

Recommendation: Defra should work with the Department for International Trade to monitor the impact of free trade agreements in its policy areas. In particular, it should: 

                                                        i.monitor imports closely to make an ongoing assessment of the impact of the Australia FTA on beef and sheep farmers, and set out what support could be provided to those farmers whose livelihoods may be affected; 

                                                       ii.monitor the actual transport emissions and other environmental effects resulting from increased trade between the UK and Australia, to determine what action may be needed to ensure that the UK can still meet its climate commitments; and 

                                       iii.consider what lessons can be learned for the approach to the upcoming FTA with New Zealand and other countries in due course. 

9. Parliament and the public are not being provided with clear and transparent information to understand the impact of trade agreements. Business associations and consumer groups are concerned that it is unclear how trade policy aligns with other policy objectives, and how any trade-offs required may impact on the groups they represent. The consumer group Which? has found that consumers have limited awareness of the status and implications of trade negotiations. Although the Department says it has found that the public is highly supportive of its trade agenda, we are not convinced that the public has significant knowledge and interest in trade agreements. The Department does recognise that it faces a challenge in how it communicates important information to Parliament and the public on what it is doing on trade agreements and why. In addition, the Department could not explain why, in its impact assessments of the agreement with Australia, the projected value of UK exports to Australia increased by more than 600% between June 2020 and December 2021 (from £900 million to £6.2 billion). It thought that the rise was probably driven by a change in the methodology it uses to forecast economic benefits, but could not be more specific. 

Recommendation: The Department should improve transparency and communications around trade agreements and their impacts, to aid understanding and inform scrutiny. As part of this exercise, it should:  

                                            i.explain clearly to Parliament and the public the policy trade-offs, particularly in relation to human rights and environmental priorities, in new FTAs and the potential impact for sectors, businesses and individuals; and 

                                ii.set out clearly the factors and underlying assumptions driving any changes in the forecast benefits. 

10. The Department has not done enough to support effective Parliamentary scrutiny of trade agreements. Despite the Department making additional commitments beyond the statutory framework, the International Trade Committee has not been provided with information from the Department in sufficient time to enable it to perform its scrutiny function effectively. For example, although the Department shared the final agreement with Australia three months ahead of the statutory process for Parliamentary scrutiny, this still makes it difficult for that Committee to consider and produce a report for Parliament in time for it to have an impact. It would also be easier for Parliament to scrutinise trade agreements if it had sight of the negotiating objectives at the outset. There is a precedent in Parliament where government has provided privileged information to the Committee and to other select committees. The House of Lords International Agreements Committee has also called for Parliament to have a stronger formal role earlier in the process and for provision of the agreement text prior to signature. 

Recommendation: The Department should make further commitments that would support robust and timely Parliamentary scrutiny. These should include providing the International Trade Committee and the House of Lords International Agreement Committee with the negotiating objectives, under privileged access, at the outset of the negotiations, providing oral updates at regular points on a trusted basis, and sharing any other key information in sufficient time for scrutiny.