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The Role of the UK’s Trade Partners in Brexit Talks

11 October 2016

DeHavilland BrexitAs Brexit talks begin to take shape, countries that will take part in them are realising that it will not be easy to complete negotiations unscathed. Brussels, EU Member States and major industries alike are voicing their wish to make the negotiations constructive and ensure everyone’s interests are taken into account.

In addition to the usual cacophony of voices, a less likely group of stakeholders is beginning to emerge, namely, the UK’s trading partners. These international economic powerhouses have a serious interest in the UK’s future as a destination for their investment streams. Having already made substantial financial investment into the UK economy, both to develop business in the country and use it as a gateway into the Single Market, Japan and the United States. have made it clear that the current direction taken by the UK government is less than ideal.

Foreign Interference

Regardless of the reasons, interference from outside of the EU is less than welcome. International stakeholders, although with no ability to directly impact decisions of a country, may still create ruptures in any plan carefully laid out by the UK government by playing the investment card. The reasons why this option even exists, is because despite the loud rhetoric about Britain becoming ‘sovereign’ again following the exit from the EU, no state today is truly sovereign. Most depend on stable import/export flows to balance their budget and get goods and services they may not be producing locally or in large enough quantities. This is why other countries may have a certain level of say how Brexit plays out.

Negotiating Separate TTIP with the UK Is Off The Table

Seeing the US interfering in the business of the UK is not a good sign. The country feels that its economic interest is under threat and for the UK this means coming face to face with an opinion from the number one destination for its exports. For the US seeing the UK outside the block under WTO rules complicates things, both from an administrative and a financial point of view. Access to the Single Market means access to 28 markets, however, now there could be one less. Equally, given the size of the UK economy, swift departure from the EU decreases the value of the TTIP trade agreement currently being negotiated. However, US President Barack Obama’s administration also made it clear that no TTIP-like negotiations will take place just with the UK.

Japan’s Brexit Manual

The other voice in the debate, although somewhat unexpectedly, is Japan. In its pursuit for clarity, Japan forwarded the UK a 15-page long memo that not only expressed its dismay with the Brexit situation, but also listed specifically the terms on which  Japan expects Brexit negotiations to end, including remaining part of the Customs Union, Single Market, and even accepting the Freedom of Movement. The expectations, however, heavily contradict promises made by UK Prime Minister Theresa May. Equally, while the US has never been one to pass a chance to express its stance, Japan and many other global economies often hold back statements and rarely send ‘instruction memos’ to foreign governments. The fear here is that the step taken by Japan will set a precedent for other countries to express their stances, squeezing the UK between Brussels and foreign investors with little room to maneuver.

Economic Interest Above Sovereignty

Before we berate the two countries for interfering in the matters of a sovereign nation, let us remember that the concept of sovereignty in this day and age is very different. Japan and the US, just as many other major investors in the UK’s economy, have an interest in maintaining stability unless they risk losing their investments. While they may not wield a direct impact on the negotiations now, foreign investors can make it clear that future investment flows will be less abundant than before if conditions, to which companies are subjected, change. This adds another layer to the future negotiations as the UK government faces push-back not just from the EU institutions, but equally from players outside Europe.

UK Against The World

Perhaps this may be viewed as a temporary hardline position that will soften up given that enough concessions are proposed on both sides of the table. However, it becomes less likely once public statements start coming out. These include statements made by the UK Prime Minister Theresa May at the Conservative Party Conference that clearly indicated there will be no participation in the Single Market if the UK does not gain the right to control migration flows, which goes against what both foreign investors and the EU institutions see as inseparable freedoms under the EU.

Whether the actions taken by the US and Japan are just two individual cases remains yet to be seen, but it opens a window of opportunity for others to speak out as well. What will likely define how heavily the UK agitates its continental and overseas partners is the clarity with which it speaks. Vague statements are a staple of Prime Minister May’s cabinet. Investors and foreign partners more broadly require clear answers, plans, and timelines so they can act in a prudent way, and they are beginning to demand just that.

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Darius Mikulenas, Transport Policy Executive
Darius Mikulenas
Transport Policy Executive

Darius Mikulenas leads on the Transport, Security and Defence portfolio for the DeHavilland EU team. Darius has experience working with an industry association representing the Waste-to-Energy sector in Brussels.