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Brexit and the larger European trade picture

February 10th, 2020 / By: / Feature

New, long-term trading partnerships are just beginning to take shape.

by Marie O’Mahony

The only trade certainty at present would seem to be uncertainty. As old alliances are fractured, new allegiances are starting to form. While they may not offer the same financial benefitsat least initially—these may ultimately offer economic gain and growth by providing a more stable basis for long-term trading partnerships. 

European trade

The departure of the U.K. from the European Union on January 31st has dominated the business news from the region. While of major significance within and beyond Europe, the continent’s other trade agreements that are quietly being brokered should not be overlooked. 

A Free Trade Agreement has been reached by the EU and the Mercosur countries of Argentina, Brazil, Paraguay and Uruguay. In announcing the deal, the European Commission describes the region as a destination of its goods worth €45billion ($50 billion) and services around half that figure in 2018. The primary benefit for Europe is a savings in duties estimated to be worth over €4billion ($4.4 billion). 

The Free Trade Agreement between the EU and the Mercosur countries of Argentina, Brazil, Paraguay and Uruguay looks set to benefit Europe with a saving of $4.4billion in duties predicted. Photo: EURATEX the European Apparel and Textile Confederation

The European Apparel and Textile Confederation (EURATEX) has broadly welcomed the opportunity this will bring, citing Brazil’s 35 percent tariffs on textiles and clothing as having been particularly punitive. In a statement issued by Alberto Paccanelli, EURATEX president, said, “2018 EU exports of textile and clothing products to Mercosur were 460 million euros and the elimination of tariffs will open further business opportunities for our sector.”

The trade agreement has been decades in the making, described by the New York Times columnist Shasta Darlington in a June 28, 2019 article as “lumbering,” until the election of President Trump in 2016 when they began to gather momentum.

African expansion

The African Growth and Opportunity Act (AGOA) was introduced in 2000 by the Clinton administration with the objective of expanding U.S. trade and investment with sub-Saharan Africa. The intention was to stimulate economic growth and integration in order to facilitate sub-Saharan Africa’s integration into the global economy.

The Washington Post and other newspaper reports late last year indicate that the agreement is under pressure as textile and apparel imports for 2018 were $1.2 billion, an increase of 18.4 percent. In the report “African Textile Industry – Growth, Trends, and Forecasts 2020-2025,” market research firm Mordor Intelligence anticipated a 5 percent CAGR but point to an increase in interest from China.  

“The current trade tensions between the United States and Beijing were cited as an additional incentive for Chinese firms to invest in Ethiopia, with increasing difficulties associated with exporting from China,” the report said. The European Union is also looking to opportunities in the continent and has concluded the first round of trade negotiations with five Eastern and Southern African (ESA) countries: Comoros, Madagascar, Mauritius, Seychelles and Zimbabwe. 

EU imports from the region reached almost €2.8 billion ($3.07 billion) in 2018 and is the primary trade partner for the region. The agreement under negotiation covers market access and development cooperation to include services, investment, technical barriers to trade, intellectual property rights as well as trade and sustainable development. Technical and advanced textiles companies that are already operating in the market include Freudenberg Nonwovens and DeRoyal.

U.K. isolation

Back in 2000, Guardian columnist Denis MacShane warned, “The temptation to be isolationist is always strong in the British political character,” writing in an article titled “No Future for Isolationist Britain” October 12 of that year. Just weeks before the U.K. parted company with the EU, British chancellor Sajid Javid announced in an interview with the Financial Times discussing EU rules “There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union —and we will do this by the end of the year.”  The chancellor went on to warn that companies would simply have to “adjust.” 

Industry reaction has been swift, with an anonymous source in the aerospace industry saying, “We do need alignment, particularly around the European Union Aviation Safety Agency. And with Reach, the chemicals regulations … We are no different from the automotive industry in that regard. We are looking for alignment on both.” 

Just days before Javid’s interview, the Commons Library website in a posting by Daniel Harari said that the majority of economic studies from Theresa May’s government and others show that the higher the barrier to trade with the EU, the greater the negative impact will be on the county’s economy. Britain’s largest trade union Unite were equally unenthusiastic issuing a statement saying, “Global corporations with options for investment in European plants will view the government’s opposition to future U.K./EU regulatory convergence with dismay.”  

The chancellor’s statement, though light on details, is causing some dismay as it carries the potential to build barriers rather than bridges to both trade and future investment. Josh Hardie, deputy director-general, policy and campaigns, the Confederation of British Industry cautioned about the need for circumspection, “There is a big difference between the ability to diverge and that, in a sense is a sovereign choice, and then when you have that ability, how would you take that decisions about where to diverge,” he said.   

While there could be potential benefits in some markets, the costs involved in acquiring two sets of licenses or standards could make British manufacturers more expensive to do business with. Protecting intellectual property (IP) is a global challenge and one where it is difficult to see a localized policy of divergence providing the same safeguards as global or regional alignment. 

Debbie Slater, patent attorney at British smart-clothing company Prevayl, offered her views on LinkedIn. “The first thing to understand is that many registered rights won’t be impacted at all, or, if so, mainly in terms of procedure. Patent applications, for example, will still be filed with the European Patent Office for patent protection in the U.K. Where things do get a little interesting for tech businesses is around unregistered IP rights, specifically those covered by EU directives, such as data and the Database Directive.”  

With so many trade policies and agreements in a state of flux, how these will impact the industry over the coming twelve months is far from clear. The U.S. Treasury secretary Steven Mnuchin is optimistic that an important trade deal between the U.S. and U.K. is possible by the end of the year. That’s certainly welcome news; however, the real benefit of any of these arrangements can only be seen in the long-term relationships that they help to facilitate and nurture. 

Marie O’Mahony is an industry consultant, author and academic. She the author of several books on advanced and smart textiles published by Thames and Hudson and Visiting Professor at the Royal College of Art (RCA), London.