Looking back at trade in 2023

At the start of this year, George Riddell and I set out our expectations of what 2023 would bring for international trade. With only a few weeks left until the end of the year, it’s only fair that we take a moment to see which of our predictions were correct and which weren’t.

We would like to thank everyone who joined us on this year’s international trade voyage. Wishing you a restful festive period from all the EY Trade Policy and Strategy Team and looking forward to what 2024 holds!

1. Slower UK trade negotiations

We rightly predicted that the UK’s trade negotiations agenda would continue but not at the rapid pace it has over previous years.

At the time of writing, the UK-India FTA is yet to be concluded and has hit some substantial roadblocks on a range of essential topics including Intellectual Property, Rules of Origin and Mobility.

After two years of negotiations and compliance discussions, the UK has successfully acceded to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and signed the agreement in July - the respective Bill is currently on its way through the UK Parliament. The UK is the first country to join, and first non-Pacific rim country to part of, the pact, signifying a major milestone for the UK’s independent trade policy.

The UK continues to negotiate upgrade agreements with Mexico, Canada, South Korea, Israel, Turkey and Switzerland, and has made limited progress on discussions with the Gulf Cooperation Council.

However, whilst having slowed conventional FTA negotiations, the UK has notably progressed negotiations that aim to conclude rather unconventional trade deals such as the conclusion of Memoranda of Understanding with US states, and a digital trade agreement with the Ukraine.

2. More export controls and sanctions

As predicted, the US government has continued its focus on updating and expanding the Export Administration Regulations developed in 2022. In October, the US announced an expansion of the regime to cover a broader range of semiconductor manufacturing equipment and reduce the de minimis threshold. What we didn’t predict was the scale of change that has occurred through 2023.

As with export controls, the US, EU and UK have continued to impose an escalating series of coordinated economic sanctions, targeted primarily at Russia. Our caution that businesses must be mindful of these sanctions when dealing with clients has been justified, with HMRC taking action and imposing significant fines for non-compliance.?

3. Green trade as a point of contention

At the start of the year, we predicted green trade would be one of many geopolitical flashpoints, and the introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM) has been just this. As one of the largest shifts in the EU’s trade regime over the past 30 years, CBAM has been met with international challenges on the perceived protectionist design and operation of the regulation, particularly from developing nations.

Over the course of the year, we have seen more governments explore implementing similar policies to address the issue of carbon leakage, including the UK government’s consultation on adopting its own version of CBAM. Separately, several related Bills have been put forward in the US Congress, and Australia and New Zealand are conducting their own reviews of policies to address carbon leakage.

The use of subsidies to facilitate decarbonisation has also been particularly contentious this year. In 2022, the US implemented the Inflation Reduction Act (IRA), announcing an unprecedented budget for investment in the adoption and expansion of renewable energy sources. Throughout 2023, the EU has responded with measures of their own to counter the potential impact of subsidies under the IRA. The UK and EU are currently in the process of negotiating a Critical Minerals Agreement with the US to access the incentives the IRA provides.

However the US and EU have been unable to conclude negotiations on a Global Arrangement on Sustainable Steel and Aluminium which is a precondition to avoid the reintroduction of the US’ S232 tariffs and EU retaliatory measures.

4. Supply chain pressures will ease, but not by much

We correctly predicted that while supply chain pressures will ease, the way businesses procure and source their products was brought into the spotlight this year.

A number of upcoming regulations such as the EU Regulation on deforestation-free products or Germany’s Supply Chain Act (Lieferkettengesetz) will place a requirement on businesses to collect detailed information on the source of their products as well as visibility over compliance with environmental rules and workers’ rights.

5. Digitalisation of Trade

The Electronic Trade Documents Act (ETDA) came into effect in the UK on 20 September, enabling digital versions of international trade documents such as bills of lading to have the same legal recognition under English law as traditional paper-based documents.

Businesses have already started to take advantage of the legislation, with the first fully digitalised cross-border goods shipment having taken place from the UK to Singapore, reducing process times by 89%.

While there is still some work to do for individual companies, the ETDA paves the way for a range of opportunities for process optimisation through digitalisation and other types of TradeTech.

6. Brexit is still here

Brexit might be a little more “done” now than it was prior to the conclusion of the Windsor Framework. The Framework sets out changes to the Northern Ireland Protocol, introducing a new system to check goods moving from Great Britain to Northern Ireland. Amongst other amendments, goods destined for use in Northern Ireland will pass through the green lane, whereas goods ‘at risk’ of entering the EU will pass through the red lane where additional checks will ensure EU compliance. The Framework has been considered a pragmatic win for the EU, the UK and Northern Ireland.

But the Framework doesn’t resolve all post-Brexit trade disruption between the UK and the EU. While the UK has delayed new Sanitary and Phytosanitary requirements for EU goods introduced as part of the Border Operating Model, upcoming debates are likely to include the extension of Rules of Origin exemptions for Electric Vehicles and potential the introduction of a UK CBAM and its interoperability with the EU system.

7. A difficult year for the WTO

As predicted, it has been another challenging year for the WTO, with little progress made on key issues including its governance and ability to resolve trade disputes. With MC13 on the horizon, due to take place in February 2024 in Abu Dhabi, Members still have a long way to go to meet its goal of securing a fully functioning dispute settlement system by 2024.

While there has been some success in building on the most high-profile outcome of MC12, with the EU, the US, China and Japan all formally accepting the text of the Fisheries Subsidies Agreement, only 40% of the acceptances for the agreement to enter into force have been received.

Key topics on the MC13 agenda will include:

• Agriculture and food security
• E-commerce work programme and moratorium on customs duties for electronic transmissions
• TRIPS Waiver
• ‘Second wave’ of fisheries subsidies negotiations
• Development matters.

But more on this in 2024!

What we didn’t predict

The US government announced a surprise u-turn in its digital trade policy. This has manifested itself in the decision to withdraw US support for longstanding digital trade priorities at the WTO’s e-commerce plurilateral negotiations on source code, data localisation and data flows, which had initially made in 2019. This has also impacted on the conclusion of the Trade Pillar of the Indo-Pacific Economic Framework for Prosperity which saw the other three pillars concluded in November. The decision is based on the US’ intention to clamp down on big tech firms.

We also failed to predict quite how much of a big deal AI would be, with the corresponding need to regulate and the US-EU Trade and Technology Council at the forefront of discussions.

The US is further aiming to improve their economic and financial relationship with China through the establishment of the two new working groups in September earlier this year. The purpose of the groups is to bridge bilateral gaps, stabilise ties, and address commercial issues.

By contrast, the European Commission launched an anti-subsidy investigation into electric vehicle exports from China. While strongly supported by the French government, German car makers are rather hesitant to comment on the EU’s market intervention. Provisional measures are expected to be published by July 2024 and more trade remedy investigations are expected on wind turbines and steel products!

Wrap up

All the seven trends we identified at the start of the year significantly impacted international trade and geopolitics over the course of 2023. However, all of these trends look set to continue into the new year and businesses should ensure to keep monitoring developments on these topics.

In January, we will be setting out our new predictions for 2024. If there are trends you think we should be highlighting or taking into consideration for 2024, please get in touch!

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.?