Britain took a big step towards shoring up worldwide trade relations in the event of a no-deal Brexit by signing a stopgap agreement with South Korea on Monday.
But the continuity agreement with Seoul, with which the EU signed a showpiece deal in 2011, fell short of guaranteeing permanent tariff-free trade in all circumstances, especially for goods with content from both mainland Europe and the UK.
Theresa May’s government has sought to reduce the disruption that Brexit might cause by replicating the trade accords that the EU has struck with the rest of the world.
Despite criticism this year of the slow pace of negotiations, the UK has now secured agreements with countries that account for 63 per cent of trade now covered by such deals — up from 28 per cent three months ago, according to the UK’s international trade department.
The agreement with Seoul is the first trade deal the UK has signed with a trading partner in Asia since the June 2016 referendum in which Britain voted to leave the EU.
Liam Fox, trade secretary, said: “Providing continuity in our trading relationship will allow businesses in the UK and Korea to keep trading without any additional barriers, which will help us further increase trade in the years ahead”.
The two countries plan to ratify the deal before the scheduled Brexit date of October 31. The existing Korea-EU agreement eliminates tariffs on almost all products traded between the bloc and Seoul.
“The deal is significant as it eased uncertainties sparked by Brexit, amid the already challenging environment for exports on the escalating trade row between Washington and Beijing,” said Yoo Myung-hee, Seoul’s trade minister, on Monday.
However, the agreement is not a permanent trade deal between the UK and South Korea and would need to be renegotiated within two years.
After Brexit, Britain will need to obtain South Korea’s consent to maintain existing tariff-free terms for UK goods with significant European components and for UK components in EU exports.
Peter Holmes, a director at the UK Trade Policy Observatory at Sussex University, said: “The EU, South Korea and the UK are all going to have to treat each other’s products as if they were made nationally and this requires agreement between all three participants, not just between the UK and Korea”.
The Department for International Trade was not able to say on Monday what had been agreed between the UK and South Korea on rules of origin, but added it would provide greater clarity in due course.
Mr Fox, who visited Seoul for the signing ceremony, said the deal would pave the way for increased bilateral trade by allowing both countries to maintain no tariffs on their exports, even if the UK leaves the EU without a deal.
Bilateral trade was worth £14.6bn last year and has increased by an average of 12 per cent a year since the EU-South Korea free trade agreement was signed. Official figures show the UK and Korea have generally had relatively balanced goods trade with a UK trade surplus in services trade.
But such figures do not capture the whole picture, since South Korea exports many components into products assembled in China and exported onward to the UK. Britain is South Korea’s second-largest trading partner after Germany among current EU members.
More than 100 South Korean companies operate in Britain and the country exported $6.36bn to the UK last year — notably cars, car components, ships and aircraft parts. The UK exports mainly crude oil and automobiles to South Korea.
Seoul will try to update the deal, especially in the area of protecting investors, two years after the preliminary agreement takes effect, South Korea’s trade ministry said.