Impact assessment

Summary of the impact assessment of the UK-Norway, Iceland, and Liechtenstein free trade agreement

Published 16 July 2021

This was published under the 2019 to 2022 Johnson Conservative government

The United Kingdom and Norway, Iceland, and Liechtenstein have negotiated a new comprehensive free trade agreement (the Agreement). Total trade with these countries was worth £27.1 billion in 2019, with just over three quarters in goods trade.^{[footnote 1]}

Between 2019 and 2030, Norway and Iceland’s demand for imported goods and services is projected to grow by around 40% in nominal terms.^{[footnote 2]} If the United Kingdom retained its existing market share in those countries, the increase in demand would translate into an additional £3.5 billion in United Kingdom exports. This would push total United Kingdom exports to Norway and Iceland to around £12 billion by 2030 (from £8.3 billion in 2019).^{[footnote 3]}

Since January 2021, the trade in goods between the United Kingdom and Norway and Iceland has been governed by the Agreement on Trade in Goods Between the United Kingdom of Great Britain and Northern Ireland, Iceland, and the Kingdom of Norway. This agreement is a goods-only trade agreement, and is referred to as “the Agreement on Trade in Goods” in this document. In the case of Liechtenstein, trade in goods continues to be covered by the Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Swiss Confederation. This is because Liechtenstein is in a customs union with Switzerland.

The United Kingdom has now negotiated a more ambitious free trade agreement (FTA) with Norway, Iceland, and Liechtenstein. The Agreement will provide increased market access on a range of agricultural products traded with Norway as well as include services trade with Norway, Iceland, and Liechtenstein.

The impacts of the agreement

This impact assessment aims to provide Parliament and the public with an assessment of the incremental impacts of the agreement relative to the Agreement on Trade in Goods. The additional impacts of the agreement are expected to be concentrated across services sectors and some agricultural sectors such as fisheries, dairy, and meat.

Compared to the Agreement on Trade in Goods, the impacts on producers and consumers in particular sectors could be significant. Some producers are likely to benefit from greater market access opportunities or greater legal certainty when trading with Norway, Iceland, and Liechtenstein. On the other hand, some producers may experience cheaper imported inputs or increased competition. Consumers of products where United Kingdom tariffs have been removed or reduced could benefit from lower prices and increased choice.

The United Kingdom has secured a free trade agreement that could help enhance a trading relationship worth £27.1 billion 2019.

Trade in services and investment

A key objective of the agreement is to support the growth of services trade and to deepen the trade in services relationship. The Agreement on Trade in Goods, signed on 8 December 2020, did not contain provisions on trade in services. Services accounted for 47.2% of United Kingdom exports of goods and services to Norway, Iceland, and Liechtenstein in 2019.^{[footnote 4]}

Total United Kingdom services trade with Norway, Iceland, and Liechtenstein was worth £6.0 billion in 2019.

The agreement delivers more opportunities across services and investment and a range of other areas including digital, procurement and telecoms.

Examples include:

• enabling investors to appoint preferred candidates for senior management without being limited by nationality and residency criteria
• cutting-edge digital trade provisions that will see cooperation on emerging and new technologies, and strong data protection commitments that will safeguard consumers and businesses
• facilitating the capping of international mobile roaming charges with Norway and Iceland
• securing an innovative and comprehensive system for the recognition of professional qualifications for regulated professions. This will bring more certainty to professionals in the United Kingdom, Norway, Iceland, and Liechtenstein and aid them in their journey to gaining recognition decisions
• improving legally guaranteed market access above the level in the Agreement on Government Procurement for suppliers in the United Kingdom wishing to bid for government procurement contracts
• providing legal certainty for highly-skilled businesspeople and businesses in the United Kingdom as they will continue to have access to Norway, Iceland, and Liechtenstein for business travel. It will allow for easier long-term business planning and greater administrative clarity following the end of the transition period

In 2019, the stock of FDI from the United Kingdom in Norway, Iceland, and Liechtenstein was £1.1 billion. At the same time, the stock of FDI from these countries in the United Kingdom was £11.0 billion.

Trade in goods

The agreement will liberalise or further reduce tariffs between partner countries. Based on 2017 to 2019 average trade flows it is estimated that:

• duty free access on United Kingdom exports to Norway could increase to 97.6% from 96.4% (increase of 1.2ppts) compared to Agreement on Trade in Goods. Similarly, duty free access on United Kingdom imports from Norway could increase to 99.7% from 99.5% (increase of 0.2ppts)
• total annual tariff reductions on United Kingdom exports to Norway could be £4.1 to 8.1 million. Whilst the total annual tariff reductions on United Kingdom import duties from Norway could be between £1.3 and 2.9 million^{[footnote 5]}

Businesses in the United Kingdom will be able to benefit from new tariff rate quotas (TRQs) and increased volumes under existing TRQs.^{[footnote 6]}

Examples include:

• 25 new or expanded outward TRQs in the Agreement ensuring zero tariffs for approximately £1 million worth of trade. United Kingdom exporters of products such as pork, sausages, poultry, and eggs will be able to benefit from new or expanded TRQs
• 3 new inward TRQs. United Kingdom businesses and consumers will be able to import products such as cut flowers, whey, and whey protein, from Norway at a lower cost

The agreement delivers more opportunities for the United Kingdom’s agricultural sectors, examples include:

• fisheries sector - United Kingdom import tariffs on shrimps, prawns and certain whitefish have been reduced. This could help support the domestic fish processing industry and could benefit domestic consumers through lower prices. There will be new opportunities for fish feed exporters, many based in Scotland, to export tariff free to Norway. Norway is a significant market for fish feed exports
• meat sector - the agreement will create new opportunities for United Kingdom meat exporters (pork meats, sausages, and poultry) to export duty-free to Norway through duty-free quotas. These are exclusively accessed by United Kingdom producers only. The United Kingdom will be able to export pork belly duty-free under quota to Norway (compared to European Union producers where an in-quota rate applies)
• dairy sector - the agreement reduces tariffs for exporters to Norway of specific high quality United Kingdom hard cheeses. These include - West Country Farmhouse Cheddar, Orkney Scottish Island Cheddar, Traditional Welsh Caerphilly, and Yorkshire Wensleydale cheese. It also maintains an exclusive, United Kingdom-only, duty free quota for all cheeses and allows new duty-free market access for United Kingdom export of eggs to Norway

Total United Kingdom goods trade with Norway, Iceland and Liechtenstein was worth £21.1 billion in 2019.

Wider impacts

The agreement contains a dedicated chapter on small and medium size enterprises (SMEs). The chapter will commit to make information about the agreement accessible online, in order to help SMEs find out what the new rules are. In addition, government contact points will be established to assist all parties to work together on matters that will support SME trade.

The agreement also contains provisions that will commit all parties to cooperation on matters of animal welfare as well as to exchange of technical information and best practices for providing safe and high quality foods for consumers.

The agreement is not expected to affect the United Kingdom’s ability to reach its legally binding emissions targets, including Net Zero. The environmental provisions included in the agreement are intended to help improve the environmental performance of all parties of the agreement. Protected groups in the labour market (in relation to age, sex, ethnicity, and disability) are not expected to be disproportionately negatively affected by the provisions in this agreement.

Every part of our country will have the opportunity to benefit from the liberalisation of goods and services in the Agreement.

The agreement is not expected to result in any significant impacts on developing countries.

1. ONS, UK total trade: all countries, non-seasonally adjusted: October to December 2020. The trade flow and GDP statistics for this impact assessment are based on the period 2019. Data are available for trade in 2020 and early 2021. These data have not been used as the reference period because of the coronavirus-related impacts on the United Kingdom and many of its trading partners. ↩

2. Estimates for nominal import growth are constructed in two stages. First, nominal GDP growth in US dollar terms is projected forward for each country using the IMF’s World Economic Outlook (April 2021) forecasts out to 2026 and then extrapolated forward using 2025-2026 growth rate as a proxy for trend growth. Second, nominal imports in 2019 - as measured by UNCTADStat’s merchandise and services imports in US dollar terms - are assumed to grow in line with nominal GDP from 2020 onwards (implying the import to GDP ratio remains flat at its 2019 level). ↩

3. Based on projected growth in imports in nominal terms. ↩

4. ONS, UK total trade: all countries, non-seasonally adjusted: October to December 2020. ↩

5. DIT internal analysis. TradeMap/HMRC 2017 to 2019 average trade flows. Ranges have been provided to reflect uncertainty around disaggregated trade flows. See Annex A for detailed methodology. ↩

6. When compared against the baseline of trading with Norway and Iceland under the Agreement on Trade in Goods and under Most Favoured Nation (MFN) terms with Liechtenstein. Value of trade based on 2017 to 2019 average trade flows. ↩