Post-Covid-19, there has never been a more critical and urgent time for the world to come together in the face of a health and economic crisis. Yet, despite the global uncertainty, the special relationship between Portugal and the United Kingdom looks set to endure, says UK Ambassador to Portugal, Chris Sainty, who was addressing members of our strategic partners, the British-Portuguese Chamber of Commerce in Portugal (BPCC), who organized the recent webinar ‘Our Old Alliance and the Future Ahead’.
The biggest public health emergency of our lifetime, the Covid-19 crisis, has developed into a major economic emergency and, as the virus continues to take its toll globally, the question has shifted from whether there will be a global recession to how bad, how long and how deep that recession will be.
The severity of this recession will depend on many factors: the time it takes to contain the virus, treatments, and the outcome of the work being done around the world to find a vaccine, as well as the effects of pre-existing weaknesses in the global economy and how the world comes together in a response to the repercussions of the pandemic.
“One very obvious conclusion policy-makers in like-minded countries have reached is that a coordinated economic response is absolutely vital to reduce and mitigate the damage caused by the pandemic and ensure that a very temporary disruption to the world’s economy doesn’t become a permanent one,” says UK ambassador to Portugal, Chris Sainty.
In Lisbon, the British Embassy team is closely monitoring and reporting back to London how Portugal has responded to the crisis, while both countries know that the impact of the enormous State borrowing will be felt for a generation.
“Obviously, and understandably, Covid-19 has been the overwhelming priority for both countries in recent months, but it has also added to the urgency of finding a post-Brexit agreement between the EU and the UK, because shaping economic policy in the aftermath of the virus will be a much more straightforward task if we understand what our trading arrangements are going to be, going forward,” explains the Ambassador.
Now in the transition period, the UK has embarked on a new phase in the Brexit negotiations to determine what the trading relationship with the EU will look like, with some clarity now even if no agreement is reached.
“We want to see a future relationship with the rest of Europe that is based on friendly cooperation between sovereign equals which benefits both sides. The UK government has also been clear that the intention at the end of the transition period is that the UK would fully recover economic and political independence on January 1, 2021,” says Chris Sainty.
“As is known, those talks have not been going as well as either side would have liked. At the moment,(mid-June 2020) there is a significant gap between the EU position, which in many areas seeks to bind the UK to EU standards, laws and regulations and, therefore, a continuing role of the European Court of Justice in the governance of the UK, and the UK’s position.”
Sainty says that from the UK’s point of view, the UK is reminding Brussels that it has left the EU and these are “not reasonable things to ask of a country which is no longer part of the organisation”.
The EU, he says, has never made such demands of other countries, including those with which it has some of its most complex and lucrative trade agreements like South Korea and Japan, so it is “genuinely difficult for the UK to understand why Brussels is so determined to treat us so differently from other third party trading partners”.
“The issues are not going to be easy to resolve, and there will have to be some political accommodation. The last meeting did not resolve any of these fundamental differences, but I think there was an indication of a political will on both sides to get this deal done, but, as far as the UK is concerned, ‘not at any price’,” he says.
Sainty says that there are many people who claim that the UK is not really interested in getting a deal done with Europe and that the government wants to leave the transition period without one, but “I can say, with real sincerity, that that is not the case”.
“If the talks fail, and I don’t necessarily believe that will be the case – there is a strong political will to reach agreement on both sides and the EU has a long history of going to the wire and reaching an agreement at the last minute – then the UK would revert to trading on WTO rules from December 31,” says the Ambassador.
In May 2020, the UK announced its new Global Tariff Regime that will replace the EU’s Common External Tariff Regime. The new regime will operate from January 1, 2021 and apply to EU-UK trade if an agreement is not reached.
“Most people in Portugal and around Europe believe that the trading relationship with the UK will adapt and will thrive, even if it experiences a short-term shock as a result of the nature of any agreement we manage to reach with Brussels,” says Sainty.
Defence and security
Sainty says the United Kingdom is “unconditionally committed” to European defence and security and will work closely with Portugal in NATO in the years ahead.
“We have always been and continue to be maritime, Atlantic-facing nations on the western edge of Europe, and that influences our outlook on key foreign policy and security issues and that is not going to change,” he stresses.
In 2019, the UK became an observer country in the CPLP (Confederation of Portuguese-speaking countries) with the hope that, over time, the UK can find ways with Portugal of joining up the work of the Commonwealth with the CPLP, particularly in areas such as international development, with an emphasis on regions like Africa.
Trade and economy
Chris Sainty points out that there are lots of affinities and habits that have been built up over centuries in the UK-Portugal trade relationship and the wine industry is one of the more obvious ones.
“It never ceases to surprise me that, despite all of the external pressures worldwide from Covid-19, the increasing protectionism, and trade disputes between China and the US, the bilateral commercial relationship between the UK and Portugal remains very strong and resilient,” he says.
The total figure for trade between the UK and Portugal (2018) was €12.3 billion (a 40 percent increase over 10 years). All the evidence for 2019 and the first two months of 2020 had pointed to trade continuing to rise.
The trade balance between the two countries is highly favourable to Portugal. In 2018, of that €12.3 billion, €8.6 billion referred to Portuguese exports to the UK, and the UK exported €3.4 billion to Portugal. The services component has become the most important in terms of exports to Portugal from the UK.
By the end of 2018, the value of UK service exports was 53% over 12 years but is still less than half of the total.
“Portugal enjoys a healthy trade surplus with the UK. UK exports grew by 2.8 percent in 2017 and 2018. In the previous 12 years, the average annual growth rate in UK exports was only 0.9%. Not only has trade been increasing at a pretty healthy rate, but that rate has been accelerating in recent years,” the Ambassador emphasises.
And he continues: “Because of the healthy trade balance in Portugal’s favour, it is clearly in Portugal’s interest to reach a future trade deal with the EU that minimises the friction and cost that goods and services will incur as they cross the border between the EU and UK”.
Portugal and investment
Chris Sainty says that the UK, despite Covid-19, continues to have a strong economy within the global context, with a business culture focused on growth, internationalisation and capital. It is the British government’s ambition to continue to be a world leader in innovation, diversity and competitiveness, regardless of all the ‘noise’ heard over the last few years.
“I am confident we will continue to have a strong economy. We have a business-friendly legal system, efficient courts and arbitration for resolution of disputes, the most dynamic and innovative financial sector in the world, a highly-skilled workforce, world-class universities, advanced research institutions as well as the English language – all a unique set of advantages that the UK has to offer foreign investors. In 2019, the UK recorded record values of inward foreign investment, demonstrating the confidence that investors around the world continue to have in the UK economy,” he says.
“I was surprised because I had assumed, like many others, that in the short term (because of Brexit), we would see foreign investment falling off, but, in fact, that has not been the case. The UK remained well ahead of its European competitors in terms of attracting inward investment.”
The UK Ambassador says that there are more than 100 Portuguese companies already established in the UK which have benefited from the support of the UK Department of Trade & Investment in Lisbon, representing a diverse section of the economy including telecommunications, IT, engineering and financial services.
The UK is also one of Portugal’s top FDI destinations with the UK supporting more than 50 investment projects, which have resulted in the establishment of new Portuguese companies in the UK, with a total investment of €200 million and thousands of new jobs.
The UK Ambassador points out that British tourists and holidaymakers have had a very long-standing love affair with Portugal and the Portuguese. Tourism accounts for nearly 15 percent of Portugal’s GDP, and was a main driver behind its economic recovery from the 2011-2014 financial crisis.
2019 saw 16 million foreign tourists visit Portugal, of which around 15 percent (three million) came from the UK. This means that, on average, 3 percent of Portugal’s GDP comes from the British tourist market.
“It is not at all surprising that the Portuguese government is very keen for the British to come back this summer and lots of shops and businesses in the Algarve depend on it. At this moment, I do not know if this can be achieved on the scale and ambition that Portugal would like. The UK, acting on the best scientific advice that it has, taking into account the progress of the pandemic in the UK, recently introduced a 14-day quarantine restriction and, if maintained through the summer, that will depress the number of British tourists willing to travel abroad for their holidays,” he says.
Sainty adds that there has been a lot of talk about international travel corridors to facilitate travel between countries like Portugal without the quarantine restriction being applied.
“There is a lot of pressure from the Portuguese government, from the airlines and tourism sector, but the honest answer is that we simply don’t know yet if it is possible because of the inherent unpredictability of the virus,” he says.
And he stresses: “Please don’t believe everything you’ve seen, heard or read in the media about what has or hasn’t been negotiated. I would say from the UK’s side, we are still some way off from deciding, in principle, which corridors are sensible, feasible, and then agreeing them with countries like Portugal.”
Sainty believes that whatever the outcome of these difficult Brexit negotiations between London and Brussels, a “coming together” of Portuguese and UK academic talent is still important and he believes and hopes it will continue to grow.
“We have very strong people to people links, with a very substantial Portuguese community in the UK (400,000 people) who make a genuinely remarkable contribution to our economy, services, education sector, and to our society more broadly,” he says.
These represent links in education, science and research, with Portuguese and British academics working side-by-side in the most prestigious institutions in both countries. This vital exchange of knowledge, he says, will continue to play a crucial role in finding solutions to the challenges that the two countries face (one in five Portuguese scientists and researchers working outside Portugal are doing so in the UK).
At the same time, the UK Ambassador points out that there is a sizeable community of UK nationals living in Portugal (30,000-50,000) who also make a significant economic and social contribution to Portugal.
“Thank goodness all this will not change given the guarantees that are enshrined in the EU withdrawal agreement, as well as the strong assurances that both our governments have given to our citizens who are already living and working here, and in the UK, and who will be welcome to remain with their rights permanently protected,” he says.
And of course, who can forget the Treaty of Windsor of 1373 or the fact that English crusaders fought alongside the Portuguese in the Siege of Lisbon in the 12th century? “The history of our two countries is very long, very remarkable and still very important and relevant today,” he says.
Future commercial opportunities
The British Ambassador to Portugal says he feels very optimistic about trade opportunities going forward, despite Covid-19 and Brexit.
Chris Sainty says there are many exciting areas where Portugal and the UK can and will work together, notably in sectors like technology, green growth, climate change and AI, all areas where Portugal excels or is expanding its capabilities.
“These are synergies which I very much hope that both the UK and Portugal can exploit, particularly in climate change in which both countries lead the way,” concludes Chris Sainty.