Sunday, 17 July 2016

Global trade: don't get excited just yet

Australia has called for a free trade deal with Britain following its exit from the European Union. Britain could also take advantage of CETA even after it has left according Canada’s trade minister.

I wouldn't get too excited just yet though. You would struggle to find any politicians with an adequate grasp of what that actually entails. Britain is at a disadvantage in a lot of talks because we are already one of the most open economies there is. We do not have many barriers except for "behind the border" barriers like regulations. We won't be trading those away any time soon because our regulation is on the whole pretty good and conditional on EU single market access even if we leave the single market.

To simply agree to a removal of tariffs does not necessarily boost trade. To trade in another country means navigating its rules and regulations and conditions of trading which often comes at significant cost, so even if we do manage to get rid of 3% tariffs it still doesn't mean trade is necessarily attractive. The cost of compliance can be high and while we could ask for harmonisation of regulation we would have to do it in line with what the EU is doing. Also as we are already quite open there is not a lot we can offer in terms of reciprocity.

A lot of people, politicians included, think that trade deals are just a matter friendly like for like agreements between allies. They're not. They are complex, detailed, often contradictory and not always beneficial even when dealing with friends. What we are hearing from our allies is signals of intent which are political gestures and signals to the markets that Britain is not friendless and isolated - but it does not follow that there will be a deal ready to sign the moment we leave the EU.

Some have it that EU exclusivity means that we cannot formally negotiate trade deals until we have left but there is nothing at all to stop us having scoping talks so we have a clear idea of what a deal would look like but it is unrealistic to expect that we will have anything comprehensive put together between now and leaving the EU and it is unlikely they will be formalised this side of 2020.

Where our politicians have got it wrong is their insistence on bilateral deals when really we need to be taking a very close look at UK industry and talking to exporters, working up a list of non tariff barriers they experience the world over and instead of focussing on trade deals we should be going to all the major regulatory bodies globally and using our soft power to push through reforms.

We probably won't though because nobody in the Westminster is even aware of this dimension. We are not recruiting for it and because we have been in the EU for forty years we have no departments capable of dealing with it.

I'm not exaggerating when I say there is absolutely no competence in this field and the likes of David Davis and Liam Fox haven't even begun to grasp how trade works. Davis wants a Canada style agreement for the UK to access the EU but that goes nowhere even close to answering the question of how we unpick forty years of integration. I have a nagging feeling we are going to pay dearly for their childlike naivety as we struggle to replace any trading advantages we lose by leaving the EU.

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