Monday, 5 September 2016

Brexit: designing the future of trade

The fabric of global trade agreements is a rich and varied one. If we were to list all the three letter acronyms we'd be here all day. Suffice to say if you're speaking only of bilateral deals then you're not even scratching the surface. But that's exactly what we can expect from our media and overnight absolutely everyone will be a trade expert. And yes, they're going to get it badly wrong.

The whole saga of TTIP has been a "will they? won't they?" Ross and Rachel plot to the media - and that is how UK relations will be reported in the wake of Brexit without ever drawing reference to the patchwork of multilateral agreements which could be utilised to accomplish much the same thing. There are eleven different categories of trade agreements, not all of which manifest as agreements in any trade databases. Not least unilateral declarations of conformity.

Regular readers will now be aware that the real business of trade happens not at G20 meetings between world leaders but between specialists with highly technical knowledge in their own particular field be it veterinary science or electrical engineering. Trade is more about regulatory harmonisation and standards than it is about tariffs. In this there are any number of approaches, some never to be replicated. The question of how it works depends entirely on the the subject matter and the forum and the players involved.

The players can be nation states, alliances of corporates, trade blocs, trade associations or hybrid groupings all of the above. They can be formed and dismantled according to a particular outcome and their existence is only recorded in obscure academic journals or WTO archives. In this some of the most profound incremental steps have been made in ways that few would ever realise. These would be common global standards on fairly mundane things but in their own right have major impact on global trade.

The point missed by most commentators is that free of the EU the UK is able to participate in all of the global regulatory forums as an independent actor with our own vote and more importantly the right of initiative. This is where Britain can make the most significant leaps. 

All eyes are focussed on whether the UK will get a preferential deal with the USA. It's sort of important but less so if you imagine the alternative approaches. On the occasion of its fourteenth Ministerial Conference, UNCTAD launched the largest global database on Non-Tariff Measures during the Ministerial round table 'Lowering hurdles for Trade: Trade Costs, Regulatory Convergence and Regional Integration'. TRAINS covers 56 countries accounting for 80 per cent of world trade. It is the most comprehensive Non-Tariff Measures database containing more than thirty-eight thousand measures.

This, in trade terms, is an Argos catalogue of trade opportunities whereby Britain can examine its exports and and set about new initiatives for breaking down barriers to our own advantage. As EUreferendum notes, what in many ways makes EU membership so objectionable is the loss of the right of initiative – the monopoly power to propose new rules at the global level 

Freed from the EU with full of right of initiative, the UK, in concert with other states, can define the rule book at the global level and continental level. A remarkable example of this is the UNECE WP.6 Working Party on Regulatory Cooperation and Standardisation Policies.

Through this we have seen the development of the "International Model" of regulation, using the mechanisms of the Common Regulatory Objective (CRO) which achieves in a steady, unspectacular way the degree of regulatory convergence that agreements such as CETA and TTIP aim to achieve but somehow never actually deliver.

And this is why it is less important that we get a preferential deal with the USA. The USA has already committed to adopting international regulations in the same way half the world has through the WTO TBT agreement. The way to get the USA on board is to look at trade sector by sector, build up a consensus with other countries and alliances and make it tempting enough for the US to want to opt in.

It's not exciting to the media, it's massively uncontroversial and does not involve the usual dramas of cliff edge talks and sudden collapses as per the tried and tested methods. It could be an agreement on something as mundane as headlamps on agricultural vehicles. It doesn't seem apparently a big deal but far easier to achieve and these such issues can be picked off one at a time - and several in any one session.

Nobody is going to go to the barricades over these such agreements in the way they might for TTIP. More to the point, since such a method covers so many possibilities this activity can happen on a weekly basis working through the database, shunting the controversial issues to the bottom of the pile. Because there are various specialisms much can be done concurrently in all of the different global regulatory forums be it the ITU, UNECE or Codex.

If Britain adequately invests its attention on these such matters instead of chasing bilateral deals then we change the dialogue around trade and and build up some considerable favours in the process. By switching to a different approach we would be pioneering the technique and reigniting multilateralism in a way that the WTO has failed in recent years.

But then there's also Trade Facilitation whereby, for example, a customs modernization programme for Bangladesh reduced clearance times by three days for imports and eight hours for exports. That's real cash money right there and in terms of costs it's a far greater achievement that knocking tariffs now by a percentage point. More to the point, this is a far more sensible way of spending our aid budget which has direct benefits in the national interest while also being a more tangible means of reducing poverty in the developing world.

The battle to mainstream this approach, though, once again means going up against the "experts" who are locked into their own narratives and fixated on obsolete ideas. Namely bilateralism. Britain's Brexit progress then becomes measured by the number of bilateral deals we secure regardless of how increasingly irrelevant they are. Especially where tariffs are concerned.

We need to step away from any idea that there are any trade experts per se. For sure there are expert negotiators who can be put to good use and trade economists who can provide useful models based on a particular context but in terms of how it really works, it is entirely contingent on how we design our foreign and trade policy.

As usual the naysayers will be generalists with no concept of the issues discussed in this post but since they will be dripping with prestige it means good ideas are wasted on them. I've recently heard Trade Facilitation described as a "consolation prize" even though the WTO's own estimates suggest there are hundreds of billions of dollars in savings to be made globally in streamlining the trade process.

For some reason the experts seem fixated on the idea of bilateral deals when CETA and TTIP show that as much as these deals are deeply unpopular they tend not to deliver. Right now it looks like TTIP is going nowhere. Just how many times do we have to try the same bad idea before we change tack? And what is the point of leaving the EU if we are going to replicate their mistakes?

What's needed is a fundamental rethink in how de do trade. If we really are to make a success of Brexit then we must use the opportunity to part with obsolete thinking and revolutionise our approach to trade. As you've probably guessed by now, rather a lot depends on it. Brexit was all about breaking with the past. Now we get to design a new future. 

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