Tuesday, 24 January 2017

A wanton act of economic self-harm

David Davis is reported to have said today that he hopes a comprehensive FTA and customs agreement will deliver "the exact same benefits" as single market membership. The stock response on Twitter is "good luck with that". It would appear the government expects continuity of trade while meeting none of the obligations that go with it.

As we have already discussed on this blog, free trade in goods is as much about the systems that make it possible as tariffs, which are a minor consideration by contrast. As much as it all exists to reduce the administrative overhead of trade by way of harmonisation it also exists for matters of safety and biosecurity. 

There are egregious failings in the system every now and then such as the horse meat scandal and the PIP breast implant cover up but for the most part we have a reasonably effective system that safeguards our industry. One such example of how this can work is found not in the EU mechanisms but in US systems which helped to contain the spread of bird flu. Similar systems are found the world over. 

This is pretty much the backbone of what makes up the single market and indeed any comprehensive free trade agreement. This such detail is lost on clueless Toryboys such as Daniel Hannan and the crooked Steve Baker MP who draws our attention (see illustration) to how simple trade deals used to be. Hannan seems to think that reducing barriers to trade is a separate concern to setting common standards. It isn't. Comprehensive agreements are verbose for good reason as the Washington Post points out:

It is easy to find a compound or material that is perfectly correlated with country of origin, for historical or geographical reasons, and ban it. Firms know this, and lobby their governments to legislate accordingly. Governments, in turn, explain these measures as centring on consumer safety, not commerce, opening up countless opportunities to impose what the WTO calls “disguised restrictions” on trade.

It’s not just the content of these technical regulations. The testing that goes into proving conformity with them is yet another trove of protectionist policies. For example, the U.S. and Brazil agree on many global standards on telecommunications equipment, but Brazil does not accept foreign test data, so equipment exported to Brazil is subjected to redundant testing. In this sense, “conformity assessment” acts as a bottleneck, and can be prohibitively costly for the U.S. exporter. The effect is to deter trade.

TPP tackles these issues head-on. The complexity of TPP traces to a desire to deal more fully with such measures. Building on Korea-U.S. (KORUS), TPP builds in “WTO plus” provisions on standards and technical regulations. Across the board, there is a deeper emphasis on basing these measures on agreed-upon science; making the process of formulating regulations more transparent; and giving foreign exporters opportunities to offer substantive input in the formulation of these measures. *more so for non-EU states.

This is where global bodies like UNECE, ITU, Codex and ISO come in. To name just a few. The purpose of standard setting is as much to do with with creating a level playing field and removing imbalances as it is ensuring the frictionless passage of goods between developed economies. 

This is pretty much the same basis the single market works on and there is no real likelihood that we would in any way deviate from this method in a comprehensive FTA. Certainly not if David Davis is to get his wish. 

This rather torpedoes the crass notion that Brexit and departure from the single market gives us scope to trade by way of reducing standards in order to permit market entry. As much as we will be bound in or out of the single market, partner nations will already be locked into similar agreements as well as being signatories to the WTO agreement on technical barriers to trade. This is why the pet theories of Shanker Singham are total garbage. In effect, we are wasting our time leaving the single market, especially if all we are going to do is negotiate an EEA lite. 

Effectively, what tantalises the Tory right and Ukip is the simplicity of what they imagine free trade deals are. They have no real understanding of what comprehensive agreements are or why they are comprehensive. They cling to the rather innocent notion that whipping up a deal on tariffs is all it takes. How this article of faith has lasted this long beats the hell out of me. We are dealing with some singularly stupid people here whose pet theories bare no relation to the world as it is.

By leaving the single market we are now committed to negotiating what the EU time and again has said we cannot have - business as usual without the freedom of movement. The EEA is the one mechanism with provisions for curbs on freedom of movement which May has ruled out so the axe must fall somewhere in terms of market access. 

On the flip side of this we have to look at the EU's own immediate concerns and even if the Toryboys are not concerned with biosecurity the EU very much is and will insist on us obeying their protocols for continued market entry. One way or another we will be dancing to their tune. Moreover, since there is no time to be negotiating all this from scratch, if the UK wants a comprehensive FTA then our officials will be rifling through the respective Swiss agreements by the photocopier. That bespoke "British Option" won't be so British after all.  

The truth is that there is no simplifying the long established and the inherently complex. Brexit does not make technocracy go away nor does it reduce EU red tape. Quite the opposite in fact. So here we are cooking up a deal that won't give us much scope for deregulation, will barely save any money and in all probability will have no discernible impact on immigration. 

We could have signed up to the EEA meaning that we would not have lost any significant market access while still being able to make our own trade deals (for what that's worth) and spared ourselves the risk of a trainwreck Brexit. I would not like to be a Tory when the public wakes up to what is being done in their name. 

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