Thursday, 5 July 2018

Don't bet the farm on a US trade deal

So today we are likely to see Tories getting their panties in a bunch over the revelation that regulatory alignment with the EU will limit the scope of a US trade deal. That should be a surprise to no-one who has been paying attention.

This apparently is justification enough to leave the single market. There is something of a problem with this thinking however. Firstly the US does not depend on imports. Trade for the US is a foreign policy tool. For them trade is about power.

And when it comes to the USA, where trade is concerned it runs an America First policy. It did so under Obama and will do so under Trump. They make no exceptions for allies. There are two country categories...

1. America. 
2. Not America.

This is evidenced by way of their recent treatment of Canada. We should be under no illusions about a special relationship. In general terms it barely exists and in trade it does not exist at all. It's an article of UK establishment vanity and exceptionalism.

So what can we expect? They will more than likely demand that we lower our standards, breaking from the EU precautionary principle. This is so they can dump agricultural surpluses. What they wont offer is anything like the services access we could have with Europe vie EEA.

So what's not to like about cheap food imports? Firstly economies of scale means UK producers cannot compete. Once they have eliminated UK competition (wrecking the countryside in the process) they will gouge us on price because they can.

On the scale that the USA produces beef, when they find a sick animal they don't waste any time. They shoot it. Not so for UK farmers who can't afford that kind of loss so it's a £600 vets bill every time. There is simply no way UK livestock sector can compete.

It gets worse in that liberalisation with the US will hurt our trade with the EU. The EU enforces its precautionary principle through single market controls and if we are importing what the EU wouldn't there is a risk our products could enter the EU.

It will, therefore, increase the frequency of border inspections - which is seriously expensive in terms of testing, lorry driver overtime, and congestion delays. Every trade deal has ramifications on existing deals.

But then the Brexiters tell us that it would be intolerable to have rules without having a say in them. Well, I have some news. EU single market rules are based on global conventions and standards we would adopt anyway. But here's the kicker. Just because we adopt those rules does not mean we have unfettered single market access - because it's all about proof of conformity and maintaining the integrity of the single market.

So we would in fact be cutting ourselves out of supply chains with our nearest neighbour with no real scope for deregulation. We'd be losing a sizeable chunk of EU trade that simply won't be replaced by deals with the USA.

So what about making up the rest with deals with the rest of the world? Well, aside that we already have a number of agreements via the EU, there's a good reason why the EU does not have a comprehensive FTA with India. They're crooks.

Part of the reason the single market has strong defensive controls is to guard against fraud, counterfeiting and adulterated food - which India is famous for. The key to trade is trust and there is no basis for trust. Trust is what allows the single market to function. Border posts can be if everybody has the same rules and proof of conformity. Developed economies are trustworthy. We have to be careful about the rest.

Building up comprehensive agreements will require a lot of investment, and will take time. The more we diverge from the EU (our nearest and largest single customer) the more harm we do to that trade relationship. And of course, if we want access for UK services, more than likely it will come with demands for visa relaxation. And let's be honest here. Your average Ukipper is going to be livid about that. They're not marching in London about Polish plumbers are they?

These are the sorts of concerns that will ring alarm bells here in the UK. Meanwhile UK industry lobbyists will want a say and they will likely instruct their MPs not to ratify trade deals if they threaten them. We've already seen the wibbling over chlorinated chicken.

I would simply ask why we would take that gamble? We're looking at throwing away a £240bn a year trade relationship on the back of some half baked Tory dogma - naively believing we can knock up quick and dirty deals the world over to replace it.

Strategically it makes sense to maintain the trade we already have while we develop a more intelligent incremental trade policy, using regulatory diplomacy at the top tables to shape the rules of the single market and beyond. Tories believe there is a trade silver bullet by way of leaving the EU. Nobody serious thinks this and you won't find a single honest trade professional who supports this notion. Nobody takes crackpot Tory think tanks seriously.

By leaving the EEA we face the double whammy of losing EU trade but also the slow bleed when the powers that be come to terms with he fact that the UK is not a priority trade partner. It is not a trade superpower and less attractive outside of the single market. This is why Japan sent us warnings early after the referendum that investing in the UK is contingent on being able to effortlessly export to Europe. If they can't then goods produced here are not competitive.

Meanwhile, the EU is in a trade space race where every deal it signs hooks in smaller countries into the global rules based system which is very gradually merging with the single market. Smaller countries will prioritise EU over UK.

Once they have a deal with the EU they will have their own regulatory obligations they cannot compromise on in order to continue trading so our ability to deregulate in theory turns out to be worthless. I'm sorry to say it but the Brexiters cannot be taken remotely seriously.


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