Tuesday, 15 January 2019

Sorry Brexiters, but Britain does need a deal


If you were to look at Nigeria and India you would not find sufficient in the way of trade instruments to say that there is a comprehensive relationship between them and the EU. So if somebody said they trade on WTO terms, it's not strictly true, but by contrast with Norway, for example, then it might as well be true.

Nigeria is an interesting one in that it is militanly opposed to a deal with the EU. It has not ratified the anything but arms agreement so, as I understand it, it doesn't benefit from any tariff preferences. It has also rejected a comprehensive deal with the EU in fear of exposing itself to competition, believing such a deal would jeopardize the industrialisation of the country.

This is very much a valid view in development circles, where the dumping of western surpluses undermined the stimulation of domestic production which helps it to build a tax base that allows it to develop away from being reliant on mineral and oil contracts which are generally the prime source of corruption. Also, if citizens themselves do not finance their government they have no stake in it. They have perhaps learned from the Kenyan experience. Senior figures within UNCTAD have also made similar warnings against trade with the EU. 

As to India, even as a larger country, is similarly suspicious and is highly protectionist where services are concerned. It is also looking to develop its own technologies for strategic reasons. India has been keen to exclude foreigners from its defence industry, recognising the need to develop its own front line fighter - also with a view to defence exports in the future. The HAL Teja is their flagship project. It isn't very good and doesn't compete with western rivals but it is an all India accomplishment into which they are developing their own avionics and software. India has long term strategic goals and is not keen to open up its markets.

Being a massive country, with a population of a billion people, generally India doesn't need trade. In terms of what it looks for, it seeks out high value remittances. Kerala state in 2012 received the highest remittances of all states US$11.3 billion which is roughly equal to the value of trade in goods with the UK. It supplies IT technicians and engineers to the middle east. India is much more interested in visas - which, given the current climate, is not politically viable for the UK.

What we have, as members of the EU, is not so much a trade deal as an integrated relationship. Hundreds of separate strands of cooperation from ESA through to Erasmus facilitates major commercial exchanges. This is further facilitated by freedom of movement, regulatory harmonisation and recognition of professional qualifications and licences, without which, many business transactions would not be possible. Such measures enable transboundary service provision.

To say that we can trade on WTO terms is absolutely true. If businesses are prepared to suffer the tariffs and navigate the mountains of red tape then trade is still possible, though difficult to do competitively. That's fine insofar as trade in goods goes but we are a services economy and trade in services depends on agreements on everything from intellectual property to insurance and much else.

It's one thing to not want to be a part of the EU and to reject its destination of full political union, but binding and comprehensive agreements encompassing commitments to harmonise on standards and customs formalities along with antt-fraud, money laundering and counterfeiting measures are a fact of life. This is the WD40 of modern commerce. 

Crossing borders on the continent is a part of everyday life so energy, telecoms and transport integration makes all the sense in the world. So too does regulation on pollution which has transboundary implications. Rivers and air especially. Though the UK does not need to be integrated to the same extent, it makes sense for the UK to coordinate with our neighbours on all of these concerns.

The EU is by design a system that creates interdependency, not least as a deterrent to war. That's all well and good but it is a sovereignty inhibitor and I very much support the view that not only has it gone too far, we cannot allow it to go further, especially when it is now openly talking about removing unanimity on tax issues. This is ceding far too much political authority to a government that is not meaningfully accountable. Brexit, though, does not make the complexities of modern governance go away.

Since roughly half of our overall exports are with the EU and since, by way of the trade gravity principle, it will continue to be an important trade partner, we need to keep customs formalities and border formalities to a minimum. That requires agreed frameworks and since the EU already has frameworks agreed between the EU27, and cannot unilaterally make concessions to us under WTO rules, Britain has little choice but to align with the EU in or out of it.

Alignment, though, or even similarity is useless without formal recognition of such. That is why we need a comprehensive deal. Without these instruments we are unable to participate in highly regulated European markets on anything from financial services to airline repair. Without a deal we are to a large extent needlessly excluded from those markets - losing a lot of high skill, high tech, high pay jobs in the process.

Having left without a deal, not only do we find ourselves on the wrong side of third country controls, we also find that our opportunities to trade elsewhere are similarly contingent on making unpalatable concessions. It's the nature of the beast. There we will find the rest of the world has its own red lines much like India and Nigeria. 

In respect of other potential trade partners, we already have comprehensive agreements with them via the EU. At best we will be able to role most of them over but it is unlikely that there will be any improvements. Certainly nothing that would be a game changer for the UK for the simple reason that free trade deals generally aren't. Increments in trade come from multiple activities between governments and do not yield immediate results. The belief that Brexit heralds a free trade bonanza is simply not credible.

The inherent conflict of international trade is sovereignty versus integration. The more integrated you are the less opportunity for the meaningful exercise of sovereignty. In this equation there are no absolutes for a liberal democracy. Belarus has virtually no integration and fiercely controls its borders. The result being that it hasn't bounced back from Soviet occupation and by most measures is regressing.

Being a Brexiter and mindful of the consequences of hyper-liberalisation imposed upon us by what I term "spreadsheet sociopaths" I recognise probably better than most why there is a need to take back control. Much of what is done to us is done without consultation or consent and we are spectators in our so-called democracy. A balance has to be struck which is primarily what Brexit is about.

I am well aware that the democratic principles must be upheld and indeed take priority over the economy, and I am implacably opposed to those remainer politicians who believe that our wishes and concerns are subordinate to GDP. Still, though, we are a highly developed economy and as an island we are absolutely dependent on trade. We still have to reconcile our democratic demands with the realities of the world as we find it. 

This then is a question of priorities. It isn't that big a deal if Northern Ireland is still using EU meat hygiene rules? Minimal checks on freight between the Britain and Ireland is nothing worth going to the barricades over. Suboptimal it may be, but is the alternative really a price we want to pay? 

The fear that the backstop entails a customs union is rightly the cause of some alarm. That we lose a good deal of sovereignty over tariffs is a bitter pill to swallow. That, though, does not stop us operating an independent trade policy not least because there is a great deal more to trade than tariffs. Britain as the second most open government procurement market is in a position to leverage reciprocality where the EU negotiates tariffs downward. We are not without our own defences and in international relations, reciprocality tends to be the norm.

On thing to note in respect of Brexit is that any deal we may strike is not set in stone. Bilateral relations are always evolving as the Swiss experience demonstrates. Customs technology will evolve, and sooner or later the question will again arise as we find our feet as an independent country.

As it happens I am not the biggest fan of this deal. I don't think it has any fans at all but it does have the merit of a transition period in which to prepare and it does afford us a window in which to devise an alternative to the backstop. It keeps us in the game and ensures continuing good relations with the EU. Were there no deal at all, relations would rapidly sour and the process of recovering our trade would be longer and far less amicable.

The question of whether we could have got a better deal is now something of a moot point. The Brexiter MPs built their own reality and expected the EU to bend to it. Having deluded themselves they used their considerable influence to convince others (quite successfully) that the WTO is a miracle solution, so it was left to Theresa May to triangulate a deal while trying to reconcile the irreconcilable. This deal is ultimately the product of that. 

Now that negotiations are over the deal stands as the only deal on the table. MPs have been clear in their rejection of it but cannot unite around an alternative and none of their proposals obviate the need for a withdrawal agreement. The time for them to come together and work through a solution was well over two years ago. Only now we stand on the brink have the decided to get their act together. It's too little, too late.

There comes a point where we must accept that our own political disarray is the single most responsible factor for this situation. We must also accept that we are out of time. It is time to own our errors. We either accept that and use our position of relative strength in the future to evolve the deal and correct the mistakes of the May administration or we simply crash out and have to rebuild from scratch in a far weaker position in a state of greater need. Strategically, no deal is unthinkable.

The headbangers will claim that any deal is a betrayal of Brexit but that is a fundamentally dishonest position. The vote to leave was an instruction to leave the EU entity comprised of the Treaties. There was no implied mandate to impose a radical free trade agenda nor was there a mandate to terminate all formal bilateral relations with the EU. To appropriate the votes of leavers in support of this profoundly dishonest agenda is not only undemocratic, it is also criminally irresponsible. The price of no deal will be one we can ill afford. The damage it inflicts will make £39 billion seem like chump change. 

No comments:

Post a comment