Sunday, 29 May 2016

Why agility matters more than market size

Readers of this blog will have noticed me droning on about the need for partial scope agreements. In the main that relates to tariffs but there is no reason why the same methodology should not be applied to mutual recognition of standards and regulations. And helpfully today we get a demonstration why EU thinking is obsolete. 
The European Commission and the US International Trade Commission have run a series of consultations that highlighted a number of cross-sectoral factors that create disproportionate burdens for SMEs. These include the cost of adjusting to different regulatory systems in different jurisdictions, the cost related to the protection of Intellectual proper rights, and for customs procedures, rules of origin, and tax requirements, among others.

Taking as an example Gynius, a medical device company based in Stockholm, Trade Commissioner Cecilia Malmström told that it took them a great deal of effort to get their gynaecological cervical cancer screening equipment to get approved in the US.

“TTIP would have made that easier for this life-saving product,” she said. The same happened to an Austrian company in Tirol, Montavit, which, faced with high annual fees for double inspections of its facility by EU and US authorities, found it too expensive to do business in the US.
You can see why a comprehensive deal like TTIP might be required in that we're not just talking about the elimination of tariffs. Something economists on both sides fail to grasp. But achieving this all in one go seems implausible.

A better way to go at it is how the rest of the world is presently managing trade. A step at a time. A working party looking at a particular class of goods could have examined this case and hammered out an agreement on medical devices using the sub classes of international standards.

It's entirely possible that within a far shorter timeframe you would have an agreement that would resolve some of the issues and be ready for implementation. More to the point, it would be completely uncontroversial and pass without too much fuss.

But that's not how the EU does things. No. Instead it has to be agreed under much broader, more ambitious packages which are far reaching, time consuming, very controversial and consequently prone to failure.

So years down the line from when TTIP talks began, as the EU is only just grasping that facilitating SME trade is where you make the serious dents, the individual agreements it reaches must be included in a "big win" package - to be ratified all at once - at a date as yet to be decided. In the interim it's too expensive to do business and everybody loses.

An independent state with it so own trade policy would not have to wait in line, and be able to set up a working party to get niche and emerging sectors booming. Deals on this scale don't have the rent-a-mob bunch out in force waving "save our NHS" placards. It's just part of the normal business of trade.

And this all may be fruitless anyway since TTIP has an undeserved reputation for being something malevolent. For that reason it will probably be blocked by the morons in the European Parliament for reasons completely unrelated to cancer screening equipment. Either that or it will be rejected by Congress, again for unrelated reasons, probably because America is not actually a country that believes in free trade outside of its borders.

In that regard, getting a comprehensive deal with the US is like a quest for the Holy Grail. Nobody has ever seen it, we don't know what it looks like and is of limited use when we finally get it.

Meanwhile, if we adopted the partial scope approach we could be finding far more cooperative partners. The EU is obsessed with the USA because it sees only the size of the market. It would be a big win in that it would answer criticisms that the EU is useless at trade. But Africa has a market size of over a billion people and there is more than enough scope there to open up new markets.

Moreover, from a regulatory perspective much of it already subscribes to the same standards as the EU and most of the world - or is a regulatory blank slate. Achieving regulatory parity is only a matter of investment. What we could be doing is using our aid policy to develop the rules based trading environment necessary to do business. We could be operating an effects based trade and aid policy rather than doling out cash via DFID to NGOs to no discernible effect.

The USA is tough nut to crack when it comes to trade. Getting rid of tariffs is one thing but when you are seeking to harmonise two intricate and established regimes each with their own cultural idiosyncrasies, you are looking at a long, drawn out process which may never be completed and may never really work. The USA will need a cultural change because our systems fully align.

Were Britain free of the EU we could leave the EU to keep barking up that tree and see what comes from it. Since we use the same regulators as the basis of our rules, we could join TTIP as a latecomer. Why confront the obstacle when you can go around it?

In the mean time we could focus all our efforts on African trade with a view to boosting exports but also as a means to slow the flow of migrants. That would be a better idea than paying murderous regimes to get soldiers to do it. Like the EU does.

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