Wednesday, 17 August 2016

The Brexit debate nobody wants to have

David Davis, the Secretary of State for Exiting the European Union, knows absolutely nothing about trade. But it seems in terms of relevant knowledge, the "experts" are not much further on.

A White House executive order, as I understand it, is a diktat which through special powers bypasses congress. A recent Executive Order is one that has escaped our attention. It is a diktat that compels the USA to adopt global standards and regulations as they come without any domestic oversight.

It is not a trade deal. It isn't a treaty. It is a domestic act. Canada has one and so does Australia. The EU does not need one because it has always been a passive recipient of regulations and standards from global bodies.

And so when those on the Tory right tell us that the USA manages to trade with the EU without having a treaty they are not strictly correct. They do not export to the EU without conforming and going forward, Executive Order 13563 is the means by which it will be possible. All you need is a mutual recognition agreement on conformity assessments and trade is as free as it is likely going to be for some time.

The benefit in doing it this way is that nobody notices what has happened. Not even the trade experts. None that I know of are talking about it and you would only know it was there if you went digging into the OECD website. The problem with trade agreements and treaties is that they are highly visible and therefore controversial. That is why TTIP faces such fierce opposition.

TTIP though, is (as far as I can tell) about making older rules and regulations in the USA compatible with our own. Agreements concerning future produce are not needed, except in those instances where exceptions are registered with the WTO. That is where trade becomes a process of multilateral horse trading within the respective regulatory forums.

This executive order means without any votes in congress or referendums the USA follows pretty much the same rules as the EU and the UK. This is also how Australia trades with the EU. They have their own domestic bill of obligations to adopt global conventions and trade is facilitated by a Mutual Recognition Agreement without having an extensive trade agreement or treaty with the EU.

What this means in practical terms for Brexit is that if push comes to shove, and Britain does leave the single market, we would also be obliged to have such an instrument and because we already conform to the global standards on which EU rules are based there is no real obstacle to obtaining a mutual recognition agreement and nobody gains anything by obstructing the process.

And this brings us to the reason why Brexit is worth doing. As an EU member we have no independent vote on all of the key regulatory bodies. Nor do we have a veto or means of reserving exceptions. More importantly, we do not have right of initiative. That means we cannot propose amendments without first clearing with the EU. That all changes with Brexit.

That means that should we identify an avenue for trade where regulatory harmonisation is the obstacle we can act unilaterally in terms of registering exemptions. Only as we further navigate the complexities of Brexit will it emerge that the nature of trade has evolved. As Simon Cooke succinctly explains "Negotiations are about agreeing rules that permit trade while protecting against the possible negative affects of that trade and getting consistent regulation on things like how much hallucinogenic mycotoxin it's OK to have in a bushel of wheat". It is that kind of concession that we now trade with. This is all done at the micro level where top table trade negotiators never tread.

The EU, driven by French and German defensive interests such as manufacturing and agriculture will never fully open its doors to competition in this way. Britain suffers because of that. Moreover, with the UK being a services economy we are in need of greater advancements in the digital arena where our interests suffer specifically because we are dependent on the EU to negotiate for us - and only if the EU agrees.

Often we cannot get agreement with the EU because the EU is held back by its own fixation with regionalism - completing the EU single market in services when really the focus should be on seeking any advantage where advantage can be had.

This matters because global trade has stalled. Barriers to trade are increasing and the returns from existing supply chains are diminishing. Consequently the main focus of global trade is not bilateral deals (a primary preoccupation of the EU) but trade facilitation; removing technical barriers to trade, specifically export red tape.

In this the EU is a protectionist entity. It is a famously difficult market to enter specifically because it has no political will to compete with African imports. Free of the EU, Britain can open up markets by way of securing exemptions but it can also create new ones. Britain can use its aid budget to help lesser developed economies implement global standards and improve infrastructure and do so in tandem with trade missions where British services get preferential access. In this, trade then becomes the province of industry experts rather than general trade negotiators. All of this can happen without any reference to the EU without impacting EU trade in the slightest. This is not an either or scenario. Brexit is worth $60 billion a year through trade facilitation.

The key advantage to this is the difference in approach. Multilateralism operates on a case by case basis without storing up a treaty's worth of concerns for discussion. It is responsive. The EU on the other hand prefers the bilateral route such as TTIP and CETA. As I understand it many trade experts expect both will fail. EU member states may well vote it down and if they don't the USA most likely will. Years of work up in smoke. If it does pass it will be thinner agreement than was hoped but it still represents an extension of the EU iron curtain.

As has been remarked countless times these deals take several years and can stall on the basis of eye-watering minutia at a time when Executive Order 13563 and the likes make TTIP redundant. So while we wait on the EU to complete these deals with the USA and others we are losing out on a whole new development in global trade - one which is being ceased upon by lesser developed countries while the EU's competitiveness declines.

The fact is that the EU is not interested in trade liberalisation. It begrudgingly extends market access to the rest of the world on the basis that it used to control the regulatory agenda. While it is still influential it no longer holds all the cards and as more nations come on stream with such global measures the EU will find itself increasingly unpopular and outvoted. Britain could instead be building up a great deal of good will be leading the field and serving as a back door to the EU single market.

The short of it is that the rest of the world is rapidly catching up to the West and we have become complacent. We are mired in a eurocentric view based on an obsolete mindset where geographic proximity mattered. When trade is now advancing in digital services we must follow the money, not some twentieth century supranational ideal.

This is the debate we really need to be having about trade. The problem is that we won't have it. The David Davis's and John Redwoods of this world are still caught up in the 1990's debate where regulation is a popular folk demon, deregulation is the holy grail and trade was about tariffs. We are another world away from that in the modern era but the eurosceptics don't want to know. They have their comfortable narratives and they don't want to change. But by the same token Remainers are equally obsolete in their thinking, clinging on to the old ideas, steadfastly refusing to acknowledge that their beloved EU is a bankrupt idea.

They all have their well worn narratives about trade and they exist in a parallel universe. They live in a pocket of unreality where they focus on the decoys of highly visible trade deals while being entirely blind to the myriad of empowering instruments that bring stateless regulatory forums to the forefront of trade. Put simply, if you're not talking about regulations then you are not talking about trade.

The future of trade is not big bang treaties or trade deals. Regionalism is dead. The world of regulation is dominated by global non-state actors interacting with each other and working with alliances of corporates and nation states working to regulatory objectives without governments even knowing what is going on. Brexit as much as anything gives us a chance to embrace this new paradigm but also to democratise that which has operated in the shadows for too long.

In the grander scheme of things the EU is less relevant than ever and in terms of trade the EU has yet to step into the new century. That makes Brexit a matter of existential necessity. Looking at the Brexit debate this week we see remainers problematising Brexit, clinging onto yesteryear for an idea that was never going to become a reality. They can't see any advantage to Brexit because they don't want to. The don't want to see opportunities, they don't want to see solutions. Brexit to them is only problems because it drags them out of their comfort zone and forces them to start thinking about the real business of government which is something they instinctively do not want to do.

Ultimately the Brexit debate is bereft of ideas and ambition. We stand at a junction where Britain could very well reinvent trade. We have a world of possibilities and opportunities but it requires that all sides wake up to what is actually happening. Remainers have to that we are simply not equipped to do so, and if the standard of debate is anything to go by then that much is absolutely true. To them that is a reason to remain in the EU. To me, the very idea that Britain, an island nation with a proud tradition of global trade, has lost the instinct is both intolerable and inexcusable - and if Brexit means reigniting that then that alone makes all of it worth the trouble. The idea that we should so casually shrug off such a key area of policy without having influence or proper scrutiny is not just irresponsible. It's offensive.

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