Tuesday, 27 September 2016

Globalisation is not dead. It's changing - and so must we.

Throughout the referendum I was reluctant to use the Daily Express as a source for obvious reasons, but a report from last Thursday is illuminating.
Up and coming nations in Africa and the Caribbean will no longer see any worth in being tied to dictatorial Brussels policies now that the UK is no longer part of the bloc. And they could be about to torpedo the EU’s roll-out of Economic Partnership Agreements (EPA), which are designed to create a free-trade zone between Europe, Africa, the Caribbean and the Pacific.
That is the view of top academics Christopher Stevens and Jane Kennan, from the Overseas Development Institute, who say Brexit has given many governments an excuse to pull out of the deeply unpopular scheme. Tanzania has already ditched a proposed deal between Brussels and the East Africa Community (ECA) countries, citing the “turmoil” engulfing the EU following the Brexit vote and the skewed terms of the agreement.

The country’s Foreign Affairs permanent secretary Aziz Mlima blasted: “Our experts have established that the way it has been crafted, the EPA will not benefit local industries in East Africa. Instead it will lead to their destruction as developed countries are likely to dominate the market.” And now the two trade experts have predicted that a number of other African and Caribbean countries will follow suit, because for most Commonwealth countries Britain is by far the biggest market for their exports.

In an essay on the future of Britain’s trade policy post-Brexit, the pair wrote: “Although some Africa, Caribbean and Pacific signatories have embraced the required policy changes, for many the whole EPA process remains deeply contentious. “The post-Brexit announcement by Tanzania that it will not proceed with the East African EPA is merely the most recent example of delay and backtracking on implementation.”

A number of countries have been stalling on implementing the trade agreements, agreed as far back as 2008, over concerns about the power they will hand to Brussels to meddle in national affairs. And the economists predicted that the Caribbean - held up as the ‘EPA poster boy’ by Brussels bureaucrats - could be the “first to split” and sink another key area of EU trade policy.

Even though Britain is no longer considered a “dominant EU importer” from Africa, Caribbean and Pacific countries it does still “absorb a significant share” of the goods those countries sell, they added. The news comes as Europe’s much-vaunted trade clout withers away, with Brussels staggering from crisis to crisis as it tries to close out a number of flagship deals. 
How much this can be put down to Brexit is uncertain. It may well be a catalyst, a political signal that the EU is on the wane. More likely, it is simply the excuse they've been waiting for. EU deals are considered far too invasive and make far too many demands that are really not the concern of the do-gooding set atop of the EU.

And indeed this further dismantles the oft repeated political meme that pooling sovereignty means greater clout. Bigger trade agreements are more likely to be controversial and drum up popular opposition. The more the EU makes them a flagship enterprise the more likely it seems they are likely to fail. TTIP is now in a salvage stage and many suspect it is stone dead.

The general trend is that the EU approach to trade does not work, the EU cannot deliver on trade and that "clout" is actually viewed as intimidating and a reason to be suspicious. Given that the EU is seeking invasive social reforms inside Africa, and the effects of such deals are asymmetrical there's no wonder African leaders are reluctant.

Underlying this though is something more significant. Trade economist Hosuk Lee-Makiyama says the drawn-out TTIP and CETA experiences demonstrate to would-be trade partners that the EU is a less reliable counterpart in negotiations, less able to agree a deal and less likely to implement a deal when agreed. We are witnessing the death of the big bang trade deal and such a blow means that the EUs days of trade exclusivity are numbered.

In some corners, this is being touted as the death of globalisation and Brexit is the first domino to fall. I'm don't buy it for a moment. It is changing but not dying. What we are seeing is a ramping up of global efforts to remove trade barriers - and in this technology rather than government is making the running. In this, global measures for customs systems are eating into the relevance of the EU.

Common sense and best practice is now driving the regulatory agenda which is no longer in the hands of the EU. UNECE is becoming the more relevant forum for improving value chains and trade profitability. That is not to say that the EU is no longer a power but it has been losing control of the regulatory agenda for some time and Brexit makes it all the weaker. And that's no bad thing.

This blog in the past has made the case that we are witnessing the birth of a new global single market in goods and services where regional regulatory codes are usurped by quasi-legislation. This is a quiet revolution where we see domestic legislative measures taken to ensure that technical regulation conforms to global standards and uses common regulatory platforms. No treaties or trade deals are required. Consequently the absence of trade deals post-Brexit is no indication that globalisation has stalled.

What it means is that trade has developed a life of its own where the process of trade is no longer wrapped up in highly visible packaging. Trade negotiations are now an ongoing continuum where the machine is steered by a process of barely visible, but significant increments. What this means is that nation states can opt into multilateral programmes and participate without opening up their borders to invasive diktats.

What we are now seeing, as per the illustration above, is smaller countries dealing direct with UNECE and Codex in order to enhance their influence over EU internal trade. And this is how Britain will operate post-Brexit, cutting out the middleman entirely. With the upcoming completion of the Trade Facilitation Agreement, the first multilateral trade deal in twenty years, there are now more liberal avenues to bring about greater international cooperation and integration. 

What this means is that going forward, big bang deals like TTIP are not needed. If anything the regulatory convergence in TTIP is to try to meld long established regulatory regimes with differing base philosophies. That was always going to be a nightmare and if the EU achieves anything at all then that is no small achievement. 

The more likely means of achieving the same thing is to simply wait for older regulatory codes to reach obsolescence. In a fast moving world within twenty years the crop of regulation that now exists, based on decades old systems will vanish into the ether. No new agreements are necessary because most nations will by then have agreed to use the same basic templates.

We have heard much in recent months from the EU about completing the single market. I take this as a soft propaganda campaign to convince us Brits to stick around. The problem being that EU measures on services have yet to mature and are now being developed in tandem with global measures. It makes no sense to be subordinated by the EU for the sake of completing the European single market when we can steer that agenda globally.

This is not to say that bilateralism is dead. That too is transforming, where we will increasingly see cooperation agreements between the UK and more culturally aligned allies to act as one on global trade forums. One idea doing the rounds is a CANZUK bloc which I assume to be a more informal Efta - which at the same time does not exclude the possibility of Efta membership. I'll leave you to be the judge of whether that is a worthwhile pursuit, but in a post Brexit world, there are any number of alliance configurations we can explore, none of them mutually exclusive - and can be fashioned on a sectoral basis rather than geographic blocs.

With the dawn 3D printing and similar technologies we will see a major transformation of supply chains as components are increasingly manufacture in situe and on demand. That means our trade concerns will increasingly shift to matters of intellectual property and patents.

This is why classic Gravity Theory might well be going the way of the dinosaur. Innovation centres will be in our gun-sights where geography and market size are not necessarily the driving factors. In this there are already an elaborate web of cooperation agreements between non state actors where a proxy deal can open up a world of opportunity. 

In that regard, whenever I see somebody talking about "trade deals" I tune them out. The real business of trade is happening off the radar. Remainers are going to be cock-a-hoop to see that Liam Fox struggles to get many flagship big bang deals chalked up on the board but that is not to say that Brexit cannot open doors and it doesn't point to failure. We have yet to fully comprehend the trade landscape before us. In this we are better placed than the EU which is still barking up the wrong tree and is failing to learn from the same old mistakes. 

In the end I think we are making the leap at the right time. The EU wasn't going anywhere and there is no real energy behind it. It is a most unloved and unlikeable institution built on a staid ideology from the last century. Right now we are seeing Poland pulling away from "Social Europe" and they are not alone in putting up walls to the EUs social agenda. Africa doesn't want it and nor does Europe. 

If the EU wants to survive is will have to make major institutional reforms and reinvent itself as a multilateral trade entity. Brexit will hasten that process existential enquiry which can only be a good thing, but Britain has better things to do than engage in parochial navel gazing. We have a job to do. With a new energy and a new found sense of urgency there is every reason to believe that Brexit will be a success. Then we will find that reports of the death of globalisation are very much exaggerated.

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