Wednesday, 2 November 2016

The media is still missing the point of Brexit

Looking at the media this week there have been a number of articles basically saying the same thing in that any number of bilateral deals cannot make up for the loss of the single market.

A country does not need to be a member of the single market to have access to it – if access is taken to just mean the ability to sell goods or services into the EU. But it certainly helps. And while Brexiters are keen to talk up the fact that US, Chinese or Canadian companies regularly sell into Europe without being part of the single market, this misses the point in two important ways. First, they export (proportionately) less to the EU than the UK does. Second, and crucially, their industries have not developed on the premise that they are closely entwined into the European economy. The British car industry, for example, is deeply wired into cross-European border supply chains and reliant on the easy movement of goods.
The first thing one notes about all the countries mooted as a model for EU interaction is that they have never been members of the EU. We have. This is precisely why a sectoral approach simply isn't worth the bother. Weldon concludes "The government will no doubt aim to get good market access for certain sectors (such as automotive manufacturing and finance) at the cost of others. But this should not be thought of as creating winners and losers. In the short term, there will not be any real winners – just sectors that get to keep arrangements similar to what they have already while others lose out."

I think this is a realisation that has already happened in Number Ten. We want an end to political integration but the reality of trade means there is no escaping regulation whichever way you turn and though leaving the single market seems superficially attractive all it means in practice is erecting barriers where none previously existed for no practical or economic advantage.

It is said that we could leave the single market and secure mutual recognition agreements by maintaining similarity, affording ourselves a great deal of scope for rationalising and streamlining regulation but that is a process that would take an enormous intellectual effort taking decades that would not deliver any noticeable boost. This is also all on the assumption that UK regulation would necessarily be smarter than the regulations coming out of the EU. That might conceivably be true but there is no economic shock worth enduring in order to find out. This point I think is now well understood.

What escaped Weldon though is the well rehearsed issue (on this blog) of regulatory globalisation and that EU regulations are hand-me-downs from international bodies. That single regulatory area in many sectors extends well beyond the EU. Weldon and others like him suffer from the same disease as the Brexiteers. The assumption that outside the well tended regulatory garden of the EU there is an unregulated wild west. The fact is that any regulations and standards to facilitate trade are going to look pretty much the same in or out of the single market.

But that brings us back to the matter of future trade. We are going to hear a lot of remainer chatter that Britain will struggle to get meaningful bilateral deals that compensate for Brexit. That much is true. When trade deals now focus mainly on regulatory harmoinisation there is very little room for specialist concessions for the UK even if such were legal. But that same dynamic applies to everyone.

As one commenter notes, "The mistake is assuming global trade is a competition between countries. That used to be the case when industries sourced and processed their products in the same country. Now that supply chains are global the emphasis is on attracting investment". Smack on the money. Supply chains are very much global and with that goes global regulation. If the UK fixates on the trade methods of the last century then we will find we have few variables to play with.

The remainers may gloat at this, but this is not really a signal of Brexit folly, more it is a sign of the death of bilateralism. Efforts to reduce and remove tariffs have stalled globally and the process of removing them is a slow and administrative exercise where there are few meaningful gains to be had, especially when you look at the deterrent factor of non-tariff barriers.

In this, the main effort should be the removal of such barriers and the continued harmonisation of technical regulation. And this brings us to the whole point of Brexit. Britain, hobbled by the EU, has no independent voice on the global regulatory bodies and is often overruled by the Commission and we have no power of veto. We have less influence in the rules as an EU member and no effective line of defence against bad regulation. When you climb into the minutia of it, jobs can be wiped out at the stroke of a pen without anybody ever knowing.

Brexit most certainly doesn't mean a bonfire of regulation nor does it mean a renaissance of free trade. The Brexiteers always had it wrong on that score. If we go out into the modern world of technocratic trade with a chip on our shoulder seeking belligerent deals aimed at competing then we will lose every time. Our mission is to identify those areas where we can lead in removing technical barriers to trade or assist in the proliferation of common standards and rules. Acting in the global community interest is ultimately in our best interests.

The biggest problem for the UK though is that nobody in the gilded circle of the politico-media class has really woken up to this global dynamic or the extent of it, and will continue to blather about bilateral deals probably for some years to come. It's only after we have tried and failed to produce tangible results through bilateralism will we wake up to the fact that we need to do things a different way. The UK has been out of the loop for that long that we have lost touch with how trade actually works.

Only once we have been through this mill will we get the likes of Weldon discovering that regulation is global and they will expect us to join them on the fainting couch when they deliver this seismic "news". What this does is torpedo their little nostrums about still having to accept "EU regulation", Norway having "no say" and gaining no sovereignty by leaving the EU. The ultimate sovereingty in this age of globalised regulation is reserving the right to say no. That is at the very heart of Brexit with Britain having, for forty years, delegated scrutiny to a remote technocracy with federalist ambitions where the pipedream takes precedence over pragmatism.

With a new found agility on global regulatory forums and the right of initiative, there is no reason why the UK could not revitalise global trade and be the beneficiary of being early adopters of counter NTB measures. Other parts of the world have implemented global initiatives long before the creaking EU bureaucracy has rubber stamped them. For once, the UK can be ahead of the game.

It will take the media muppets a long time to catch up but the reality is that there is global single market emerging and having a full voice in it is long overdue. Sooner or later it will become apparent that the EU is losing control of the regulatory agenda. Britain can help push that along and turn it into an inclusive system where the EU no longer sets the terms of entry or the conditions for participation. That is the only way to break the global stagnation in trade.

As much as Weldon et al are behind the curve in understanding the issues, it may well be that the government is far ahead of them too. Increasingly it looks like we won't leave the single market and Mrs May is boxed in by reality. The media hot air of "hard Brexit" will soon dissipate and then we might get something close to a grown up debate as to how we make the best gains from Brexit. When it happens though, it won't be in the Guardian or the Financial Times. The media self-admiration society have a long way to go before they can make a worthwhile contribution.

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