Tuesday, 13 December 2016

March of the free trade frauds

With public ignorance being what it is, it's very easy for garbage like this from Shanker Singham (Legatum Institute) to pass off as credible. Singham argues for a "prosperity zone" based on the fundamentals of the Trans-Pacific Partnership.
"What is most interesting about TPP is that the original vision was for a “high standards” agreement. What diluted this ambition was the later inclusion of countries such as the US, Japan, Canada and Vietnam, each of which insisted on their own exemptions and alterations, in particular regarding their agricultural sectors.

So what if Britain were to revive that original plan? What if, instead of making deals on a country-by-country basis, we were to lay the foundations for a new Prosperity Zone, bringing together countries around the world that believe in free trade and competition?

The lesson of the TPP is that the more countries are around the table, the harder a deal is to do. So the founding principle of the Prosperity Zone should be that it will not sacrifice quality for quantity. We should start with countries such as New Zealand, Singapore and Australia, who are all committed to free trade and have jettisoned agricultural protectionism (assuming in the UK’s case that it will have come out of the Common Agricultural Policy and Common Fisheries Policy when it leaves the EU).
What we're looking at here is a sales pitch for the ears of Tory eurosceptics. Singham's Legatum Institute very much wants in on the Brexit gravy train. It's no coincidence he makes mention of New Zealand, Singapore and Australia. It gets the attention of the CANZUK dreamers while dropping in Singapore, which is believed by many on the Tory right as the model of capitalism and free trade. You don't have to spend much more than a few creative moments on Google to disabuse yourself of that notion.

This isn't about presenting ideas that will work. This is purely about ideas that will sell. Singham has the ear of Steve Baker MP who is one of a Toryboy claque closely associated with key Brexiteers. Baker is the gullible weakling in the chain they have lavished their attention on. He's their meal ticket.

Superficially a prosperity zone sounds appealing but Singham's own reasoning for the failure of the TPP is exactly the reason why the EU is a dysfunctional mess. The more you seek out strict commonality the harder it is to achieve anything. A contraction of that idea may well produce a small Efta like alliance, but what is it for, and what does it achieve?

Further to this one of the greater advantages of leaving the EU is specifically so that we can opt out of key measures if the balance of trade-offs works in our favour. Rather than contracting a flawed idea we need to loosen the system and widen participation. We then restore the balance between sovereignty and free trade.

More to the point though, the basis of any such alliance is regulatory harmonisation. Singham talks about market distortions and the likes which tells you he's of the trade economist school that simply does not recognise the significance and fundamental dominance of technical regulation in any such endeavour. Before you can start dreaming up new scenarios you have to look at how it relates to that which already exists.

For starters there is the WTO agreement on Technical Barriers to Trade which compels all members to adopt global technical rules. I can't tell you how bored I am of writing that sentence. These rules are now the foundation of the global trading system but also the basis on which most of the European single market now stands and definitely will in the future.

Before you can even begin to tinker with relations elsewhere you have to start on the basis that we have to resolve Brexit first - which is the process of designing a wholly new relationship - but one that necessarily will require a great deal of economic and technical integration simply because they are our nearest neighbours. We have the same regional concerns and face similar threats. Even if we do leave the single market there will be a common core of regulatory harmonisation which gives us very little scope to start dreaming up schemas for alliances on the opposite side of the planet.

Further to this, there is a typical British arrogance about this proposal in that it assumes we can just flounce out of a forty year long relationship, wrap it all up in no time and the rest of the world will drop their trousers accordingly. It takes no account of whether New Zealand, Singapore and Australia would want any such alliance while completely ignoring the fact that they each have their own regional agreements which further limit the scope of any proposal.

One such example is the ongoing dispute between China and Australia (also South Africa) on fluorine limits in coal, which have caused entire shipments to be quarantined by customs. Increasingly China is asserting its own regional regulatory dominance whereby exporters of ores and fossil fuels are following standards set by China - who is the biggest customer. China relies on its national standards for the quality checks rather than the widely used international ISO and ASTM standards.

Many of the major testing agencies in Australia and South Africa do not offer checks based on the Chinese standards, although tests for China's standards are available in Indonesia with costs already factored into prices. In addition, the longer shipping journey to China from Australia and South Africa will probably result in some coal quality degradation.

Here there is a clear need for a memorandum of understanding between these trading nations, agreeing to one standard and one inspection regime to facilitate trade. That in itself is no small undertaking. In itself it precludes Australia from entering any broader commitments with nations they presently trade little with - and are unlikely to for the foreseeable future. And that is just one sector picked at random.

This reduces the scope of any "prosperity zone" to tinkering with tariffs to offset imbalances and distortions which is very much the business of the WTO. That has stalled for good reasons. What we are seeing is the system maturing whereby the few remaining protectionist measures exist for entirely good reasons.

Straight of the bat we would not wish to compete with New Zealand in agriculture. Britain needs to develop a boutique approach to agriculture based on luxury food items rather than base food production. If we open up our markets entirely we will rapidly find that we have no agriculture sector at all. UK practices make competition impossible. We take a wholly different approach to agriculture which encompasses land management and habitats because we recognise the significance to our tourism.

Further to this, tariffs are at a historic low as I understand it and the imbalances, while significant, are unlikely to be resolved any time soon. The greater gains can be had by switching focus to trade facilitation.

As the Global Enabling Trade Report 2016 points out, improving the efficiency of process and reducing the red tape around cross-border trade remains an easy win for international trade. While progress on multilateral trade talks looks dim and overall infrastructure investment lags, focusing on regulatory efficiency can help governments enable trade quickly, doing more with less.

According to UNCTAD and OECD estimates, the implementation of the WTO Trade Facilitation Agreement costs between $4 to $20 million per country, while the impact on exports, and hence jobs, would be many times greater. The WTO estimates it could boost developing country exports by up to $730 billion per year - and global GDP by $1.3 trillion.

The obvious easy hits can be found in Africa. As much as that is more pertinent to European food security, it also addresses a very real world concern by removing the push factors that drive the migration crisis. That should be central to our trade and foreign policy, looking to unlock Africa's potential while easing our own immigration concerns. Singham's naive nonsense addresses no real world problems or strategic concerns.

It cannot be restated often enough but these flights of fancy from free traders are entirely spurious. Picking trade partners like a fantasy football team is simply refusing to engage in the political and economic realities while also neglecting the more immediate question of what our relationship with the EU looks like moving forward from Brexit.

Still, after all that has been written about the myriad of complexity in peeling away forty years of EU integration, there are still those who believe Brexit is merely a case of whipping up a free trade deal and going on our merry way. Such juvenile delusions have no currency in the real world. Only in the dark and corrupt corners of the Westminster bubble, where conformity is prized over knowledge, do charlatans like Singham find a welcoming ear. It speaks volumes about Westminster that they are so vulnerable to frauds on the make.

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