Tuesday, 4 July 2017

Brexit trade: a different game by different rules

Much of what I write here is repetition. As a campaigning blog I make no apology for it. It all needs to be said and we need to keep saying it for as long as needs be. I live in hope that eventually it might sink in.

If by now you have bothered to find out what the customs union is then you know that if you are leaving the EU then you are leaving the customs union. It is an integral part of the EU treaties. We cannot remain in it. We can however, have a customs union agreement, as does Turkey, but actually it's not necessary. 

The concern is that without a customs union agreement then UK goods are subject to the application of rules of origin which in more basic terms means car manufacturers are slapped with a tariff. If, however, the UK adopts the EU's schedule of tariffs for the rest of the world and keeps it harnessed to the EU, then it is either charging other third countries the same or more tariffs than is the EU. As such, there is no financial advantage to be gained by using the UK as a back door to the single market, and there is no lawful justification for applying Rules Of Origin.

The UK can unilaterally agree to maintain the EU's tariff schedules. If done unilaterally, it is in effect an unilateral customs union (for want of a better description). It gives the opportunity for the UK progressively to pull in trade deals with its own tariff levels, adding ROO to specific countries, without falling foul of generic rules - wherever we see a commercial advantage in doing so.

However, this could be written into a more generic EU trade agreement - but that would likely end up with the UK paying tariff revenues to the EU and restricting the scope of future trade deals. A Customs Union agreement would lock us into an inflexible system.

Whichever way we look at it though, it becomes clear that there is no absolute freedom to hare off and pick and choose our tariff rates with the rest of the world. Every deal will have to be forensically modelled for commercial viability. In many cases the effect of new deals will be minimal or have an impact on EU-UK trade to such a degree that it isn't worth the trouble. We should also note that if we want to carry over certain EU deals with the rest of the world then there could be complications. Some threads you don't want to pull on.

This blog, though, maintains that there are indeed trade opportunities for the UK and the dismal Euro-parochialism of the FT is unwarranted. Though there is disagreement on what from the Brexit settlement will look like, it is still the policy of this government to seek a deep and comprehensive relationship with the EU. Political subordination is not necessary for that to occur. If Martin Sandbu of the FT is heralding a Japan-EU FTA as an example of outward looking globalism, without Japan joining a political union, without an oversight entity, then why should the "inward looking" narrative apply to the UK?

For now the British establishment is still finding its feet with trade. It is a policy areas we have all but abandoned for forty years. The national debate is still mired in either eurocentric dogma or a bizarre fixation with tariffs. This will change - eventually.

To get the most from Brexit, we will have to abandon the idea that tinkering with tariffs is the only way forward. More so, the bilateralism as favoured by the EU is an inappropriate strategy for the UK. Bilaterals tend to be between superpowers and their satellites which dilute the potential for inter-satellite state agreements. The content of the EU-Japan FTA will likely have consequences for our own arrangement.

Ultimately, as a services economy the UK's best interests are served by further developing international standards and using economic development strategies to bring more countries into the global rules based system. That means they can trade more with everyone, and more trade for them is more opportunity for our fintech and services sector. As a free agent on international regulatory forums we are free to innovate and to pursue avenues that would otherwise be blocked by the EU.

In fact, that was as good a reason as any for leaving the EU. CETA is still bogged down in procedure, TTIP is probably not going to happen, and the EU will continue to invest its energies in decade long talks which are by no means guaranteed to succeed. More to the point, what may lead to greater utilisation for Germany is not necessarily beneficial for the UK.

Collective trade endeavours take far longer, are more prone to failure and devote a great deal of diplomatic resource which the UK can't really afford. Rather than trying to looking for big bang deals with existing partners we need to be investing in enhancing the global systems of trade, championing Trade Facilitation and promoting global standards, making incremental gains as we go. The EU is a superpower playing superpower games. The UK has to adopt a different mentality.

In this we must look to New Zealand to see how it's done. Rather than operating in geographic ideological blocs, New Zealand has sector specific alliances pushing for between relations with partners, and in some instances is able to join forces with others to bring pressure to bear on the EU. The UK working with Efta allies stands more of a chance of breaking down EU barriers than it did as a member. We'll have a free vote and right of initiative in all the places where it matters.

For the moment, there are few signs the government is on the ball but the UK Permanent Representative to the WTO, Julian Braithwaite, most certainly gets it, and for all that we have some pretty dismal politicians we still have some of the best diplomats working behind the scenes. The ones who have not yet resigned, that is.

For a time to come though we will struggle to find our feet. One of the more damaging consequences of EU membership was to break trade out as a separate competence to aid and foreign policy. We are still treating it as technocratic endeavour that is distinct from politics. This is why many of the trade wonks opining on Twitter have little of value to say. They are trapped in the pre-Brexit paradigm. Technocrats through and through, unused to the idea that their way is not the only way.

In trade terms I view Brexit as the difference between being self-employed and working for a large corporate. Working for a large corporate you get the regular pay-cheques, stability and certainty but ultimately it crushes the spirit, you obey all the rules, you do things they way they tell you and innovation is crushed by bureaucratic inertia and indifference. Working for yourself, you get to choose your schedule, which customers you prefer and the mode of working best suited to your skills. At first you struggle to pay the bills but eventually you expand your customer base and win a reputation for being able to do those specialised things that large corporates cannot.

Depressingly, for the time being, we will have to suffer the ineptitude of the Tories and probably a godawful term of Jeremy Corbyn, but politics is cyclic and eventually the UK will find a new settlement. By then some better ideas will have taken hold and we should have learned from some of our failures. That is only to be expected. That does not, though, mean that the UK is down and out.

Assuming Britain can avoid a trainwreck Brexit, we are still a first world developed country with some of the best thinkers around and we have intrinsic cultural and economic assets that even Brexit cannot take away. What we need is to break out Euro-parochialism and Brexit miserablism and take the initiative for once. In that we will have to look in places other than the FT. The poor dears are still in denial.

As far as the FT is concerned, anything less than total political and economic subordination to a supranational quasi-state is "inward looking" (unless you're Japan), and Britain is so enfeebled it can never again prosper. Since they are a London based outfit, obsessed with London politics, you can see how they might think that. British politics is not overflowing with credibility right now. But ultimately it is British people and British ingenuity that has brought prosperity to Britain, often in spite of our politicians. The FT is not alone in finding our political class wanting. For as long as voters hang on to their disdain for these morons, there is hope for us yet.

No comments:

Post a Comment