Sunday, 2 July 2017

Brexiteers are not the only dinosaurs

The remain-o-sphere is busy tweeting the announcement that the EU is about to conclude an FTA with Japan. Following that comes the bitter tears and recriminations about Brexit. Tedious indeed.
Very early on after the referendum we saw Japan registering its concerns about our future relationship with the EU. This tells us that Japan has a stake in the outcome and is very much interested in maintaining trade links with the UK. 

What we can say with some confidence is that Japan will be open to either adding the UK to the EU agreement as an annexe or it will simply seek to replicate it. I would favour the latter since it gives us a chance to optimise it. Since the principles are already agreed with the EU there is little reason to expect attitudes to the UK to be much different.

The obvious point I would make is that any FTA with Japan will likely be a cooperation agreement, the backbone of which will be regulatory harmonisation largely titled in the EU's favour. This is a regime with which we already comply and will likely not deviate from. We are well placed to replicate it. More to the point an FTA does little more than formalise and accelerate the general direction of travel. We know this by way of looking at existing FTAs.

Looking at the EU-Singapore FTA, seven years in the making, the basis for free trade is regulatory convergence. In just about every comprehensive agreement you will find words to the effect of:
The Parties may agree on taking into consideration the glossaries and definitions of relevant international organisations, such as the CODEX Alimentarius Commission (hereinafter referred to as “Codex Alimentarius”), the World Organisation for Animal Health (hereinafter referred to as “OIE”) and under the International Plant Protection Convention (hereinafter referred to as “IPPC”).
This largely echoes the WTO agreement on Technical Barriers to Trade (to which we are a signatory) which states:
Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued, for instance because of fundamental climatic or geographical factors or fundamental technological problems.
Which is scarily reminiscent of text found in the chapter on renewable energy in the EU-Singapore FTA:
Where international or regional standards exist with respect to products for the generation of energy from renewable and sustainable non-fossil sources, the Parties shall use these standards, or their relevant parts, as a basis for their technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued. For the purposes of applying this paragraph, the International Organization for Standardization (hereinafter referred to as “ISO”) and the International Electrotechnical Commission (hereinafter referred to as “IEC”) shall in particular be considered relevant international standard-setting bodies.
As with regulations we find the substance of trade deals is outsourced to the many international regulatory and standards bodies. Elsewhere in these such agreements we find the usual commitments to inter-agency cooperation in pursuit of further harmonisation. It will likely contain agreements on scientific collaboration. With the UK having two of the world's top universities, Southampton and Bristol, there is every reason to expect similar collaboration. Brexit is not the end of international cooperation.

The take home point, however, is that this all points to the gradual obsolescence of the EU. While it is still influential in regulatory affairs, with every agreement it signs, control of the regulatory agenda slips from its grasp. The international standards bodies as referred to in the fine print are where the real action is at. Brussels is no longer the centre of the universe.

Much will be said of the EU-Japan FTA on the automotive sector, eliminating ninety per cent of tariffs on car parts, which is nothing we are not at liberty to do when we leave the EU, but more important is our enhanced say in the rules on all the global bodies by way of not being bound to the common commercial policy.

We should also note that the EU-Japan agreement is not concluded until it's concluded. It still has to go through the ratification mill and will end up going round the houses when it stalls on the matter of European soft cheeses - which seems to be hang-up de jour. There is every reason to expect that the UK can be more agile and more pragmatic.

We have seen in recent years a departure of the US automotive industry to Mexico which trumps the US on free trade. It has agreements with 45 countries, meaning low tariffs for exporting those cars globally and favourable deals on the import of components. We can debate the intricacies of these such agreements and their consequences but the point is that there is life after Brexit and the UK has not become an international pariah. The UK is a market worth tapping.

It now seems to be an article of faith that Britain drops off the map entirely by way of leaving the EU. It is tiresome in the extreme. Britain has a great deal of expertise and goodwill internationally and there are creative means of playing the trade game outside of the ossified structures of the EU. No doubt we will have to hit the ground running and we have a lot of work on our hands to compensate for Brexit but histrionics are uncalled for. Even an EEA Brexit gives us substantial scope to become more competitive.

If there is any reason to have doubts about Brexit it is that we lack the political competence to make full use of the opportunities. That, though, is no reason to remain. There likely will be a Brexit bullet to bite but electorates will be unforgiving of dilettantes and slackers. We will probably have to tolerate the fag end of this Tory administration and, sadly, maybe even a term of Corbyn, but while our political class dithers in a parallel universe of its own, the public debate will overtake it.

The fact the are now seeing Twitter debates on cumulative rules of origin tells you that policy thinkers are starting to engage on a more serious level. This will eventually feed through into the political domain. Eventually we will get to grips with it because we cannot afford not to. There are bigger games in play.

For the moment the outlook is somewhat bleak since David Davis is the closest thing to competent this government can muster. There is a steep learning curve. Incompetence was always an inevitability. This is what happens when you delete a major area of policy from the domestic capability. There most certainly will be a price to pay for that.

As much as we must reacquaint ourselves with the art of international trade with must also reshape the politics of it. I get the impression that our corps of trade geeks are post-patriotic internationalists and technocrats working to a formula rather than looking for the distinct advantages to exploit in the national interest. They are locked into obsolete practices as favoured by the EU. If we are to make the best of Brexit we will have to rethink trade and keep the experts at arms length.

From a purely technocratic perspective trade is all about maximising trade volumes but, actually, we should remind ourselves that technocracy must be subordinate to politics and that trade is very much a tool of politics. Before we start playing the game we need to be sure of what our strategic objectives are. These are not necessarily the same as the EU. Though our rootless technocrats may very well be the best expertise available the driver has to be a body politic with a clear vision of where it wants to be. If there is any criticism of Brexit then it is a lack of a coherent vision.

We should also be mindful that not everyone is acting in good faith. If one listens to US trade officials one very much gets a sense that we are dealing with a ruthlessly self-interested country. The USA does not play "all friends together" and the tone is very different from what we are used to. In that respect we should be cautious of entering any US talks but we should also be watching them closely to see how it's done. The EU is in pursuit of any trade for its own sake. The UK, however, has certain political obligations manifested by the Brexit vote which it must bring to the fore of trade thinking.

I take the view that if we're going to be trailing in the wake of the EU seeking to borrow and replicate bilateral deals then we may as well not bother. These such agreements are resource intensive and time consuming and at the end of it there is still no absolute assurance that it's worth the time. If the core of our efforts is regulatory harmonisation then the WTO TBT agreement gives us the framework. Bilateralism is to an extent reinventing the wheel. Our trade endeavours must be based on effects based policy - playing to our particular strengths.

If we look at the policy spearhead of the WTO the game is now all about trade facilitation and enhancing SME access to the global markets. As a leader in FinTech innovations and B2B services the UK needs to be looking very closely at trade facilitation and global regulatory systems. This is where we can bring our expertise to bear and punch above our weight. Tinkering with tariffs on soft cheeses is penny-ante stuff.

For the moment the remain-o-sphere is still weeping into their sleeves chanting the "no say in the rules" mantra. They will keep this up long after we actually leave the EU. To admit even for a moment that Brussels is not the centre of the regulatory universe means admitting that there might actually be a rationale for Brexit after all. There's the WTO, ITU, UNECE, Codex, ILO, FAO and ISO and a number of other influential working groups on everything from nuclear medicine to space policy. We're not going to get a grown up debate about trade until the remainers are able to recognise that the EU is not the only game in town.

A very valid criticism of leading Brexiteers is that they have a very stunted view of trade, barely aware of the concept of non-tariff barriers. They believe the world is a binary split between the meddlesome red tape of the EU and the unregulated wild west of the rest of the world. That though is only marginally worse than the remainer perception that Brussels is the alpha and omega of rule making when there are many instances where the EU is just as much a rule taker and no longer in full command of the regulatory agenda.

Quite obviously the EU still has the ultimate say over the terms of market entry and as we know conformity to standards is not the only requirement for free access to the EU internal market, however the EU sans UK will find the rest of the world now has a powerful ally in bringing pressure to bear on the EU. Acting alone we do not get to dictate anything but by building sectoral alliances there are ways of backing the EU into a corner. Not only is Norway an independent member of Codex, it even hosts the all-important Fish and Fisheries Products Committee. Thus, it is the lead nation globally in an area of significant economic importance to itself. With the UK repatriating its own waters, there is every reason to believe the UK will be an influential voice.

I'm not going to sugar-coat Brexit. We are setting off on the back foot and if we really are leaving the single market then Brexit will be more painful than it needs to be. We will find by leaving the single market we don't get the regulatory independence that Brexiteers believe is possible and we will have hobbled ourselves for only marginal gains in "sovereignty". We must not, however, get carried away with the idea that we will have no say in the rules, nor are we helpless.

Though I am not known for my forgiving attitudes to Brexiteers and I'm the first to call out panglossian nonsense I do not believe for a moment that the UK is without potential and there ways in which complimentary and collaborative styles of playing the trade game can benefit both the UK and the EU. The UK as a free agent is able to innovate without internal delays and in so doing can be the first past the post in raising regulatory initiatives at the top tables. Present rules on industrial ship scrappage are a Norwegian initiative and ship lifecycle standards are a product of the IMO and ISO.

For all that we are told that Brexit means "turning inward" I find there is nothing quite so inward looking as the belief that EU membership is the fullest extent of international engagement. I am also unconvinced by the argument that the EU in any way amplifies our voice. If you don't have a free vote or a means of veto then you are in fact a subordinate. If Brexit means losing a vote in the EU to gain one at the top of regulatory affairs then I will take it gladly. I will take a punt on British ingenuity over EU technocracy every single time. I wouldn't write Britain off just yet.

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