Thursday, 27 July 2017

Rethinking trade is now a matter of urgency

Twitter is an ecosystem of concentric bubbles each tailored to the individual by the individual. Mine is made up largely of maritime affairs, aviation, international trade, politics and UK diplomacy. Just like any playground it has its in crowds and social dynamics. To a large extent it's a series of self-congratulatory cliques where everybody tells each other how marvellous they are. It's not game I play. I'm not in this to make friends or have my ego flattered. My mission is to learn as much as I can, to teach as much as I can, and call it how I see it.  

In this I am often told I need to be more polite and less abrasive. That isn't going to happen. There are a lot of people participating in this with questionable motives, playing a deeply dishonest game. I am told to play the issues not the man, but the men (and women) in this game are part of the problem. As much as anything it is the politeness causing the difficulty. People like Hannan and Lilico are superficial, lying simpletons playing a dangerous game with the future of the country. All the while the Conservative Home and Brexit Central crowd are reckless zealots - and they too are lying through their teeth. It needs to be called out without fear or hesitation. 

But it's not just the Brexiteers. You have the Ian Dunts and David Alan Greens of this world; self-serving manipulators building a little dung heap of adoring fans for their own gratification - and will knowingly distort the facts in order to titillate and massage a narrative. Both expert manipulators preaching to a gullible audience. Then there are the parasites like Alan Beattie of the FT. People who will raid the work of others but misframe it, omitting inconvenient key details.

There are then the cheats like Shanker Singham and Lorand Bartels. People using their respective institutional prestige to pass themselves off as oracles. Lorand Bartels is a typical one in that he thinks his small piece of the puzzle is the whole picture. His book on regional trade agreements in the WTO system is second to none - and one that hasn't left my desk in weeks, yet still, bizarrely doesn't know what customs cooperation is and tells us that "most countries trade on WTO rules". An expert on WTO law he may be, but he knows nothing at all about the functioning of the EU and its trade relationships. We must be wise to these charlatans.

Then there's the trade wonks. Nice enough people with genuine motives, but ultimately trapped in a single paradigm. From what I can discern, most of them cut their teeth debating TTIP which couldn't be less relevant to the central issue of Brexit. Ultimately these people are mechanics. Practitioners who can achieve when properly tasked, however, are only useful in a very narrow field and they do not see the bigger picture. They are one trick ponies.

What's missing firstly is a sense of urgency and the ability to prioritise. I could sit and chat with these people about trade all day and soak up everything they know. They are an important resource. But the task at hand is not new FTAs. What we are looking at in the context of Brexit is the overall relationship with the EU along with the engineering task of carrying over existing trade arrangements with third countries.

As you know, my position on Brexit is that if we're not looking at the EEA then there is simply no chance of Brexit being anything other than a shambles. As to carrying over EU trade deals, that's a tasks separate to negotiating FTAs and a wholly different undertaking - one which will inform our trade strategy after we leave.

Trade wonks are used to the idea of approaching FTAs from a clean slate or enhancing that which already exists. This is why they love nattering about TTIP more than anything. They are comfortable with what they know and will rinse it for all it is worth. As a dog returns to his vomit. Brexit, however, is a different kind of engineering that doesn't require all that much negotiation - just a nod of approval on a series of questions.

In breaking out of the customs union we are having to adopt EU schedules and quotas. I have only a working understanding of the specifics and not for a moment would I claim any expertise. What we can say though is that any subsequent customs agreement with the EU will likely mean that we are pegged to the EU tariff regime for the foreseeable future. It has to be this way because it's the only way to manage the administrative task of carrying over third country agreements without substantial renegotiation. Since we cannot do it all at once, reconfiguring all of our trade relationships, Brexit is the process of engineering our way out of the EU on paper to get us to a point where we can renegotiate agreements at a time where we can give it sufficient attention and prioritise them.

In fact, that should be the easy bit. Where it gets complex is in the non tariff category. And I'm not talking about regulatory barriers. When you look at an EU trade agreement there is no common model. They evolve over time and each agreement in its own right acquires its own distinct characteristics, be they variations in the dispute resolution system or specialist areas of cooperation like narcotics control or renewable energy. These are cooperation agreements bringing into being a number of joint committees and funding programmes.

Many of these will be administered by EU agencies - so how this works is going to be largely dependent on the level of our continued involvement and whether we share the same foreign policy and trade goals as the EU. Continuity is going to depend a lot on what the final agreement looks like.

In more recent FTAs like Singapore or the EU-Japan agreement currently under way, these are more geared toward regulatory cooperation, effectively giving binding effect to the WTO TBT agreement - and in so doing pulling international organisations like Codex and UNECE into the mix. This means that if we wish to continue these such cooperation efforts we will either have to do it in partnership with the EU or diagonally. What it will mean though is maintaining the single market acquis whether we are members or not. That actually points to the futility of leaving the single market.

But that then brings us to the question of what we do when the process is complete. When our tariffs will be bound and for the most part pegged to the CET, while maintaining a high degree of regulatory convergence with the EU, there actually isn't all that much scope for comprehensive FTAs. They cannot happen in isolation of what partners have already committed to with the EU.

In order to ascertain our trade potential we need to examine Norway in that it is similarly bound to the EU. As I understand it, having undertaken only a cursory investigation, Norway does have a series of mutual recognition agreements on a number of specialist areas - and usually in those markets where it has little EU integration so as not to destabilise EU trade. Britain is going to have to do likewise in those sectors where the balance of trade favours the rest of the world rather than Europe. I cannot say what those will be and I will defer to the wonks on that. That's what they are for.

But what we also see is a high level of activity between Norway and a number of non-state actors on the world stage where it favours research and cooperation agreements and MoUs with global alliances and standards bodies. As this blog has outlined, tinkering with tariffs can get you so far but finding practical solutions to problems that blight existing supply chains can have an equal or greater effect on trade. Committing scientific resources to resolve a fruit fly problem can increase crop yields - and beefing up LDC customs can help eliminate billions in fraud and counterfeiting.

Then there is participation in the standards bodies and global regulators. Again this s something the trade wonks have a distinct blind spot for. We have no shortage of trade wonks who can tell us how things work at the WTO and how the internal politics works but as yet I haven't come across anybody who comments on Brexit who has sat in the International Maritime Organisation or endured a boring seminar on aubergine marketing standards at Codex. The WTO is the more glamorous field which attracts the bulk of intellectual investment. We consequently have a knowledge imbalance.

This is actually a problem because the key initiative for the WTO, around which most of its present efforts are devoted, is the TBT agreement and the TFA. Crucial to this is the development and installation of new standards - which is something the WTO does not do. In this the WTO grants delegated authority to the ISO and IEC along with OIE, IPPC and Codex, all of which have close cooperation with UNECE where we start to see the emergence of a privatised system of regulation interacting with the UN ecosystem.

Much of this is off radar because it's just not that sexy. Who goes into trade politics to discuss the maximum permitted level of grain fungus? But actually, that is fundamentally what trade is now about, where the key negotiations happen, which are every bit as significant as a tariff negotiations. There are inherent savings to be had by establishing common rules and just a standard on tyres or pharmaceutical labelling can add substantial improvements to value chains.

No doubt Britain will find room for FTAs but the point is that it's the big players who will accomplish the most with FTAs and we are better off leaving the EU to it, negotiating proxy access to these such deals while taking a more active and agile role in the formation of standards and regulations.

As this blog has repeatedly discussed, comprehensive FTAs tie up substantial resources, take several years and can often fall at the last hurdle. Britain can't afford to play that game nor can we identify any easy wins because many of our preferred partners are already engaged in EU talks that will bind them in respect of what they can give the UK.

What Britain does have in the post-Brexit world is the right of proposal at the international level without having to clear regulatory initiatives with Brussels. In this we are not without allies - and we have assets such as British Standards who are still said to be a superpower in the standards ecosystem. I'm not sure how true that is but it is influential and respected. We need to make a national priority of making sure it stays that way.

Ultimately, at this level, all the general rules cease to apply. It's not your market size, rather it is your level of participation and what expertise you can bring to the table. This is why waffle about The Brussels Effect is not especially useful.

What we tend to find is that the ability to influence regulation and standards comes from being in on it from the start with world-wide initiatives, having a solid network of intelligence inside foreign standards bodies. The USA especially. If there is anything at all to be gained from talks with the USA it is enhanced cooperation with ANSI and ASTM - hopefully with a view to persuading the USA to bring more coherence to its standards sector. It is presently deeply fragmented and unable to offer a united view.

Ultimately we will have to look beyond FTAs and play a much more savvy game seeking to pioneer regulatory initiatives with a clarity of purpose the EU struggles to bring to bear. That, though, is going to require that we rethink trade and step outside of the well established paradigms. In that regard our current trade wonks are next to useless because they are only fit for a single purpose. It's our regulatory and quality specialists in engineering, food safety, automotive and nuclear who will be the vanguard of British representation in trade.

For that we are going to need a lot more private sector involvement and we will need to encourage the growth of trade guilds and business lobbies - possibly even offering tax breaks for those who are members. We need to tap into private sector expertise and ensure British business interests have a direct line to the top tables. This in my view would be the biggest benefit of Brexit in that there are no EU bureaucratic hurdles standing between business and direct representation on global bodies. As much as this applies to business it also applies to British NGOs and unions.

There is a lot more to discuss on this, but we need to get over the massage that a scattergun FTA approach will wind up on the rocks - and if we want to get anywhere we will have to re-tool and retrain our trade thinkers.

Finally there is one other urgent consideration. For all the time we have been in the EU aid has run as a separate endeavour to trade, which in turn has run in abstract to foreign policy. Trade has become a technocratic offshoot and if we continue with that mentality it will function in isolation of any strategic objectives.

The last thing we want to do is chase any trade for its own sake. Our immediate strategic objective is to slow the flow of migration from Africa and trade is a tool to that end. Meanwhile we have to measure our trade objectives against certain geo-political risks and opportunities. China is presently weaponising trade and we need to be mindful that we are not unwittingly walking into ambushes.

Britain has to get real about trade and it needs and recognise that FTAs are the tool of regulatory superpowers. We are no longer playing that game. Our institutional knowledge is behind the curve. This is a whole other ball park and we are going to need new players. We are going to need to combine trade, aid, foreign policy and diplomacy and set out some clear objectives beyond easy PR wins.

Once we are out of the EU we will be fighting for our survival and fighting to retain and enhance Britain's reputation as a force for good. We have a lot riding on this and we cannot afford to to indulge ourselves in the habits of the past. We need to stop being distracted by decoys and focus on the task at hand. Geneva, not Brussels, is now the centre of the trade universe and we need to wake up to the trend of regulatory globalisation. We must shed our euro-centric thinking and get to grips with the issues or we will find ourselves adrift and rudderless. 

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