Sunday, 2 July 2017

Trade: Just forget America

Assuming Brexit isn't going to be an absolute total disaster - which is by no means a safe bet, Britain will likely end up with something akin with the EEA agreement if not actually the EEA agreement. This would not be ideal, but satisfactory. If Brexiteers wanted more out of Brexit then they should have thought up a credible alternative.

This is going to have to be the direction of travel because we want the same level of trade with the EU and if we want to carry over existing trade deals the EU has with third countries then we will have to maintain adherence to the EU's regulatory regime.

As outlined previously, this is going to have an effect on the sort of trade we can do elsewhere. Mixing and matching standards creates complications and risks and any future deals will have to be carefully assessed. In that respect it's going to be easier to seek out trade deals with nations already seeking to converge with the EU or nations with underdeveloped regulatory regimes where we can work with international bodies toward bringing them into the global rules based system.

In this respect the USA is probably the trade prospect least likely to succeed. Having its own distinct regulatory culture and its own system of standards the chances of convergence are somewhere around nil. If the EU did not succeed then Britain will not either. Britain will only get a comprehensive deal from the US on the back of EU efforts. It is unlikely to happen under Trump and if the historical record is anything to go by, a Democrat president is not going to be all that accommodating either.

It is the contention of this blog that the UK needs to look at multilateral solutions in international standards bodies and think about trade differently. I am told that this will be met with resistance in that the US does not want to adopt global standards. This is nothing we don't know. There is an executive order on regulatory cooperation and the direction of travel is for new standards to have a degree of interoperability but for now that is as much as we can expect from the US.

With all that in mind I think the best strategy for the UK is to formulate trade policy as though the USA doesn't exist. Of its own volition it has opted out of multilateral efforts, a deal with the EU is a long way off, it has bigger and more local priorities and it is difficult to see how the UK alone can make substantial progress.

We have heard encouraging noises from the USA, particularly from Republican voices, but like their Toryboy counterparts, their understanding of trade is wafer thin. The goodwill may be there but the practicalities of a comprehensive agreement make it wishful thinking for the foreseeable future.

As much as anything there is no guarantee the UK would even ratify a deal with the USA. As noted, by the time the Guardian and others have finished with their exposés on US livestock welfare standards, with cattle crammed in feedlots of a 100,000 or more head, there is no way a British public is going to accept US produce. Meanwhile the UK agriculture lobby is one of the most influential and anything which threatens them will be torpedoed. 

When one adds to this the behaviour of different markets the reorientation of UK trade is not going to be that easy if it is even possible. To become more global it will first need to become less European, and that's probably not going to be a good idea. 

Whatever happens our trade policy will have to fit around whatever the EU is doing. As much as loyalty to one or other regulatory regime is a binary choice for us, the same applies to others and if they choose the EU, they won't make any intellectual diversions for the UK. With that in mind we are going to have to abandon EU style bilateralism simply because we are not big enough to compete with the EU at its own game. 

To get the advantages of Brexit we will have to take a more active role in the global standards bodies because they will dictate the substance of the regulations the EU adopts and writes into its own trade agreements. That is the trade sphere we are locked into so that is where we must engage. It is that which will increase trade potential with states holding comprehensive agreements with the EU.

Where we can outpace the EU is by focussing our trade policy on international development. As mentioned before the WTO drive is for more inclusive trade, with one of the major goals being financial inclusion. That is a goal we share and we have the links to do it. 

The UK has strong ties with Pakistan and there is every reason to enhance our trade with them. Only 4% of Pakistanis save with a formal financial institution. This needs to change. As much as this is an opportunity for a lot of the FinTech innovators in the UK, it is also a priority for the UK in that the externalities of such a policy means less money laundering. A real concern for the UK in its fight against terrorism and also a big issue with the UK having a sizeable Pakistani population transferring funds to Pakistan and elsewhere. 

On a more basic level Codex is working hard to install Codex standards in India, Pakistan and Bangladesh. UK aid helping to accelerate this process is not going to be a bad thing. If anything it prepares the ground for more comprehensive EU agreements and makes their success more likely. If we coordinate our efforts with the EU on the understanding that we will be a party to such future agreements then the UK can be an agile and valued ally for the EU.  

Again I would point out that trade is a political tool and we can gear it to our foreign policy. Trade is not solely about increasing trade volumes. Better links with the USA may be desirable but there is no intrinsic necessity for it. We do, however, have a vested interest in pulling Pakistan out of the dark ages - not least because it will remain a major source of immigration. Improving Pakistani governance through trade is mutually beneficial but largely in our own self-interest. 

By pioneering good governance in LDCs we are not only working in the common good, we are the ones who will likely be first to encounter the inherent regulatory inadequacies and with our new found right of proposal in regulatory affairs we can be the first to table remedies. It puts us first in line to sell business to business services. 

One of the chief criticisms of the EU is that it is a "protectionist racket". That much probably isn't gong to change but what we can do is work toward improving the regulatory base of emerging economies thus improving their access to the EU market. As an a independent agent we can then build up alliances to put pressure on the EU in all of the international bodies whereby it may be forced to dismantle some of their protectionist measures. 

As I have ventured many times before, Britain is going to have to take a much more collaborative approach to trade rather than continue the delusion that we can play the game as the EU does. There are many entry points and avenues in the global rules based system which the EU cannot and does not exploit to its advantage - and we need to show how being independent can be an asset to the EU. In this DfID can no longer be an abstract department. It must be central in our trade efforts and a key part of our foreign policy. We need to stop treating aid as a humanitarian slush fund and put it to use in the immediate national interest. That is something we can learn from the USA. 

Here we have a problem in that the Tories steering Brexit are unlikely to comprehend any of this. This is why they have set their sights on a deal with the USA and still think CANZUK is a viable idea. There may be some scope in the future for tinkering with tariffs but it's not going to be the miracle cure they seem to think is possible. 

But then the trade wonks we are looking to for advice are equally useless in that they are geared toward trade as the EU does it, often taking their cues from US trade thinkers who also operate from the position of being a regulatory superpower. That dynamic does not apply to the UK and we will need entirely new thinking, a radical overhaul of our trade policy and a reappraisal of what we are seeking to achieve. Current thinkers on the subject are seemingly too set in their ways to acknowledge that other strategies exist. 

That, though, reminds us why Brexit is probably a good idea in the long run. The EU is not going to change its ways and for as long as it exists we will be waiting years for EU to conclude talks only for them to fall over at the last minute because of an issue in relation to soft cheeses. I think an independent Britain can rewrite the book and look toward unbundling these concerns so that we are making incremental progress. EU methods are very much suited to the old world in which the Brussels was the alpha and omega of regulation but not now the game has changed

As things stand now, I think the UK is headed for a humiliation in picking the USA as its number one trade target. We are going to waste a lot of political capital, time and effort on something that always was a non-starter. That might very well damage our standing internationally and further damage confidence in the UK. If we are to make a success of Brexit then we need to get real and we need to realise that the EU does not go away just because we are leaving it. It is a fact of life and if we go up against them we will lose. The only way we can succeed in the trade game is to remain a close ally of the EU. If we are going to succeed then Brexiteer attitudes need to change.

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