Saturday, 7 April 2018

Brexit trade: Britain should not be aiming for notches on the bed post

If you thought the Brexit debate was under-informed then the wider debate on trade, the little that there is, will turn you a pale shade of green.

It's not helped by the fact that those politicians most keen to talk about trade are the least likely to know anything about it. There seems to be an assumption the abstract of any geopolitical considerations we can knock on the door of any country and "offer them a free trade deal" as though we simply hand over a contract to sign. Then there are the likes of Daniel Hannan who, for whatever progress they might have made in recent months, have simply reverted to type to talk about deregulation.

What is also forgotten is that while politicians from Australia and America may make pleasing noises about future trade relations, when it comes to the nitty gritty, countries will act in their own interests, regardless of how close the cultural and language ties are. They will in the end have their own voters and lobbying interests in mind.

We also have to consider what we can get past our own parliament where MPs will have their own re-election prospects stalking them. A report from Open Britain draws attention to the usual talking points.

"In the case of India, to get trade talks started the UK would need to agree to grant more visas for Indian workers, something the UK government blocked in the EU-India FTA talks. China, meanwhile, is deeply protective of its services sector. In return for any kind of trade deal, Beijing would likely want Britain to advocate for it to be granted 'market economy status' at the World Trade Organisation".

Beyond that there are several other considerations that make enhanced trade agreements a total non-starter. With Efsa having banned Indian seafood imports we could find that if we take a softer line then there will be ramifications for our trade with the EU. The EU will not want to risk letting seafood from the UK contaminate its own system.

All the while China has been waging a tech/IP trade war which has been going on in the shadows, the importance of which cannot be overstated. Japan is seeking to join a US complaint against China at the WTO and the UK has a vested interest in this initiative succeeding. That though means a deal with China is dead in the water.

On a subject as complex and consequential as this the only real expert advice I trust is that of Homer Simpson whose fatherly advice is "if you can't win, don't try".

The truth of the matter is that this flurry of bilateral preferential trade agreements is symptomatic of the WTO process having stalled and with every one that is signed the multilateral system is weakened. That is in no-one's interests, especially smaller economies. The result of this growth of PTAs is a spaghetti bowl of complex agreements with intractable overlaps where every deal has ramifications for others still in negotiation. We are regressing.

Meanwhile, as a new trade war starts to heat up we might need to ask if PTAs have hit their high water mark. The EU has had to scale back its ambitions to get CETA in the bag and a revival of TTIP looks remote. If reaching breakthrough was difficult during a relatively stable period in trade affairs, the chances of these such initiatives succeeding now are somewhere around nil. With the UK needing whatever scraps it can get it will have to act fast - concentrating on only the most crucial pillars of our existing trade.

From there the UK needs to take stock and examine its own foreign policy and political objectives - many of which will not be in line with our trade ambitions. We will still need a lot of goodwill from the EU to manage the legacy Brexit problems and any moves which undermine the EU could have costly repercussions. If the EU is intent on ending the demolition of rainforests by banning Malaysian palm oil in biofuels, the UK could very well anger the EU by going against the grain.

While the UK is still finding its feet, it would be well advised to steer clear of ambitious big headline deals. They chew up enormous diplomatic and intellectual resource very often to fall over at the last minute. The problem with comprehensive deals and the rounds system at the WTO is the principle that nothing is agreed until everything is agreed. This is why we have failed to make progress in recent years.

We also have to consider that there is an upper limit to how much we can handle at any one time. Even with a well resourced trade ministry there is no possibility of negotiating dozens of agreements simultaneously, not least least when there will need to be coordination to ensure that what we offer remains attractive to third parties. A country may well be up for a preferential trade deal with the UK if it does not face any competition for that market. However, if we are also offering PTAs to other states who are in competition, such agreements look less lucrative.

In fact, the whole reason the multilateral system exists is to avoid this inefficient process and to stop the proliferation of protected channels of trade, instead promoting fair competition. PTAs undermine that by entrenching favoured partners. The Brexiter criticism of the EU is that it has multiple strands of protectionism which is absolutely correct and when it talks about free trade it is simply extending its protectionist walls around partner countries for select industries.

We should, therefore, question why it is that Brexiter are so keen to replicate this model, especially when we will lack the clout of a major bloc like the EU. Moreover, there is an inherent contradiction in their approach in that they favour deregulation and unilateral removal of tariffs meaning there are no defensive measures to trade away in negotiations with third countries.

This is where we have to hold the global system up to the light and examine it from every angle. Nobody could argue that the WTO system is not dysfunctional with many high profile failures, multiple existential threats and internal stresses. Working in rounds it is prone to failures for the same reason high profile PTAs fall over. If everything depends on complete agreement then we cannot be surprised if initiatives are routinely kicked into the long grass.

If Britain wants to make the best use of its resources it will ditch the trade wonks and focus on sector specialists who work in the specialist global bodies. Instead of multi-spectrum deals we need to look at less politically contentious angles of attack, looking at only a single sector, system or product at any one time, making incremental progress, building on multilateral initiatives ensuring that everybody wins.

We can still be ambitious in this. A single global vehicle type approvals system would be revolutionary and there is most certainly an appetite to simplify rules of origin where any initiative would attract widespread support and very possibly be able to corner the EU into reforming its own labyrinthine system. But then at the same time we can work on even less contentious agreements on tyres, electronics and fishing. The more granular we go, the higher the probability of success and the more likely it is that we will make incremental progress rather than devoting armies of trade wonks to a single country to produce nothing.

Theresa May and Liam Fox have repeatedly spoken of strengthening the global rules based system, reiterating our commitment to working on a multilateral basis, but their actions do not match their rhetoric because there is no real understanding of how the system works, why it exists and how we can make good on our well meaning pronouncements.

When the UK leaves the EU we will reclaim the right of initiative all the major global forums and despite the miserablism of the remainers we are not without allies and where we seek genuine improvements to the system we will find others willing to act in good faith irrespective of the wider geopolitical situation. To achieve anything the UK needs to re-learn the art of making alliances, and working through ad-hoc groups.

What we need, however, is for the thinking to catch up to the rhetoric. For as long as as the trade debate is bogged down in talk of replicating bilateral deals we will know that neither the remain nor the leave side of the Brexit debate has understood the system or realised the potential opportunities of Brexit. The measure of Brexit success is not the number of notches on the bed post as we conclude PTAs. What we need is to focus on those things that increase the profitability of existing value chains, using the global institutions to remove the barriers.

There are now mountains of academic tracts on the value of PTAs and still we have no reliable means of establishing their actual value whereas there are objectives in trade facilitation where we can put exact numbers on the savings we can make which will have entirely beneficial secondary effects.

For as long as work visas and political favours are tied up with bilateral trade treaties we can expect them to fail. They will also force us to make unwelcome concessions and make political enemies as we go. Moreover there is a certain naivety at work in believing that China, India and others are playing an honest game. These are not countries interested in doing us any favours and will use whatever means they have to undermine us. Trade is not divorced from politics. That is something we have long forgotten having outsourced the discipline to Brussels.

Presently the trade debate has become a niche fixation of the sell-your-own-granny libertarians on the right - who think that unilateral deregulation leads to sunlit uplands whereas in reality it will lead to UK markets being flooded with substandard and knock-off produce while lacking the leverage to retaliate against predatory practises.

As it happens I agree with the objectives of the Tory right in that we do want to keep trade red tape to a minimum and drive tariffs down even further (who doesn't?), but uniltaeralism is not the means. It only works if everyone is working to that objective - which they clearly aren't. To get to our destination we will have to do it not by deregulation but by means of regulatory improvement and harmonisation and we will have to skilfully make the argument in all of the global forums. It is a slow and meticulous process where there are no shortcuts but there are ways in which we can improve the process to ensure we all win.

Britain urgently needs to expand the trade debate beyond the old paradigm and recognise that we need to play a very different game to that of the EU. The EU establishment thinks only in terms of big ticket FTAs because the EU is interested only in regulatory imperialism - not trade. Consequently, out of habit, when UK academia talks about trade they think in the same terms. This we cannot afford. We are not a regulatory superpower.

Because wonkland cannot progress beyond what they're indoctrinated in, and if we cannot adapt to our new status as an independent actor, we will end up with a zombie trade policy, spending years and vast resources trying to conclude bundled FTAs with individual countries when we could have made progress by other means.

This is why the remainer think tank monopoly over academia and the technical Brexit debate is unhealthy. They have Brussels blinkers on and lack the imagination to navigate the trade system in more creative ways. When it comes to trade they are luddites same as the ultra Brexiters. Like the Brexit process we are too easily distracted by talking points to see the bigger picture.

More disturbingly we have a political apparatus that simply does not want to know. Brexit talks are presently on an uneventful hiatus where we see our bored polity has reverted to type, fixating on the debate around the gender pay gap and the sugar tax. Anything but address the urgent and consequential. One is starting to think that if they can't follow this debate and make the attempt to find out what is happening, they deserve everything they get. And they will get more than they ever bargained for.

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