Wednesday, 11 April 2018

Britain should not waste its time with bilateral trade

One thing the EU is not going to allow is Britain taking back control. As EUreferendum blog notes Commission President Jean-Claude Juncker declared in his 2017 State of the Union Address that: "trade is about exporting our standards, be they social or environmental standards, data protection or food safety requirements", adding that, "open trade must go hand in hand with open policy making".

"With Juncker also insisting that "we are not naive free traders" and committing Europe to defending "its strategic interests", it stands to reason that the Union should carry over this philosophy into the Brexit negotiations. And, with Mrs May taking us out of the Single Market, we have walked "eyes wide shut" into a trap of our own making".

In that respect it marks the EU as a good old fashioned colonial power, protecting its supply lines in commodities, while dictating the terms. As noted by Sarah Rolland, author of Development at the WTO, behind the facade of preferential trade agreements lies the unilateral power of the preference-granting country to amend, deny or expand tariff benefits to suit its domestic political priorities and economic needs. 

This is a game only superpowers get to play and, like it or not, the EU is a trade superpower. This is evidenced by China's rebuke to Canada. China’s ambassador says his country firmly rejects Canada’s attempts to entrench labour standards in a free trade pact. Envoy Lu Shaye says Canada’s so-called progressive trade agenda has no place in a free trade agreement.
Prime Minister Justin Trudeau was unable to persuade China’s leaders to formally entrench labour, gender, environment and governance issues in the negotiating framework of free trade talks. Trudeau spent four days in China in December but left without a formal commitment to moving the free trade talks past the exploratory phase into formal negotiations. Lu says Canada’s insistence on pushing labour standards in the NAFTA talks with Mexico to raise wages would only lead to the shuttering of Mexican auto plants and lost jobs.
With an economy half the size of that of the UK, it speaks to Western narcissism that Trudeau even for a moment thought exporting his liberal progressive values was on the table. One rather suspects India will have also told him politely to "go whistle". 

But then this is why the centre left wing NGOcracy adores the EU. It is a vehicle through which to impose their own dogma. This is most likely the power behind the EU's attempt to kill off trade in palm oil - an industry hugely destructive to rainforests. What we can see, however, is that this cultural imperialism is the very reason complex trade agreements are butchered at birth. 

Being that the EU is an early adopter of every globalist groupthink going, or as they call it "progressivism", climate change dogma and ILO conventions feature heavily in all trade initiatives, which may very well suit the vanity of the EU - just so long as we never examine the often murderous unintended consequences.

We see none of this in Chinese trade policy which is ruthlessly commercial - especially so in its overseas investment in Africa - which goes some way to explaining why China is becoming the global trade hegemon. That, to my mind, is what makes the EU's cultural imperialism a mistake. 

There are several issues to explore here. The imposition of these such agreements on popular sovereignty create internal stresses which ultimately result in Brexit, not least because the values the EU exports are not organic, rather they are the technocratic agenda of the UN ecosystem. It is neither wanted nor needed. They are resisted by mature first world states like Switzerland and the UK. 

Globally, though, we can see that this approach does have some value. That is not in question. Between political pressure from the EU and partly as a result of the WTO agreement on Technical Barriers to Trade, India is making substantial reforms to its food safety regime - and if we look to Malaysia we can see across promising signs across the board to improve standards of civic governance. There is a long road for both to travel but developing countries have a strong incentive to play ball. 

I take the view, though, that pressure to improve standards, labour standards especially, has to be a pincer movement, coming from political pressure externally but also from the bottom of societies. The standards we enjoy in the West are a by-product of consumer wealth. Preferential trade agreements with progressive add-ons cannot substitute organic democratic demand for better conditions. 

For the Far East and India, with a growing middle class and a strong demand for luxury items, there is also demand in for better pay and conditions. Their respective governments will, therefore, favour hard commerce over EU political agendas. It is often said that it is the EU's customs union which diverts trade but when most of its tariffs are nuisance tariffs (too small to matter) it is more likely that EU political demands are the problem. 

The big problem is one of what happens when two regulatory superpowers collide. Even with good relations and the political will TTIP failed to materialise and so superpowers will continue consolidate trade relationships with their economic supplicants. That is where politics happens and this is where the friction with China will eventually come to a head. 

China has learned a few new tricks from the EU and is operating roughly the same strategy in strengthening its barriers to external trade but through "preferential" agreements will gradually snatch third countries out of the Western sphere of influence. Being that it does not entertain the progressive imperialism of the EU it is poised to overtake the West, particularly in African trade affairs. 

China has also learned well from the EU how to game the rules to its own advantage. For as long as we've had mass media, food safety scares have proven a useful instrument of trade protectionism - one which enjoys widespread public backing.

Certainly that has been the case in China where there has been a relatively rapid regulatory response to a number of serious incidents. A food fraud scandal came to light in 2008, when over 20 companies were found to have added melamine, a flame retardant plastic, to baby formula in order to fool tests designed to ensure adequate protein content. Around 300,000 babies became ill in China, with tainted formula being linked to 54,000 hospitalisations and 6 deaths from kidney damage and malnutrition.

This prompted a raft of welcome new measures but have come under fire from global actors for their protectionist nature. A speech from German ambassador Michael Clauss on relations with China explains:
The recent overhaul of licensing structures for milk powder have reduced channels for imports and given a competitive advantage to local producers. A minister has promised the national milk industry in a public meeting full government support and protection in achieving market dominance. Companies in this field are forced by new regulations to hand over their innermost company secrets to the same government authorities closely working with domestic competitors. A recent regulation on baby milk powder requires foreign companies to reveal their entire production know-how down to the last detail to the authorities, not just the exact recipe but for example the set-up of machinery in the production process, even CVs and contact details of every person involved in the companies’ R&D.
In effect, food safety (among other things) is used as a pretext for the wholesale theft of intellectual property. Though Donald Trump's "trade war" has grabbed the headlines, there was never a time when China was not waging its own trade war. China is not interested in "free trade" by any definition of it and though it pays lip service to multilateralism it is a two-faced operator and nobody should take China's emollient rhetoric seriously. The West, therefore, needs to ask whether it can afford the virtue signalling intellectual pygmies of progressivism driving trade policy. 

If the West wants to head China off at the pass it needs better strategies than bilateral preferential trade agreements. We are in a trade space race where we simply cannot afford the waste of intellectual resource devoted to bilateral projects like TTIP - chewing up years of diplomatic and trade run time to produce nothing. Moreover, if ILO labour standards and environmental diktats serve as a barrier to progress (as Canada has found), China will fill that void - and consequently no environmental or progressive cause is served at all.  

Of what little trade debate there is in the UK, it is devoted to reliving past glories, churning over the TTIP talking points and their relevance to any future UK-US accord. There is no attempt to steer the polity on to more realistic goals and more urgent issues. 

What is interesting about the UK debate is that trade has become a strictly technical discipline churned over by nerds who fail to recognise that trade is inseparable from geopolitics - and to a large extent it IS geopolitics. We therefore have to look at the tools available for the amplification of influence and the exercise of soft power. 

Some would likely argue that the UK leaving the EU is the surrender of one of those instruments - but how can that be the case when EU trade policy is driven more by its supranational ideology exporting values which are not even our own? We must, therefore, use the global institutions to exert pressure on China, the EU and the US, making incremental progress on a sectoral basis to head off any protectionist measures from China as its regulatory system matures and begins to dictate terms of trade in the same way the EU does. 

If we maintain our devotion to the principle that trade agreements must cover a multitude of concerns, on the doctrine that nothing is agree until everything is agreed then we will see failure after failure while Western influence is diminished. Juncker may insist that "we are not naive free traders" but lacking from EU trade policy is a sense of realism where as usual it is handling rapidly evolving circumstances with twenty years old doctrines. EU federalists and Tory "free trade" Brexiters have more in common than they would like to admit.  

Britain as a soon-to-be mid-ranking power will find that it can achieve none of its objectives alone. That we might have been able to exert influence over the EU is neither here nor there since whoever is in government inevitably conforms to the Euro-else groupthink and seldom exerts useful influence in a body pushing an agenda which we don't want anyway. That is not to say that we are powerless in a post-Brexit world.

There are dozens of task focused groups in all of the multilateral forums where the UK can pick its own alliances according to its direct national interest and be the leading voice in those alliances, not least because of the expertise and resource it brings to the table. If, as remainers have it that the UK was influential in the EU, it follows that, notwithstanding Brexit, it will have considerable weight in other forums. 

Exerting political pressure through those alliances is a sorely underestimated strategy - not least because we have lost our institutional memory of how those games are played. We are conditioned to believe that nations only work in geographic blocs and must follow the leader. This mindset fails to observe that the EU has on a number of occasions modified its rules because of international pressure and the entire WTO system and the market instruments therein is founded on multilateral accomplishments. 

Increasingly we find that regional regulatory initiatives are useless without a global approach. From tax avoidance through to internet regulation and counterfeit medicines, we find we increasingly find that without international cooperation we are simply playing a game of whack-a-mole. There are all areas where multilateral frameworks cannot only influence policy for the better and encourage better behaviour they are also worth considerably more than all-encompassing bilateral deals which of themselves undermine the aims of the global trade organisations.

With every new bilateral accord comes a further complication to the already labyrinthine origin system, while at the same time creating protected value chains which run counter to the aims of a level playing field. Britain has only limited resources for participating in the global trade arena. We therefore, cannot afford to get sidetracked with bilateral dealing. We must focus on those areas where we can make a real impact. 

Since any Brexit settlement will undoubtedly result in a restrictive relationship with the EU where our regulatory relationship will, for a long time to come, limit what we can do with bilateral deals - certainly in terms of relaxing conditions of market entry, Britain will have to look in all the dark corners of the global system for ways to advance its goals. That is not necessarily a bad thing if we are chasing accomplishments rather than headlines. Global Britain can very much become a reality, but to do that we need to rethink how we do trade and what we want to achieve. 

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