Sunday, 1 December 2019

Shifting battlegrounds

Insofar as there is a trade debate in this election it doesn't extend beyond the familiar themes, defaulting to the tired panic over a US trade deal. The self-appointed trade experts on Twitter churn over the same four or five basic points, preening as though this were original and hard won insight and, as usual, bring nothing new to the table.

They're wasting their time, though, because nobody cares. Chlorine washed chicken and NHS privatisation are just a stick to beat the Tories with but there is no serious conversation about trade and there isn't going to be. But then as much as I've lambasted Brexiters for their obsolete ideas about trade, it seems that the dogmas of trade wonks are also drifting toward obsolescence.

There was a time when producing goods to meet different regulatory specifications required two production lines and different print runs for country specific labelling. That was a serious problem before the advent of cheap industrial laser printing and advanced bespoke manufacturing techniques. It's even less of an issue now that technical standards have gone global. These days producing to a different standard just means selecting a different mode on the operating software.

Similarly UK businesses are getting ahead of the game where leaving the single market is concerned. Companies are now setting up paper companies in Germany and France, obtaining local phone numbers that redirect to UK call centres manned by French and German speaking operators. With voice over IP systems this has never been easier and if you're a re-seller you just have goods imported directly to the destination. This has been going on for some time which in many respects distorts trade statistics.

Recently I've spoken to a few local companies, some already experienced in exporting outside of the EU, and their view seems to be that new barriers may require an up front investment to adapt to but nothing is insurmountable. What's making this possible is the march of technology and open data services that make navigating country specific red tape easier to navigate and mitigate.

This is not to say that Brexit won't have a serious impact, particularly in services trade, but businesses always have to look for ways to stay competitive. Where customs formalities have proven too complicated and time consuming businesses have looked elsewhere to make savings.

This is where the private sector is light years ahead of the game. Even before the trade debate was fashionable I was keeping tabs on Maersk's ventures into trade facilitation, streamlining and joining up dataflows. Of course intergovernmental trade treaties can facilitate this kind of progress but with agreements taking years to complete, business can't wait around to exploit the technology and is heading them off at the pass.

Throughout the Brexit debate we have seen trade wonks and smug remainers scoff at Blockchain, but as a technology for managing transactions and customs documentation, it's taken seriously enough for IBM and Walmart to go all in on it. Though we are told "the technology doesn't exist", there are already examples of it working in practice as a way to track food through the supply chain to ensure the quality of pork in China.

One of the major areas of concern for food producers is food adulteration and food fraud where tightening up the administrative processes could, according to new research, save the food industry a staggering $31 billion. And if it works for the food sector then there's no good reason why it isn't infinitely expandable. The EU certainly thinks so having funded a major new UNECE research project.

They note that value chains have at least 15 nodes between the production of raw materials to the end-user product so improving transparency is a complex issue. Most of the data collected refer to immediate suppliers and purchasers without information about “the suppliers of a supplier” or the clients of a buyer. They see Blockchain as serious platform. 
 "Advanced technologies, such as blockchain, artificial intelligence and internet of things, provide an opportunity to increase traceability and sustainability through the creation of a common source of verifiable information on transactions, accessible to all supply chains parties, regardless of their location, so long as they have access to Internet. A well-designed blockchain-based application has the potential to allow brand retailers to access the blockchain (via a user interface program) and to verify the origin of each input used in manufacturing. Industry regulators will be able to check the data and examine the entire lifecycle process using the blockchain’s digital ledger (including registered inspections made by authorities to identify, for instance, occupational health and safety violations, unauthorised subcontracting or child labour practices). Consumers will be able to view a product’s full journey and its certification from field to shelf via QR codes or apps. So, this will help them to make an informed decision before purchasing a product".
This is doing what a million trade deal can't - digitising the entire export/import process from cradle to grave, on a single platform. A sort of of international trade. This is especially valuable for major brands who lose billions to counterfeiting worldwide. The Central Market in downtown Kuala Lumpur is wall to wall counterfeit goods, where tourists go to get anything from knock of Prada handbags to Manchester United shirts.

Though deals eliminating tariffs between nations are certainly welcome, those who want to stay in the game and stay ahead of global trends are investing in supply chain data technologies, hooking them in with software that calculates the best formulas to evade cumbersome rules of origin. With such technologies increasingly available it is no longer restricted to big players. SMEs have no real trouble utilising trade preferences through such software.

As much as the Brexiteers became dinosaurs over the course of their twenty year long campaign, the trade wonkocracy, resistant to any ideas they didn't invent, will similarly find themselves clinging on to obsolete mantras as the world of commerce bypasses them completely. Formal trade accords between nations will be playing catch up with technologies light years ahead of the game, which they don't understand and don't anticipate for another decade - when much of it is already here and beyond the experimental stage.

In respect of that, the EU is the laggard, only just coming round to the potential of integrated supply chain technologies which could very will render customs unions and certain aspects of trade deals obsolete. Maersk and IBM are developing and setting the standards but not at the EU level. UNECE and the IMO is where it's all happening.

To a large extent, with the emergence of global standards, some nearly half a century old, trade in goods can look after itself. The focus should now be looking toward digital barriers to trade which is a far more complex and difficult nut to crack where in some regards we are going backwards. We started out with a world wide web, but with regional and national regulators now imposing their own agendas on to internet governance, mindful of intellectual property concerns and security threats, we are increasingly seeing the regionalisation of the internet - where (combined with the re-emergence of near shoring), globalisation, as we have known it, is going into reverse. The next battles around protectionism will be rules on data transfers and consumer data protection.

Being that the media can't cope with anything more sophisticated than party political talking points in respect of trade, and with a Tory party in the grip of archaic IEA dogma, believing we can do a quick and dirty trade deal with the EU, we are suffering from bicycle shed syndrome on a massive scale. Ten years from now we'll still be bickering about "hormone beef", no closer to a comprehensive US trade deal, while the major advances bypass us entirely.

As detailed elsewhere on this blog, there is no reason why the UK should be a down and out after Brexit. We may lose clout but we gain agility, and by way of coordinating ad hoc alliances in global regulatory forums we can be ahead of the game, and if we gang up on the EU we have more chance of reforming onerous GDPR rules than we ever did as a member. Outside of the EU, GDPR is viewed as an expensive nuisance. Tackling that on an international level should be a trade priority for the UK but that requires us to wake up to the games in play and recognise there is more going on than the same old tired arguments about food standards - many of which are decades old and no closer to a resolution.

This is where the debate has been boxed in by way of our obsession with FTAs, believing them to be the only instrument by which we advance our agendas and exert our influence. In this game, first mover advantage and ownership of IP puts you in pole position, and there is no reason why, if the UK overhauls its obese and lethargic academic research sector, the UK cannot be a leader and a player. Instead of sucking on the EU teat, Brexit presents an opportunity for UK research to think globally in the national interest rather than advancing EU political agendas. We can get our heads back in the game.

As it looks right now, though, with only a shallow collective understanding of trade, the UK is in for a serious shock to the system. It won't take very long to realise that a quick and dirty deal with the EU doesn't cut it and that tariffs are only a bit part of the issue. Only then do I see the UK getting its skates on. I have often remarked how the UK would have to re-learn the art of statecraft but we're going to have to learn the hard way. Our ignorance will make Brexit cost more than it ever needed to. 

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