Sunday 31 January 2021

CPTPP: What do you mean by "comprehensive"?

While we're on the subject of CPTPP, I thought it interesting that the media's third favourite trade wonk, Hosuk Lee-Makiyama (and to my mind the only one ever saying anything worthwhile), should confirm much of what I had assumed. In an older paper written for Daniel Hannan's Initiative for Free Trade (IFT), Makiyama writes:

First, CPTPP and other FTAs do not contain provisions that actually set regulatory standards, but ensures the sovereigns regulate in the most non-discriminatory fashion possible. In other words, CPTPP and other trade agreements voluntarily bind its members to refrain from certain, specific discriminatory practices, like a rulebook against discrimination in national legislation – but do not replace the national legislation itself. This is how CPTPP (and other FTA texts) deal with a complex matter like food safety in just sixteen pages, while the national legislation often runs several hundred pages long – the current UK law, implemented via EU regulation (Regulation No 882/2004) on feed and food runs 196 pages in the Official Journal.

Second, six members of the CPTPP have existing agreements with the EU. In order to ensure consistency between agreements, these countries had to be certain that none of the commitments in their bilateral FTAs with the EU could or would contradict potential TPP pledges. In other words, these countries have already scrubbed commitments which could cause potential conflicts between the CPTPP text and the EU FTA template, as they have signed up to both. In addition, Japan, New Zealand and Australia also had comprehensive mutual recognition agreements (MRAs, based on conformity assessment) with the EU, even prior to their EPA/FTAs. In highly regulated sectors, such as on motor vehicles, Japan and Australia have also unilaterally accepted or incorporated European standards into their systems.

Evidently, as nothing in the CPTPP agreement precluded Japan and other CPTPP countries to conclude a comprehensive FTA with the EU as well, the UK would in theory be able to pursue both. However, in the opposite direction, whether the EU body of law in its entirety would pass CPTPP commitments, is a different question that is discussed in the following sections.

First off, one would note the disparity of language. The agreement is often described both deep and comprehensive, which it may well be through the narrow prism of tariffs, but by way of the above, it is neither deep nor comprehensive. What it confirms, though, is that in terms of standards and regulations, as discussed here yesterday, it does not go much further than the WTO baseline and merely reinforces WTO principles and ongoing trends in regulatory coherence initiatives.

It is also important to note that CPTPP remains a thin agreement precisely because key members prioritise deeper and more comprehensive agreements with the EU. This point has evidently escaped Daniel Hannan and the various luminaries behind the IFT. In particular, Korea has adopted the EU's REACH system for chemicals. This prioritisation of EU trade is an inherent expansion limit to CPTPP, and I suppose acts as a safeguard against it becoming anything more political. 

What Makiyama doesn't say, is that the respective EU FTAs primarily adopt global regulations and not "EU standards". In the case of motor vehicle, all EU FTAs, including our own, adopt the full stack of UNECE regulations. This is becoming a curious blind spot in the trade fraternity.

Moreover, if the mutual recognition on conformity assessment within CPTPP is tailored so as not to offend the EU, then it doesn't present the obstacles I was imagining, but by the same token, it is not likely to be comprehensive, thus of limited value. That further substantiates my belief that CPTPP is not at all comprehensive. The only slam dunk argument I can see is that it simplifies and improves rules of origin among signatories, but that will very much depend on how it interacts with EU rules. They cannot be looked at in isolation when it comes to complex value chains. 

As to food safety, Makiyama does indeed make the point that it is necessarily a complex area, and a territory upon which CPTPP fears to tread, thus it cannot be said that the agreement does very much at all for non-tariff barriers, and nothing beyond which the parities are already committed to via their own WTO rule based EU FTAs. Meanwhile, by way of geography, the UK's SPS regime will continue to be heavily influenced by the EU whether the government yet knows it or not.

More than anything, the UK's accession looks more like a dual-use move; to establish a diplomatic presence in Pacific trade conversations, and to broadcast our "Global Britain" credentials. It certainly won't live up to the hype, and so far as the consumer is concerned, against the unfolding consequences of leaving the single market, it is likely to make no noticeable difference.

As with Brexit, the CPTPP debate will largely concentrate on tariffs, ignoring services, and will completely neglect any consideration of non-tariff barriers. As per the discussions over the TCA, Geneva will remain the elephant in the room. That neither the media or its rent-a-quote trade wonks are remotely aware of it speaks volumes. 

Saturday 30 January 2021

Actually, CPTPP isn't a bad idea

The UK is applying to join a free trade area made up of 11 Asia and Pacific nations, under its post-Brexit plans. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership - or CPTPP - includes Australia, Canada, Japan and New Zealand.

Hitherto now I've been somewhat sceptical in that one wonders what value there is in joining a regional trade agreement on the other side of the planet comprising of members we already have comprehensive agreements with. Furthermore, it is not a regulatory union, and not all that deep in terms of regulatory cooperation. It largely builds on copy-outs from WTO agreements and GATT.

Comprising of only 10% of our current exports, it's difficult to see what noticeable value it will have. It goes no way toward softening the impact of leaving the single market, America is unlikely to join it, and the rudimentary mutual recognition of conformity assessment within it doesn't really do much for us. More than likely it will complicate our remaining exports to the EU. The further we move away from a Europe first policy, the bigger the problems we have. But then since we seem to be hell bent on ruining most of our exports with the EU anyway, that's something of a moot point.

From a trade point of view you could easily conclude that CPTPP isn't worth the bother. But in taking such a narrow view I'm falling into the trap of seeing relations only in terms of their more immediate material gains. More than likely the government is taking a more strategic view to strengthen trade and investment ties with the Asia Pacific region. The agreement itself doesn't appear to go very far on investment but it does have that potential, and though it is not a regulatory union, it does commit the members to working on regulatory coherence and standardisation.

This pans out quite well for the UK in that it doesn't really require much of us. The UK is already at the global benchmark in most areas, while other CPTPP members have committed to reaching that bar by way of their deals with the EU. The UK, therefore, is well placed to consult on these matters. By driving forward the convergence agenda, the UK recruits more non-EU partners to its own initiatives, thereby counterbalancing EU clout in various international organisations.

Ultimately the UK needs a presence in the region and it also needs to upscale its regulatory diplomacy operation, and CPTPP is as good a place to start as any. Though the EU and UK may have set the standards for trade in goods, areas such as digital trade and electronic commerce are still relatively virgin territory out in the big world. There are threats and opportunities on the horizon, and CPTPP, if nothing else, is a good early warning system. One might even argue that if the UK is going to rebuild its trade and diplomatic capabilities we can't afford not to join, and sitting alongside Australia, Canada, Japan and New Zealand, we are at least among friends and allies. 

Where there is genuine concern about CPTPP is the lack of transparency over the decision-making and the complete absence of public debate - and the debate that does exist in Westminster is a low information debate among politicians and journalists whose understanding of the issues has not meaningfully advanced since 2016. Meanwhile the government seems intent on avoiding all scrutiny.

We will no doubt see a great deal of scaremongering over CPTPP, be it food standards or carve outs for the NHS, or ISDS, most of which will be irrelevant noise and party political gaming. It that respect, it wouldn't matter if there was a system for parliamentary scrutiny since MPs are usually distracted by the trivia, recycling the same old themes while utterly neglecting things like services and digital trade - and even if they were asking the right questions, they tend not to understand the answers. There likely are problems with CPTPP but we likely shan't know what they are until it's too late. But then that was true of the EEC, so we are at least consistent, I suppose. 

Friday 22 January 2021

Brexit: towards a new normal

Not because of Brexit, but because of decisions taken by the Conservative government, Britain is going to lose a substantial chunk of its trade. This will be single market based trade we've evolved since the mid-nineties. Trade that didn't really exist before and now we've lost those contracts will probably lose out to EU based competitors permanently. We're no longer part of those value chains. The red tape and the third country controls will see to that. 

It is going to hurt more than it ever needed to because of a number of faulty assumptions during trade negotiations and because our preparations were wholly inadequate. Much of the system relies on software that simply isn't designed to cope with the number of declarations and submissions. We could have bought ourselves more time by extending the transition - which would also have led to a more comprehensive deal but Boris Johnson in infinite wisdom decided that wasn't necessary.

Worse still, the the EU has a fully developed system for handling third country interactions, the UK does not. We do not as yet hold the institutional expertise, nor have we established a routine. We are inexperienced in these matters. There isn't the capability to sort out the problems. Business is unprepared, government hasn't a clue, the infrastructure isn't ready and there are not enough trained or experienced people on the job. It's all building up to a perfect storm.

Sooner or later warehouse stockpiles will need replenishment, informal grace periods will expire, and the French will get up to speed with implementing third country controls. This will get messy. I do not think that we have seen the worst of it. Any Brexiteer who thought we got away with it is kidding themselves. 

I do, though, think we should be able to sort it out. It is going to take a number of years. It's going to take a year at least to fully comprehend the causes of the bottlenecks and then a further two years of refinement followed by a process of installing a more permanent system. 

The new system will be heavily influenced by the EU's Union Customs Code. The TCA compels both parties to harmonise their data requirements for import, export and other customs procedures by implementing common standards and data elements in accordance with the Customs Data Model of the WCO. From this we will see a proto-Single Window emerge, which was always the direction of travel, largely eliminating paper declarations and more can be done in terms of customs cooperation and trade facilitation to get the routine running smoothly. 

It will likely never run quite as smoothly as it did before but we will arrive at something within tolerance. By this time, if I've understood the TCA, we will have Authorised Economic Operator systems in place so that regular exporters will have a much easier time of it and we will see improvements to the TCA in the fullness of time. 

From this we arrive at a very different way of doing this where much of the activity moves from behind the border to the ports, and in many ways it will spur some much needed modernisation. The good news is that we are already seeing tech-startups utilising the respective data standards to help navigate complex procedures such as Rules of Origin. Ironically the UK could become a global leader in customs and trade facilitation technology and setting the standards worldwide through international organisations.

In this it is even conceivable that the end point could see a return of relatively "frictionless" trade. Frictionless trade is as much about routine and predictability. When we have the systems in place and trust is established, though the same third country controls will still exist we'll be a lot better at managing the impact. In this we should note that trade has it has existed is not frictionless as such. There is still a great deal of "red tape" only it is conducted elsewhere. Some sectors such as food and chemicals will continue to face obstacles, but anyone who wants to stay in business will adapt. The question is whether they can continue to compete.

Though the present mess is still a disaster for current exporters, especially those who have failed to prepare, it is conceivable that when we arrive at a new regime (likely five years from now, give or take a software procurement scandal) things will being to look normal to the casual observer. Being that businesses will continue to use ISO and UNECE standards, their main area of concern will be product authorisations and testing. Any future government will likely press the EU for mutual recognition of conformity assessment and seek equivalence agreements based on retained regulation. The EU is likely to play hardball but I wouldn't rule it out if it's in the EU's material interests. Both parties will have Covid recovery imperatives.

What we can say is that it's going to get substantially worse before it gets better and it's going to create serious problems for Ireland. Already Irish supply chains are breaking down but this does not register with the media to the same extent as the Dover-Calais route. The former is seen as more local news whereas Dover is the international gateway. That is also where the government will focus its main attentions, and being that UK-Ireland relations are not in good health, the Tories will likely treat Ireland with a degree of contempt. Every time the EU makes life difficult for the UK the UK will seek to pass on those difficulties.

This is motivated largely by a sense of Tory victimhood. On Brexiter Street, Ireland is seen to have cosied up to Brussels with a view to weaponing the Irish border leading to the unhappy NI protocol now in force. The Tories also believe they can bounce Ireland out of the EU by making life difficult for them. I don't think it's likely to succeed, but the difficulties Ireland faces could be interpreted as the EU failing to live up to its promise of solidarity. I do not think the politics are clear cut. 

Though Ireland has made alternative arrangements to transfer freight from mainland Europe, the length of the voyage creates its own problems - particularly for Ireland's race horse sector. With an overall retraction of commerce from the British Isles, Brexit could end up hurting Ireland almost as much as the UK. Depending on what the UK does in the distant future, Ireland may be forced to rethink its relationships. In those stakes I don't see UK-Irish relations improving until Boris Johnson is gone.

In any case we've bought ourselves a decade of diplomatic and bureaucratic stress not entirely dissimilar to the process of joining the single market. Only this time the media will report it because it's politically useful to do so. We shall see no abatement of Brexit bickering but ultimately we just have to get on with it until we find our new normal. 

Thursday 21 January 2021

Brexit: time to get on with it

I rather thought I was going to enjoy pulling the wings off ultra-Brexiteer types as their delusions were skewered by the encroachment of reality but it's turning out to be meagre pickings since many of them are too stupid to even realise there is a problem and the rest are unwilling to believe it has anything at all to do with that thing they campaigned so intensively for. 

The other problem is with me. I just can't be bothered. There's no real sport in it if it's easy prey. And of course, it scarcely matters now. What's done is done. The fishing industry is mostly getting what it deserves and I don't have that much sympathy for British manufacturers either. Rules of Origin should not have caught them off guard.  

Moreover, Just In Time supply chains are not necessarily about rapid transit, rather it is a matter of planning to ensure goods get to their destination precisely when they are needed while spending as little time in warehouses as possible. 

Though the precise trade regime was not known until the last minute, the writing has been on the wall for some time that we would assume third country status and though government communications have been poor, there was nothing at all preventing them from doing their own groundwork - yet a great many of them sat on their hands. 

Of course, nobody can say that the government has upheld its own part of the bargain. Customs software isn't up to scratch, the support isn't there and the trade deal itself is barely worth having for all the use it is. Brexit is done and we've made a pig's ear of it. 

The energy, therefore, is better invested in thinking how we make the best of it. I do not believe that re-joining is likely, possible or even desirable, and if Efta EEA was a losing bet before then it is now for much the same reasons. The argument for remaining inside the EEA regulatory sphere was to maintain EU trade but by the time we re-joined it, our trade would already be a distant memory and would likely never be the same again. Our current value chains are the product of thirty years of evolution. 

I will never stop beating remain MPs over the head with the fact they voted against EEA Efta, but for better or for worse the TCA is the foundation we must build on. It is now a fact of life that, for the time being, things are going to cost a bit more, we're going to export substantially less to the EU, and business will have to adapt or die. I don't like it but there it is.

Of course the remainers are going to whine for an eternity, particulary about any regulatory divergence. In their minds any divergence is bad, and any way that isn't the EU way is inferior. But that never has been true. Regulation has always been used by the EU as a tool of integration where it never particularly mattered if it was bad regulation just so long as it was uniform throughout. Though it gets improved over time, improvement is always a suboptimal compromise - and still more concerned with finding an acceptable average than tackling the problems regulation is notionally designed to solve.

There are aspects of environmental law and waste policy, only tangentially related to trade, that could now be reformed without that process of negotiation. Energy, water and waste policy is now up for grabs. Moreover, the UK is now, to a point, free to make its own decisions on product regulation. We have long been a dumping ground for substandard Chinese counterfeit output, which the EU system failed to prevent.

The EU's system has, in fact, encouraged corporate irresponsibility, instilling a culture of "plausible deniability", where retailers and their suppliers can plead that the "paperwork and procedures" were in order, thus dumping the blame for any failures on anonymous producers, largely keeping their own reputations intact.

While people were complaining about the opening of our borders to the inrush of immigrants from other EU member states, another revolution was taking place. Our borders were forcibly opened to a torrent of cheap, often substandard imports. And, as long as they carried the "magic talisman" of the CE mark and had the correct paperwork, local port inspectors were effectively prohibited from examining the goods.

What were termed "technical inspections" were condemned as "barriers to trade", on the basis of which the commission rigorously pursued their agenda of dismantling port controls. Furthermore, once in the shops, the official presumption is that goods bearing the CE mark are "safe", so that officials such as trading standards officers are actively dissuaded from carrying out spot sampling. And no longer do local authorities make budget allocations for routine tests. 

That is a large part of the problem in UK governance. Across the board, adoption of EU regulation has weakened enforcement and lessons from enforcement are not fed back into the system - and where they are there is little reflection of it.

Among national politicians there is a presumption that technical governance of this nature does not require them to be familiar with it, being that it's an EU competence and the sharp end of it is handled by local authorities. Enforcement is then a matter of mere budget allocation rather than governing philosphy. This we have seen with the sweatshops in Leicester where there is no shortage of regulation on treatment of workers and health and safety, but what good is Rolls Royce regulation if enforcement is still British Leyland?

As much as there is an overreliance on the EU and international organisations to provide the regulation, there is a presumption that the system is self-maintaining without the direct involvement of our politicians. To a point that's true, but that's how we get to critical decision points like 2019 and the average MPs has no concept of what they're even debating.

Under the terms of the TCA it is unlikely we shall see that "bonfire of regulation" and suppliers to global corporates will still elect to follow international standards. Britain will still have to make its own representations to the global bodies where the rules are made, but over time the EU will lose interest in monitoring what the UK is doing internally, particularly as its attentions turn elsewhere, by which time there should be policy space to rethink how we do things.

Since we have already damaged our trade beyond repair we now have little to lose by experimentation and regulatory innovation. In terms of animal welfare and disease control there are obvious advantages to having a distinct system to the EU, and though we should still look to liberalise our trade, there is no reason why we should continue to allow China to abuse the certification process in order to keep dumping fraudulent goods on our market.

Though trade metrics report of volumes and values, they don't give us an idea of the economic, health and social costs of a profligate society living for conveniences, always sacrificing quality for price. The mentality of the last forty years has been geared toward the maximisation of trade volumes but with scant regard for the wider implications. With Covid and geopolitical trends interrupting globalisation, we could certainly use a "great reset" in the way we think about trade and regulation. 

Wokeness: echoes of East Germany

We're having some technical problems on Turbulent Times tonight so I'm posting here 

What have the woke left and the East German secret police got in common? Quite a lot as it happens - you won't be surprise to learn. A cornerstone of the contemporary leftist thinking is critical race theory. I must confess I'm no expert on it, but it appears to be a ranking system according to your victimhood credentials; a social grading system that determines whether your opinion has any right to exist. 

A new California curriculum in the news this week uses racial distinctions to divide people into those who are considered white (and therefore privileged) and those who are non-white (and therefore oppressed); and in the case of Jews, it combines the two, pitting "Jews of color" against Jews who are tarred with "conditional whiteness" and its attendant "racial privilege".

This is essentially rhetorical weapons system designed to bake in discrimination. It comes as no surprise that the woke left puts Jews in their crosshairs first. The system is based on a ranking of what they term "privilege" which is based on all the old left wing bigotries and stereotypes, so it was only a matter of time before Jews became the target. And these people pretend to be "anti-fascists".

But it does fit with history. Communists have always defined themselves primarily as anti-fascist. GDR authorities officially referred to the Berlin Wall as the Anti-Fascist Protection Rampart. The Eastern Bloc portrayed the Wall as protecting its population from fascist elements conspiring to prevent the "will of the people" from building a socialist state in East Germany.

Drawing from the work of Maoz Azaryahu, it's worth looking at East Germany. Following a period of direct military occupation by the victorious allies, in 1949 both West Germany (FRG) and East Germany (GDR) were founded as successor states to the German Reich. For both German states, the evaluation of the Nazi past was central to the construction of their respective national identities as German states that represent and embody a ‘new’ Germany. West German society was bent on forgetfulness and suppression of the inconvenient past, whereas antifascism became the founding ethos of GDR.
In communist East Germany, the commemoration of the Nazi past was designed in the framework of anti-fascism (‘anti-Fa’) as a state doctrine. The legacy of anti-fascism juxtaposed the fascists with their victims, but at its core was the celebration of communist resistance and martyrdom as well as the solidarity between communist and non-communist resisters, such as social democrats and clergymen.
Significantly, communist resistance in Germany was construed as an aspect of the struggle led by the Soviet Union against fascism, and the Soviet victory was also the victory of East Germany over Nazi Germany. Especially in the 1950s and the 1960s, the designation ‘fascism’ also applied for West Germany, which according to the East German propaganda represented the continuation of fascism.

As both a historical legacy and political argument, anti-fascism was an instrument to legitimize both the Communist state and the hegemonic role of the SED (Socialist Unity Party) in East Germany. Grounded in Marxist-Leninist interpretation, the East German doctrine of anti-fascism regarded Nazi Germany as the local context of a broader phenomenon, fascism, that expressed the crisis of ‘monopoly capitalism’. The Nazi extermination policy against the Jews was seen not in a German context, but as a result of the ostensibly criminal nature of ‘late capitalism’. The doctrine of anti-fascism absolved all East Germans – provided they supported the communist regime, and irrespective of their actual biographies – of sharing the burden of the Nazi past.
Having developed its founding ethos, it then needed its national heroes and founding mythology. According to the East German narrative, the liberation of Buchenwald on 11 April 1945 was a self-liberation by the communist-led underground organization that took control of the camp shortly before American troops of general Patton’s Third Army arrived. Celebrated as the victory of anti-fascist resistance, the ‘self-liberation’ of the camp belonged to the foundation narrative of the GDR as an anti-fascist state. 

Another important symbol of anti-fascism was the ‘Buchenwald Oath’, in which members of the underground organization, shortly after liberation, pledged their resolve to continue their struggle. In East Germany, the ‘Buchenwald Oath’ became a credo of the anti-Fa doctrine.
Buchenwald itself became part of the mythology, becoming the "museum of anti-fascist resistance", juxtaposing Nazi barbarism and anti-fascist resistance and martyrdom, while emphasizing that Nazi 

Germany was but an aspect of the general crisis of capitalism. In the wake of the collapse of the GDR, the narrative of heroic resistance and anti-fascist martyrdom lost both its credibility and authority on the revelation that between 1945 and 1950 the former concentration camp had served as a Soviet detention camp for Germans. This goes some way toward explaining holocaust denial on the left in that the reintegration of Buchenwald into a more accurate record of history discredited the heroic character of "anti-fascist resistance" mythology.

More broadly, GDR was famed for its suppression of speech, a ruthless secret police, mass state surveillance and military borders in order to keep people from leaving. Nobody was risking their lives to go and live in this socialist utopia.

Though my linkage to the modern woke left is not entirely serious, they both define themselves by what they're not and both rely on a rewriting of history. Their whole identity is fashioned on their opposition to fascism which in their minds makes them righteous by default. The authoritarian behaviour is similar because the foundation construct is so flimsy it depends on the policing of language and thought. The transgender lobby has attempted to appropriate Alan Turing as one of its martyrs in the same way that GDR incorporated the memory of Ernst Thälmann. In no way does this stand up to scrutiny but activists become immediately aggressive when challenged. As offensive as that is to me, so to is the attempt to write transgender people into the holocaust.

Though the left doesn't have a Stasi of its own to enforce these doctrines, it does employ doxing and by way of their capture of institutions, it's quite easy to have a sceptical academic removed from their post or a public official sacked - or a book withdrawn from publication.

Though America is not yet turning down that road, one can almost imagine the Antifa mobs of Portland settling the issue once and for all by replicating the Berlin wall around the city - assuming they can find any males who can work construction. Gender studies degrees are going to need a structural engineering module. The woke women will all be too busy in the HR jobs in Silicon Valley.

What particularly piqued my interest in Azaryahu's work, was the concept of "late capitalism" - a pillar of the communist dogma at the time. This have been revived of late, particularly through the medium of memes, and I never realised the significance. Nothing of the current leftist rhetorical construct is remotely original. 

Whoever dreamed up the modern left's playbook and lexicon seems to have been almost exclusively inspired by the GDR. Everything about it is centred on indoctrinating its adherents into thinking that anything in the outside world is fascist - and to disagree is a moral failing.

The only thing original about this is the way in which this iteration of communism has infected the USA by donning the clothes of racial justice and gender equality. The murder of George Floyd last year gave it a window of opportunity and with the election of Biden, it now feels it has a foothold. If enough Americans see it for what it really is then reconciliation is impossible. Civil war may well be on the cards. Either way, unless it is defeated, the liberal democratic America we have known in our lifetimes is dead.