Thursday, April 20, 2017

Brexit is no miracle cure, but it gives us the tools we need to succeed


To explain the modern trade environment I would describe it as thus. Imagine you were a small business and you found that there were bureaucratic barriers between you and your customer. You bring this up with your trade association and they go to the government. In theory the government then acts as your business lawyer to intercede on your behalf. It looks at any barriers it has which is can remove in exchange for the removal of the barrier that affects you.

Big comprehensive trade pacts like TTIP are when several issues have been highlighted and the government seeks a comprehensive package of reforms. Modern trade agreements though are considerably more than just a series of agreements on non tariff barriers. Very often what is worked out in negotiations does not work in practice. You may be able to sell to a market or import certain goods but if by doing so you radically alter other deals you have with other countries then you cannot trade under those terms. This is why we have a system of waivers built into most modern trade agreements along with dispute resolution systems. Usually a court of some kind.

A recent example of this was when Canadian beef producers found that if they sold beef produced to EU standards then it raised the risk profile for food poisoning with the Americans and subjected them to more expensive border inspections. Naturally there needs to be a system to resolve these disputes otherwise these trade agreements cannot be fully utilised.

One thing that could resolve these such issues in future is a global standard on food safety risk assessments which is why we have global bodies for standards and practices. What you will also find in modern comprehensive trade deals are boilerplate statements to the effect of further cooperation toward regulatory harmonisation. Usually the text is a copy and paste from the WTO agreement on technical barriers to trade. More often than not, these such deals establish working groups or joint committees where our own trade ministry will have an office dedicated to serving that exact trade deal. We have one that deals only in cooperation with China. Very often these offices have certain unilateral powers to make temporary concessions and these are brought up for periodic review. Where you have insoluble disputes we have the WTO courts.

Given that any given country can have multiple comprehensive trade deals, each committed to regulatory harmonisation you find the difficulty is in trying to ride two or more horses. More often than not you are forced to align with your largest and nearest trading partner. In this there are three regulatory superpowers. China, the EU and the USA. TTIP was the most ambitious deal ever in that it sought to iron out the many disparities between the systems. Where harmonisation could not be achieved we would seek out mutual recognition.

Unfortunately due to the secrecy and complexity TTIP failed to pass, and also because certain vested interests really don't want to open up to competition. When it comes to trade deals, the bigger they are the harder they fall.

This is why I voted for Brexit. The EU likes big flagship gestures like TTIP and what that means is we spend seven years or more in complex negotiations to achieve, well, fuck all basically. Moreover it is unlikely that there will ever be a properly comprehensive trade deal with the USA. As much as anything the USA doesn't really want one and is big enough and diverse enough not to need one.

What remains though is a system of automatic adoption of global standards where over time we remove the disparities between the regulatory regimes. This is where the UK needs to be an active player in setting the agenda, to bring the resources to focus on those standards that would most benefit UK trade. As an EU member, what we find is that we lack the ability to launch such initiatives. Any initiatives have to be cleared with Brussels first and if EU member states object then we are prevented from acting. In this regard it would be like hiring a lawyer to work your case who then outsourced it without telling you and nothing is done.

For the EU the priority is not lubricating trade, rather it is focussed on preserving the integrity of its own regulatory system and the uniformity within the single market. All other concerns come secondary to that. We don't call it "fortress Europe" for nothing.

The real game changer is the WTO agreement on technical barriers to trade where the EU of its own volition has surrendered the regulatory agenda to those global bodies and adopts the findings of standards bodies outside of its own control. Outside of the EU we are able to participate fully in all of those bodies without first asking permission from the EU commission and without having our vote or veto overturned. That way we still get to influence the rules of the single market even if we are not in it.

As I outlined over on my last blog the purpose of Brexit is to shorten the chain of accountability and ensure that our trade representative is actually our own government. Britain is increasingly a services economy where we need to focus on niche financial services and internet services where the regulatory systems are still in their infancy. If all our trade activity is tied up in bundled deals where manufacturing is included we can end up losing out on services liberalisation because of German manufacturing concerns.

The view is that we can achieve more incrementally than waiting year after year for the EU's next miracle cure. By going in at the very top end and influencing standards and practices we can edit the DNA of trade deals that already exist and any future ones even if we are not a party to them. The future of trade is mulitlateralism.

The other issue we have is utilisation rates. Most of the deals we achieve in the next few years will be replicas of the deals we already had via the EU. That though does not improve or enhance our position. Unless partner nations are capable of meeting the standards we set then they cannot participate. This is where we need a concentration of aid efforts to promote good governance and assist in the implementation of standards. This does not immediately boost UK trade. All it means is that other countries can trade more and sell more goods. It does not necessary mean we can export to them. What it does mean though is that globally trade volumes increase and as a supplier of business services, the more trade there is in the world the better we do.

Jetting off round the world securing free trade agreements doesn't really accomplish very much if the infrastructure and capacity is not there. To boost trade we must invest. That is why DfID must be central to our trade policy. Trade utilisation rates have remained pretty static. If we make internet connectivity our focus in lesser developed countries then we are connecting more customers.

We can have all the officials and bureaucrats in the world working on hammering out agreements and they may make marginal improvements but ultimately we need to be out there making trade possible.

There are plenty of Brexit naysayers out there saying Britain can't be a player. I couldn't disagree more. Free to build our own sectoral alliances and without having to clear everything with Brussels we can be a more agile actor. We can act incrementally and we can act globally and we can steer the agenda by way of what we bring to the table in terms of knowledge, finance and governance. Norway is far more influential than is given credit and there is no reason why we cannot play the game the same way.

Brexit of itself does not do anything. It gives us the tools to succeed should we promote new ways of acting on the world stage. International development is absolutely crucial and ensuring British unions, business associations and trade guilds are up front and participating in global bodies is an absolute priority. This is how Germany manages to set the agenda. We must replicate that experience. We must invest in the best possible research to ensure we are leading the field in knowledge driven standards and we must fly the flag for multlateralism. 

All the Brexiteer talk of a free trade bonanza is pure gibberish. There will be no bonfire of regulations. There is a system, we are committed to it and there is a game to be played. Free of the EU we are free to redefine how we approach trade and we can re-write the rule book. Literally. But making a success of Brexit requires that we ditch the Tory free trade dogma and work with the WTO rather than against it. If we play it smart there is no reason why Britain cannot be at the forefront of regulatory innovation and in so doing be the shot in the arm global trade has needed for a very long time.

2 comments:

Tom Mein said...

Nice to read a sensibly laid out argument rather than the hysterical headlines that we are fed on the news channels

Gilman Grundy said...

"Free of the EU we are free to redefine how we approach trade and we can re-write the rule book."

Not in my field. All that will happen in the SDA (small domestic appliance) market is that British companies will no-longer have much influence over the standards set in their main market. The much trumpeted "vaccuum cleaners that work properly" will not arrive because there are few or no SDA manufacturers for whom the UK is a big enough market to make a market-specific product - instead they'll keep selling the same products, made to the same standards, as they sell in Europe.

For my profession (patenting) the real hilarity is that, under the present government, our entry into what is a unitary EU patent system in all-but-name,is still supposedly going ahead. Trademark attorneys and people who work in design registrations are going to take a heavy hit (these both operate within systems run officially and actually under the EU) - this is the reason why if you look at the letter-head of any major UK patent/trademark firm that previously had no mainland European presence, you will now see offices in Paris and/or Munich. Money that would have otherwise been spent in London is being spent hiring on the continent.