Monday, 18 July 2016
Brexit presents a massive opportunity for global trade
Each of us had very different reasons for voting to leave the EU. I can't nail it down to any one thing but in the end I voted with the UK's long term economic prospects in mind. After China there are few more difficult markets to enter than the EU. I am not alone in describing the EU as an iron curtain on trade. I think even the EU understands this. The EU is not globally competitive and as the rest of the world catches up in terms of wealth and education, it is declining in global relevance. It won't be calling the shot on regulation forever.
The EU's answer to this is CETA and TTIP. To my mind TTIP is an extension of the single market ethos but since the USA has a well established regulatory system the work is in reconciling the vast systemic differences. As I understand it many trade experts expect it will fail. EU member states may well vote it down and if they don't the USA most likely will. Years of work up in smoke. If it does pass it will be thinner agreement than was hoped but it still represents an extension of the iron curtain. The EU, driven by french and German defensive interests such as manufacturing will never fully open its doors to competition. Britain suffers because of that.
Listening to the economic conversations among Africans the view is increasingly that the EU is simply too expensive to trade with and comes with too many strings attached, not least because of the EU's social agenda attached to any trade deal. Many have concluded China is a more relevant market or that better links with India and South America are more achievable since the regulatory sphere is less well developed. The EU's response to this has been to do nothing.
As much as the EU suffers from its own bureaucratic inertia, interests within often mean that a well intentioned EU simply cannot secure political permission to liberalise. This is a bad approach to trade. The EU has exclusivity over all trade to the point where we have no trade negotiators of our own. All member states are prevented from strengthening ties with their natural and historical allies. Though there are advantages in pooling our economic might we lose all agility for dogmatic reasons.
There are areas where there is every advantage in harmonising with Europe and no sense at all in diverging. But the flip side of that is that there are sectors where we do little trade with the EU and there is no purpose at all in harmonisation to the cost of other opportunities. The idea of a geographically fixed single market in all things for its own sake flies in the face of modernity. The internet has reinvented trade and it is people who decide who our closest trade partners are, not the EU Commission. The EU is swimming against the tide and it does so because of the fundamentalist ideals at the heart of the EU. It's no good.
More to the point, you can only go so far with harmonisation of trade in goods before things reach a plateau. It's for the same reason the basic configuration of the Boeing 737 remains the same today as it was thirty years ago. Good design makes for incremental improvements over the years but the essence of what it is has not changed and is unlikely to do so for many years to come.
The next challenge in trade is that of services where, thanks to the internet, geography is less relevant than ever. In terms of services is comes down to issues of intellectual property rights movements of money and cash transfer services. In procuring services customers are more likely to look at other English speaking countries in the same way that Portugal is more likely to trade with Brazil. Consequently efforts to harmonise trade must happen at the global level or be tailored for what actually happens rather than what the EU would like to happen.
This is where Brexit changes everything. As much as anything it is a swift kick in the complacency for the EU. After Brexit there can be no business as usual for the EU if it wants to survive. Free of Britain, the EU can reshape according to its needs and the UK, primarily a service economy can do likewise. As to our role in Europe, the settled narrative is that Norway has the worst of all worlds in being half in and half out of the EU. It has become an article of political certainty, despite the fact that Norway enjoys most of the benefits of the single market while also being able to act independently or as part of Efta.
There are disadvantages that most are now familiar with in that a significant body of law still comes from the EU, but the fact is that Norway does get to pick and choose according to its own economic preferences. And if that is true for Norway, then that goes double for the UK with a richer and more diverse economy. In any case, as I have rehearsed countless times, the essence of EU regulation is devised at the global level and it matters not one jot that it has an EU stamp on it. The core of EEA regulation is really not that big a deal and the hassle that comes with transitioning to a different regime is more expensive that sticking to what we have.
There are those who would like to slash and burn at regulation and see Brexit as a mandate to turn our backs on technocracy but these are people who just want the world to be simpler than it is. The truth is somewhat different in that the world is becoming even more complex and with that goes regulation. It's a fact of life. Death, taxes, regulation. But what comes next?
Britain cannot expect that world leaders will be banging at the door for a trade deal with the UK. We have heard encouraging signals from well meaning allies but the nuts and bolts of trade tend to throw a spanner in the works as some trade aims are in conflict with deals and treaties already in place. The chances are we will carry over some of the deals we have as part of the EU which will necessarily exclude carte blanche deals elsewhere. And this is without even looking at the usefulness of such deals. For instance, what use a trade agreement on tyre exports to New Zealand if we don't send any tyres there?
As much as the UK needs to be scouting around the world for trade opportunities it also needs to have concurrent conversations with UK business, particularly IT and data services and asking them what the barriers are to trade. In most cases it will be regulatory compliance where we are best focussing our efforts at the International Telecommunication Union in Geneva rather than Brussels.
For the purpose of intelligence gathering we may even need a new branch of the Department for International Trade. It already does a pretty good job of speaking to businesses around the country but conversations are not well focussed and in the past have been Brussels centric meaning innovations reach a dead end. Free of the EU we are able to put our own submissions to Codex, UNECE and the IMO.
One thing we do not want to do though is have the government guessing at the agenda. To get more effective industry intelligence we may well be advised to promote and if necessary make compulsory, membership of trade guilds which can monitor global regulatory developments both as an early warning system and as means of influencing the conversations.
The UK also needs to look very closely at trade facilitation. We already have a good deal of this work in progress and DfID is actually quite good at it in terms of identifying opportunities. There are two problems with our approach though. Firstly we don't spend nearly enough on it. It is an accessory to our activities when it should be central to it. Secondly, it is seen more as a branch of aid policy for the do-gooder set with the government sharing much of its pooled expertise with Oxfam. It is largely divorced from the regulatory sphere and seemingly operates independently of the Department for International Trade.
The elephant in this particular room is the EU where much of our aid spending is simply directed to the EU which in turn passes it along to NGOs. We have three disparate agendas not working to any strategic objectives and certainly not in the direct national interest.
If Britain wants to be a leader in global trade then it is going to have to build trading opportunities from the ground up, working with Codex and UNECE to proliferate the global rules based trading system and nurture expertise in target countries. We have have a mandatory obligation to spend 0.7% of GDP on aid, but there is nothing to say it cannot be spend in the national interest. If we view aid as a trade and development tool and we can say that it is a worthwhile investment for the UK then there is absolutely no reason why we should not spend more if needs be.
Further to this, we need to end our propensity to rely on NGOs to deliver aid on our behalf. Humanitarian aid is good as far as it goes but in many respect is unaccountable and of limited use except for immediate disaster relief. Instead there is no reason why some of the aid budget should not be redirected to the Royal Navy to purchase hospital ships, floating power stations, desalination equipment and all purpose container ship based platforms for aid operations.
Out of the EU we should reintegrate trade and aid, with a larger role for our forces but connecting the dots between UK exporters, along with exploring the global regulatory dimension. This is key to the removal of non-tariff barriers. It also goes some way toward addressing immigration push factors.
As members of the EU, this has been impossible and we have been riding three foreign policy horses at once. Now we get to decide what our foreign and trade policy is and gear the mechanisms of state to advancing our own interests and governing for the betterment of the UK. We will expand our influence in the global sphere by investing in international development. There is no reason at all why we cannot do this and every advantage in making it happen.
We now need a major national conversation on how we redesign domestic governance and foreign policy with a view to extending our global reach. The key to this is understanding the many global multilateral forums where gradual increments are worth far more to us than any bilateral agreements or "free trade deals". It is how things get done now and all the while the EU is stuck in the last century with deals like TTIP, we can be forging ahead using state of the art trade practices. If we are not talking about regulation and trade facilitation then we're just not talking about trade. Our politicians need to wake up to this amazing opportunity and to stop fixating on bilateral deals. Things are done differently now and it's time to get with the programme.