Friday, 7 April 2017

Britain should be the champion of multilateralism

It seems to me that the value of Brexit is contingent on widening the discussion about trade to include all of the major global regulatory entities. Nearly all EU bilateral trade deals work to the WTO template compelling both parties to conform to international rules and standards. Ours will be much the same. There won't be much room for haggling over regulations in trade deals - especially not if we have something akin with an association agreement with the EU.

In order to make the best of Brexit we are going to have to massively step up our input in Codex and UNECE etc, and instead of looking for trade deals we need to look at those common regulatory objectives that would enhance the existing trade we have. Harmonising Rules of Origin procedures for starters.

For all that Brexiteers have boasted about the ability to make our own trade deals we will more than likely find that there is little we can do to enhance the ones we already had via the EU. If you already have mutual recognition agreements and preferential tariffs then you're expending an awful lot of intellectual effort for marginal boosts in trade with just one country at a time. The obvious way forward is to seek out new global conventions one product and one sector at a time to maximise the utilisation of the trade agreements which already exist. Let others waste their time with bilateral deals.

To this end we have to move past sixteenth century thinking. In some respects we have regressed. We hear Toryboys opining about swapsie deals with India whereby we allow more IT contractors in exchange for more of our financial services. This isn't even as sophisticated as the slave trade triangle. Trade networks are now multi-nodal consisting of huge supply chains crossing continents. As a services based economy specialising in business to business services we should start from the position that we do more trade if everyone does more trade.

This blog has in the past looked at may of the physical barriers to trade, however even if you take care of the basics such as roads there are still a number of obstacles that standing the way of utilising trade deals. Once roads are paved, further improvements have not been found to result in a significant reduction in transport cost. Instead, to be successful, policies need to recognise the complexity and diversity of high intra-national trade costs and address a wider range of infrastructure constraints. As the linked article has it:
Even when taking into account that there are both more and better quality roads in the US, the cost of distance is still 2.5 times higher in Ethiopia and four times higher in Nigeria than in America. This is a surprising finding: with its low wage levels, Africa’s transport costs should be much lower than in the US if roads were of the same quality, since the trucking industry is so labour-intensive.
There remain a wide range of factors that could generate high intra-national trade costs within African countries: the price of inputs such as fuel, labour, and equipment on the one hand; and market characteristics, including regulations, transport, and trade procedures on the other.
Among potential logistics costs are market-entry barriers such as access restrictions, technical regulations, customs regulations, and cartels (Teravaninthorn and Raballand, 2009). Corruption and protectionism may serve as a barrier to entry for modern or more efficient logistics firms. In addition, many routes are under-utilised and trucks often travel short distances, or only carry a small load. As a result, potential economies of scale are not captured and internal transport prices remain high.
There are any number of regulatory interventions and systems that can remedy this - and consequently many business opportunities. We already have agreements with a number of countries where the utilisation rates are pretty feeble because of these exact factors. While direct economic assistance can help, without the common regulatory frameworks we will continue to see the lack of harmonisation presenting problems for trade.

In the wake of Brexit we will more than likely see the likes of Boris Johnson waving worthless agreements aloft hailing them as a great Brexit success, and most people will probably buy it, but the rest of the world will be laughing at us. If we want to make the best of Brexit then is is absolutely necessary to reaffirm our commitment to the global rules based system - not just for the sake of appearances but in order to exploit it in the national interest. What is good for the system is good for us.

By investing our efforts in shaping global standards and quasi-legislation we are editing the DNA of trade deals worldwide - and in most cases deals we are not even a party to. We could, if we are skilful in building alliances, find a number of ways to steer the rules and even the rules the EU will adopt for the single market. It has been done before so why not make a habit of it?

One way or another we are going to be bound by the EU and we will find it difficult to break away from the EUs regulatory gravitational pull. Riding two or more horses isn't going to work. Since we have voluntarily walked away from any system of co-determination on rules and their implementation by ditching the EEA the centre of our attention must be all those places where the EU takes its rules from. In so doing we will find we can accomplish more than any bilateral trade deal.

This though requires that we think about trade in a completely different way. We could spend the next few years chasing off round the world signing pieces of paper but without the developmental infrastructure and a commitment to trade facilitation it could all be for naught. This is why DfID needs fundamental reform and to be brought under the department for trade.

Many still see DfID in an ambassadorial capacity, which has limited propaganda value, but in order to make it worth what we pay for it we need it working in the direct national interest looking at ways to enhance trade governance in the developing world - not least so they do not need humanitarian assistance.

Remainers are right to be sceptical about what our new found powers to sign trade deals can offer. We are not in our own right a regulatory superpower and as far as standards go there are few sectors where we dominate. Given that many of our partner nations already have comprehensive agreements with the EU they will be limited in what they can grant us. If we play the game by the same rules as the EU then our trade policy will fall flat on its face. We must rethink our ideas.

Now that we are leaving the EU the government is making noise about being a global Britain. If we are to live up to that rhetoric then we have to think globally and think in terms of what global institutions and constructs can do for us - and how we can develop them. The USA is temporarily a blocker to multilateralism and typically sabotaging otherwise desirable outcomes. We would be unwise to play into that since Trump is only temporary and eventually the USA will ditch its current isolationism.

Since we no longer have the economic might to dictate the agenda we will have to attract flies with honey - and that means coming to the table with ideas and solutions along with the commitment to see them through. It is that which will secure our place at the top table. Right now the world needs a champion for multilateralism and that could, and should, be the United Kingdom.

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