Tuesday, 11 April 2017

Trade: a tangled mess to sort out

Assuming we don't make an absolutely monumental pigs ear of Brexit it is more than likely that our final agreement will be far more comprehensive in scope than any Brexiteer ever bargained for. Free movement of goods at the very least seems to be a preferred outcome and that means we are going to stay within the EU regulatory sphere for the most part.

Since the EU is not minded to allow selective participation in the single market, it seems that we will more than likely not have the freedom to deregulate - and when you add in Mrs May's repeal bill it is more a question of policies and systems than laws and regulations. If we can avoid bungling this process then Brexit need not be a total catastrophe.

We are told that this will likely mean continuance of freedom of movement for the duration of the interim measure. I have a feeling it will linger on in this limbo for many years. We will also be making substantial payments to the EU. This is nothing we don't know. If you still believe otherwise then you simply haven't been paying attention.

There is then the matter of loose ends - or rather what most assume to be loose ends but are in fact equal in magnitude and scope to what people believe to be core pillars of any future settlement. This would be market surveillance systems, registration and certification bodies and regulatory systems like REACH, and not forgetting the European Medicines Agency - where we will necessarily require a high degree of participation in order to continue participating in EU markets.

One thing that appears to be lacking is any kind of impact assessment on leaving any of these bodies and how we might go about replacing them. Since there has been no authoritative work on these such issues (that I know of) it is more than likely that continued membership will be a requirement of any kind of transitional deal - and again it feels like the transitional will become the permanent.

When it comes to disengaging from a number of EU regulatory systems it becomes difficult since it is a something of a massive undertaking in which one of the objectives is to end up with a repatriated system but one which maintains a degree of compatibility. Were there not a political imperative to do it, we wouldn't bother leaving them.

The big question is how much grace the EU is likely to give us. Three years has been suggested but seven seems far more likely. The EU does not wants a limbo state dragging on forever, and nor do we - but we must all face facts. It's complex.

By now you might have thought there would be a little more to go on and that the debate would have moved on from blind speculation but it seems we have a while to wait yet. This is one of the reasons this blog is in maintenance mode. Endless half informed speculation adds no real value. We have the Financial Times for that.

If I had to take a guess it would be that in the eleventh hour both the EU and the UK will confront the costs and complexities of breaking up joint programmes and agree a special status to keep things running as they are by another name. Who is going to notice and who is really going to complain?

We are told that Brexit means Brexit and that there will be no half in, half out limbo - but that has never been true even from day one. It has been for us to decide what kind of relationship we want with the EU and pushing the factory reset button has never been a viable option. What then follows is for the EU to decide what it wants to freeze us out of where trade substitution will fill the void left by the UK to the advantage of member states.

There is no doubt that the UK will have considerably fewer rights within the single market even if we do maintain regulatory convergence. This blog has argued for continued membership of the single market for this very reason. The terms of our separation and any future trade deal will place considerable limits on what we can do with trade policy. Through a forensic process we may be able to improve on those agreements we had with third countries via the EU but we should not expect a rapid re-engineering. Revisiting those agreements will mean a long process and will very much be contingent on how the EU evolves its own regulatory systems.

This is when we bump into the double coffin lid whereby we may escape some EU rules only to bump into the tier of rules already set down by the WTO, which thanks to the agreement on technical barriers to trade, obliges us to use all of the existing global standards and quasi-legislation. There simply isn't the free hand that Brexiteers expect.

This is when Brexitology becomes more an exercise in spin and propaganda. Not having any real idea how to compensate for the loss of European trade the UK government will have to shine up any old shit and call it gold. Every marginal deal with backwater countries will be hailed as a stunning breakthrough - though in reality it will mean artisan ice cream sellers of Aberystwyth can sell their wares to to a burgeoning Vietnamese middle class. Totally pointless.

At this point, anyone taking even a passing interest in trade will be wondering what the point of Brexit was. Most already are. The free trade delusions of Tory Brexiteers carry no water with anybody serious so far as I can tell.

There are a number of observations I would make here. No doubt we will see a series of preening articles in the Financial Times lecturing us on how we won't be taking back control of very much. This will be greeted with glee by those same remainers who said we never gave up control to begin with. These would be the "failings, inconsistencies and non-sequiturs in the remainer case" that Sam Hooper alludes to

More glaringly though one would point out that if the UK struggles to get worthwhile trade agreements it is for the same reason that the EU cannot. The big bang deals are cut back in scope and the FTAs largely commit both parties to follow rules and standards that they already follow. What makes any EU trade agreement worth having is the joint committees and sectoral cooperation clauses, usually with regard to energy exploration. The joke there is that there was never anything stopping the UK going out and getting those such agreements of its own accord. It's more inter-state commerce than trade. 

When it comes to the mechanics of trade though, you are looking at a mature global system where things are the way they are for reasons. Usually good reasons but then often because there are some thing we just can't change even with the best will in the world. There are some silver bullets but none of them are to be found by seeking out bilateral deals.

Then there are some who would have us drop out of the EU and into something like CANZUK, which for several reasons is silly, but most of all one would question why we would seek one exclusive alliance working against the trend toward globalisation when we have just ditched a larger one for exactly that reason?

The world as we know it is one of well established supply lines where there are patterns emerging that will stay more or less the same for as long as people continue to consume more or less the same things. Trade normalisation. The prohibitive costs of doing more trade lie not in tariffs but in systems and regulations, all of which could and should be globally compatible, but aren't. This is where the Brexit opportunities are.

As a first world leader in ICT there are any number of opportunities for finance, micro-finance, insurance and business services. Not least logistics and related software. All of this depends on free flow of data conforming to particular standards (of which there are many) right about the time when there is something of a revolution going on in the tracking of goods around the world and technologies therein.

This is where London punches well above its weight - not just as a financial centre but also as a data centre. There is no reason why the UK should not be disproportionately influential to its market size in standards setting and implementation.

It seems to me that we are getting carried away with obsolete bilateral ambitions while completely ignoring the many mechanisms we have at our disposal to edit the DNA of modern trade deals - the rules on which they work. Just about every major systems innovation in trade at the moment comes either from the ITU or UNECE (along with ISO). These boost trade more than FTAs.

In this game it is not agreements between countries we need to be looking at. It is agreements between international organisations and our own standards institutions and universities. If we are throwing money at a trade policy then this is where we are most likely to enhance our influence. Ultimately Britain profits most from being a knowledge economy. More business for others is more business for us.

This is where the illustration above comes in. The picture itself happens to be from Vietnam but you could just as easily find similar scenes in India, Africa and even parts of Europe (Sheffield). It's a real problem. Without good governance on telecoms and energy infrastructure it is difficult to enhance trade. Unreliable internet is bad at the best of times but when you have a line fault, imagine trying to find it in that mess. This is exactly the kind of good governance we want to be exporting through DfID.

If we want to boost UK trade we have to start by acknowledging that the UK already profits from existing supply chains. The question is how we increase volumes and improve utilisation. The obvious answer is efficient, secure logistics, frictionless customs, safe financial transactions and dependable internet. After all, nothing works now without good internet. All of these things we can usefully effect.

By being the standard bearer for trade facilitation it puts the UK in the driving seat of international development while putting UK business at the front of the queue. Functioning through DfID, making better use of the WTO Government Procurement Agreement, putting our aid budget to better use, we can lift developing countries out of poverty, slow immigration and improve trade.

Regulation and standards go hand in hand with tade. This is the kind of intellectual export the UK is particularly well suited to - not least since the EU single market is as much our own creation. We can mess around with bilateral deals covering mainly fishing and agriculture but these sectors are dwarfed by more modern concerns. Even the EU is only just finding its feet in the space race for digital standards. With the EU bogged down by its own bureaucracy and internal conflicts a more agile UK could build sectoral alliances bigger even than the EU.

We are going to struggle to replace the trade we lose by leaving the single market. By giving up on full particpation we are needlessly harming our economy. That though does not mean that there isn't room for fresh thinking and a re-energised approach to trade.

It is likely that this administration will have nothing useful to contribute to post-Brexit trade policy as the UK institutional infrastructure is still geared toward being subordinate to the EU. It will take time for the UK to learn the ropes. In effect, Brexit is our national crash course in how trade works. It's no bad thing. The very process of leaving has popularised the issue of trade when it has been dormant for two decades or more. There are now more brains on it than I have ever seen in my adult life.

For the time being though remainers are too caught up in the Brexit paradigm, picking fault with the bilateral ambitions of Brexiteers. They might well be right, but they are just as guilty of inhabiting a blinkered bubble, completely enslaved by the notion that the EU is the alpha and omega of trade and regulation. Sooner or later though, it will become apparent that neither have any answers. Eventually we will get round to having a more informed national debate about our future direction where we will find that there is a whole universe of rule making over and above the EU. When that happens, the dismal eurocentric whining of remainers will look just as stunted as the Tory Brexit cultists. 

No comments:

Post a Comment