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Hello from Brussels, which survived Storm Ciara OK. The city has moved its focus to a different Irish-themed tempest in the form of the general election and the big win for Sinn Féin. Was this a Brexit-driven result? Absolutely, emphatically not. Does the outcome have big implications for the future of Brexit or EU trade policy more generally? Unlikely from the EU side, as there’s a strong domestic consensus in Ireland on both. But how the UK would feel about dealing with a government containing the former political wing of the terrorist IRA remains to be seen.
Speaking of which, today’s main piece is on how Britain needs to get its act together in the forthcoming trade talks with the EU and others, and first find out what it wants from them. Today’s Tit for Tat is with Julian Braithwaite, UK ambassador and permanent representative for the UK Mission in Geneva — including the World Trade Organization and the UN. Our chart of the day looks at video game imports to the US amid supply warnings from Nintendo because of coronavirus.
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Please please please let me know what I want
First create a policy more or less without consultation. Then start consultations on replacing it. Then start negotiations with your most important foreign partner contingent on the replacement policy before you’ve agreed it. You have to admit it: the way the UK government has sequenced its approach to post-Brexit trade policy is refreshingly innovative.
Last week the UK started a brisk (end date March 5) consultation on what its most-favoured nation (MFN) tariffs — the basic ones offered to any WTO member — should be. Asking businesses and other interested parties what they think is at least an advance on the government’s stab at no-deal planning last year, which ended up in an almighty closed-doors barney between the Treasury, which wanted to scrap more or less all tariffs, and the departments dealing with agriculture and business, which did not.
The new consultation is still an odd way of doing policy. The UK is already preparing for talks with Japan and the US, not to mention the EU, which will begin in early March. It has set out objectives for those talks, but only in very vague terms. In other words, it will start negotiating preferential deals without the other side knowing what the non-preferential MFN arrangements are if talks fail.
We’ve written before about the UK’s lack of knowledge about its domestic lobbies’ preferences. It’s not just the producer interests — service and manufacturing businesses, farmers, fishers, trade unions — but also environmentalists, consumer rights advocates, the lot.
Britain needs to know what it can trade off for what. It’s being faced with an early example of this in the EU talks. Brussels is essentially offering the UK a “fish-for-finance” deal, and so far London doesn’t seem to know how to respond.
Usually governments find out the topography of their political landscape iteratively by surveying and exploring it in successive trade deals. The UK is doing it at one go in a rush.
Referencing Australia is all the rage in UK trade politics these days, so let’s go there. It’s a good example of a country that refined its trade strategy over years to reflect a competitive advantage and established domestic political consensus behind the policy (New Zealand, also well-known for the quality of its trade diplomacy, went through a similar process).
Australia founded the Cairns Group of agricultural exporters in 1986, which came to dominate global talks on farm trade © Reuters
Beginning in the 1970s and particularly from the mid-1980s, Australia increasingly abandoned tariff support for manufacturing, allowed its domestic car industry to wither away, floated its exchange rate and concentrated its trade lobbying on its super-competitive agricultural exports (many of the country’s other successful export sectors — minerals, tourism, higher education — don’t really need trade deals to help them). It founded the “Cairns Group” of agricultural exporters in 1986, which came to dominate global talks on farm trade.
So when the EU, for example, in 2018 started trade talks for a bilateral with Australia, it was clear to everyone where the key trade-offs would be. The EU would offer beef import quotas and Australia would recognise protection of European “geographical indication” food names, plus maybe a bit of opening up public procurement. It’s really just a question of working out the “exchange rate” between the two concessions.
The UK hasn’t developed its own idea of how to construct similar trade-offs. It doesn’t help that there is generally very little liberalisation of financial services, one of its most competitive export sectors, in trade agreements. Britain can’t do a finance-for-chemical-chicken deal with the US, for example, because Washington won’t put substantive financial regulation chapters in trade agreements. When the EU, urged by the UK, tried to open America’s financial services market in the abortive transatlantic TTIP deal, the US Treasury simply refused to turn up to meetings.
To have an effective trade negotiating strategy you need to know where your competitive sectors are, how to get them better market access and which domestic lobbies or elements of public opinion you can ignore or buy off. The UK doesn’t have much idea yet. It’s given itself less than a month to learn. And talks with the EU will start before it has found out. Ladies and gentlemen, place your bets please.
Charted waters
Nintendo warned last week that production of the Switch console in China was being affected by the coronavirus, with supplies to its home market in Japan expected to be hit as a result. Video game imports to the US have at least passed their seasonal peak, which tends to be in the autumn.
Tit-for-tat
Julian Braithwaite, ambassador and permanent representative, UK Mission to the WTO, UN and other international organisations (Geneva) joins us to answer three blunt questions.
Is the WTO worth saving?
The WTO is one of the world’s most important multilateral institutions. It has helped underpin economic and political stability around the world for decades, with more than 75 per cent of the world’s goods trade taking place outside traditional free trade agreements. Since its predecessor, the General Agreement on Tariffs and Trade (GATT), was created by the UK and 22 other countries after the second world war, the average tariff on goods among major trading nations has dropped from 22 per cent to just 5 per cent after the Uruguay Round in 1999. That makes a real, tangible difference to jobs, prosperity and quality of life, at home and around the world.
The WTO has been facing growing challenges for some time. We cannot be complacent about its continuing ability to underpin the global trading system, in the way that it and its predecessor have for more than 70 years. That is why the UK will be standing up for the WTO, and making the case for open markets and a global trading system based on rules, working with the EU and other like-minded trading partners.
How can we bring back the era of the multilateral trade deal?
Multilateral agreements involving all 164 members are the gold standard of the WTO, producing one set of rules for all markets around the world. However, big multilateral deals have proved hard to reach in recent years as the WTO has grown. The only genuinely multilateral negotiation under way in the WTO now is the one to reduce harmful fishing subsidies and make fishing more sustainable, one of the obligations all states entered into when they agreed the UN Sustainable Development Goals. The UK strongly supports reaching an agreement on this at the WTO ministerial summit in Kazakhstan In June.
More focused plurilateral agreements — involving a subset of the WTO membership — have been easier to reach. For example, the Government Procurement Agreement opens a global market worth more than $1.7tn, and the agreement on IT products eliminates tariffs on 7 per cent of global trade worth $1.3tn annually. One of the UK’s biggest priorities in the WTO, now we’ve left the EU, is to drive forward a new round of plurilateral negotiations in areas such as ecommerce, services and investment facilitation. We are looking to see progress in all these areas at the Kazakhstan summit.
How should the UK position itself on the global trade scene given all the tensions this year at home and overseas?
Now that we are representing ourselves in our own right, the UK is joining some of the world’s biggest economies in championing the WTO and the rules-based global trading system that it represents. We will be looking to work with countries with a similar vision, building consensus around the key trade issues confronting the world today.
The UK has always been one of the most vocal advocates of free, fair and rules-based trade since it helped found the GATT in 1947, and we will continue to do just that outside the EU — both at the WTO and in all our discussions with our trading partners around the world.
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