Saturday, 18 November 2017

Brexit: filling the void

One of the most intriguing aspects of Brexit discourse is the newfound importance placed upon Free Trade Agreements, or specifically how they have taken centre stage as the be-all and end-all of trade relations. There is a common misconception that, since the EU does not have FTAs with major economies, bar Canada, it does not have trade agreements with them. This is completely spurious. 

Whilst it is true that most EU FTAs are with small economies, this is merely an uninteresting inevitability. With a huge gulf in size between two economies in a negotiation, there is (by default) much narrower scope and necessity for compromise. Negotiations will be focused on the extent of accommodating one into the other, rather than overcoming regulatory divergence, as smaller economies are less able to develop a distinct or protectionist regulatory framework. This is because they tend to lack resources and thus the same kind of clout across sectors. 

It therefore follows that, by and large, FTAs between large economies are rare by comparison and take a very long time to be concluded. The EU's FTA negotiations with India were launched a decade ago and have yet to be concluded. CETA took well over seven years, and no FTAs yet exist between the EU and China, Japan, Australia and the United States. But herein lies the all-important misconception: the lack of FTAs between the EU and large economies does not render their trading relations a product of mere WTO rules.  

There are many different types of trade agreement. We see not just FTAs but partnership frameworks, sector-specific agreements (like SIOFA, a multilateral fisheries agreement), good-specific agreements (such as in wine with Australia), Exchanges of Letters, Mutual Recognition Agreements (MRAs) and Customs Cooperation Agreements. These types of trade agreement are different to FTAs but are extremely important in terms of facilitating trade. 

The latter two in particular are of profound importance. I will return to them in a moment. Even the BBC, in their latest reality check on Britain's global trading relationships, missed them. It is disappointing because in furthering the myth that no FTA means trade ties are conducted on the basis of WTO frameworks, support for a no deal will increase. Journalists must bear some responsibility here. Increasingly we are seeing public figures claim WTO rules suffice between major powers without their comments receiving appropriate scrutiny. 

David Bannerman made this error on Sky yesterday. William Dartmouth, well rebuked by EFTA4UK, has also implied this over at Brexit Central. This morning, Wetherspoons boss Tim Martins was on the Today programme. Apparently his business, of which I am a fairly regular customer, is at the centre of the trading universe, and thus he must be consulted on as many Brexit issues as possible. At 53:40, Mr Martins informs the presenter, John Humphreys, and the show's listeners that 'the EU hasn't done any trade deals' with any of the top 10 economies. He was not halted over this point and continued rambling incoherently. This is a man who is ignorant to the point of malevolence, and Humphreys ought to have flagged him up. 

The truth, as ever (when you're asking a pub landlord about international trading relationships), is more than a little different. The EU has a whole host of trade agreements with major economies, all of which can be found and read at the EU's online treaty database. I tend to advise people that it is preferable to search by country, especially since it is those major economies which seem to be attracting the attention of the Brexit ultras. Australia, China, India, Japan and the United States are worth looking at in more detail. 

Please note here that not every treaty listed under each of the above countries is trade-relevant. About a third of those with the United States are, and about half of those with China are. Common sense will largely be sufficient in working out which ones are and which ones are not. I mentioned above the significance of MRAs and agreements on customs cooperation. These agreements facilitate enormous amounts of trade in a whole variety of ways, and as an alternative to FTAs work more or less satisfactorily. 

Mutual Recognition Agreements (MRAs) are agreements between countries which establish recognition of one another's conformity assessments. The purpose of these agreements is to minimise costly delays caused by customs checks. They require evidence to be supplied in the form of paperwork confirming that the necessary activity has been undertaken in order to assure conformity to standards. Such agreements also cover things like licences and professional qualifications, allowing architects or doctors to work in both territories and thus facilitating trade in services. The EU has MRAs on conformity assessment with most of its largest trading partners, including Australia, Canada, Japan, New ZealandSwitzerland and the USA

Beyond MRAs, though, we are also to look at Customs Cooperation Agreements. Here we are talking about deals that establish joint bodies, called Joint Customs Cooperation Committees (JCCCs), which consist of representatives from each party's customs authority and who are responsible for overseeing the practical application of these agreements. The work carried out to achieve this relates heavily to intelligence, risk profiling and the maintenance of computer systems and databases. 

Customs is intelligence-led and a balancing act between facilitating trade and cracking down on abuse. Importers 'risk profiling' exporters off the back of track record and trust. Exchange of information regarding specific goods, potential criminal activity, expected and unexpected consignments and volume of trade all help to aid contracting parties in deciding where checks are necessary and where they are not. Without this information and collaborative work, risk profiling is much more difficult, so checks increase as a precaution. Agreements on customs cooperation are therefore crucial in terms of preventing customs logjams, which have the potential to devastate supply chains. 

As readers will by now expect, the EU has agreements of this nature with countries such as ChileChina, CanadaIndia, JapanKorea, and the United States. Notice again the prominence they enjoy amongst major trading partners. They are not Free Trade Agreements, but they arguably facilitate trade to a far greater extent and, importantly, do not include highly protectionist elements. More importantly, the existence of these, very important agreements immediately disproves continued claims that we have solely WTO-based arrangements with large economies. Instead, the phrase 'beyond WTO' can be used to better describe these relations. 

Brexit discourse has centered heavily on Free Trade Agreements. The extent to which this has happened has polluted understanding of bases for trade relationships. The opposite to FTAs is not a void, but popular understanding simply does not reflect this. It might well be the case that after forty years of trade competence residing in Brussels, we simply do not know how to conduct appropriate trade discussion. Re-communicating these issues to the public, therefore, will be a long and difficult process. Not one aided in any way by the continued booking of third rate interviewees acting as knowledge vacuums. 

1 comment:

  1. the void in a brechshit voters head where the brain should be