Terms of trade
Five rules to shape future deals Matthew Lynn
The job spec pretty much writes itself. A tough negotiator. Fluent in lots of languages. Good at lots of nit-picky detail. Works well under pressure. Available to start the day before yesterday. Salary – name it yourself. The head-hunters are no doubt already scouring the world for experienced and wily trade experts who can start hammering out the dozens of potential new agreements we can strike now that we are heading out of the EU. But what principles should guide them as they start that mammoth task?
It is four decades now since the UK last needed any trade negotiators of its own. As soon as we joined the EU, we handed that responsibility over to Brussels. There are, of course, some British experts, but they have all been working for the Commission rather than Whitehall. We don’t yet know when we will finally leave the EU, or the precise terms of our exit. But one thing is certain. We will certainly be able to negotiate our own treaties again. Even the Swiss, with access to the Single Market, do that. They have a very successful agreement with China that has seen exports to that vast market quadruple in the past decade. The hiring has already started – and since Canada has 300, and the EU 600, these will be big teams.
However, both the British and global economy have changed out of all recognition since the last time we did our own trade deals. Nor will other countries necessarily be much of a guide. Our economy is very different from the Swiss one, or the Australian, or any other we might use as a template. In truth, what we need are deals that play to our strengths and will create the kind of post-Brexit economy we want. As they start work, here are the five key rules that should guide our negotiators.
1. Don’t play for tit-for-tat: It might not always be obvious, but free trade benefits us even if the other country doesn’t reciprocate. A few countries will put up barriers against our exporters, but the right response is just to be big about it – and let their companies have access to the UK.
Argentina’s populist politicians love to impose tariffs that protect their industries, but that is no reason not to import their cheap beef. Angela Merkel may cave in to vindictive pressure from the pen-pushers in Brussels and put tariffs on our cars. But so what? We still love their Beamers and Mercs, and there’s no reason to stop buying them. We will benefit from buying the best and cheapest stuff from around the world. And they will see the point eventually and reduce their tariffs. 2. Prioritise intellectual property: The UK economy has lots of strengths. But the greatest of them is the English language, and the culture and history wrapped up within it. The most
important task for our negotiators is to insist that intellectual property, whether it is in books, music, software or patents, is respected and that it is rewarded properly. If countries tolerate piracy, then we will have a big problem with that. When in doubt over a trade-off between one industry and another, always give priority to the one with the most intellectual property within it. If we can enforce that around the world, it will be a huge boost for our most valuable export and we will reap big rewards.
3. Think post-industrial: A surprising number of trade agreements are still negotiated as if the 20th century had never ended – or indeed the 19th for that matter. An awful lot of time and energy is spent on industries such as steel or agriculture. But let’s be clear about one thing. The UK is never going to be a major manufacturing power again. Nor is it going to have a major agricultural industry – small, crowded, damp islands can’t expect to. We should spend very little time worrying about those sectors. Winning concessions on services such as consultancy, media, finance, engineering and design matters far more than deals for bits of metal bashed into different shapes or animals chopped into different cuts. That is what our economy depends on – and because the people on the other side of the table will often be weak in those areas they should be willing to give some ground.
4. Favour the poor. One problem with globalisation is that it has tended to work best for the people at the top of the income ladder – and worse for those at the bottom. That is one reason why we are leaving the EU in the first place. So anyone crafting a trade deal should favour goods that take up a lot of the spending of the poorest members of society. Such as? Food is the most obvious example. Controls on sugar, for example, make it 30pc more expensive in Europe than elsewhere.
The EU has imposed tariffs on Chinese solar panels – which ultimately pushes more people on the
breadline into fuel poverty. The same is true of high street clothing, usually made in the developing world, or vehicles – especially vans and trucks on which a lot of working class jobs depend. Make them as cheap as possible. We should also give priority access to our market to the developing world – Kenyan farmers need to get their stuff into Tesco a lot more than French ones do. 5. Forget the environment or other
unrelated issues: The EU had a bad habit of mixing up trade deals with all sorts of other demands, such as climate change, gender equality and so on. For example, the crucial free trade deal with the US – the Transatlantic Trade and Investment Partnership – has been held up forever because of wrangles over protecting the environment and labour market rules.
Even the EU trade deal with Canada – one of the most politically correct countries in the world – has been attacked by environmentalists. We should scrap all that. The point about free trade agreements is that they create prosperity for everyone. If we want to, we can spend some of that money on saving the planet. But there is no point in mixing the two issues.
In reality, the British economy has been drifting away from the rest of Europe for the last 10 years. That is one reason why Europe’s share of our exports had dropped by a massive 10 percentage points in a decade despite the wonders of the Single Market. Its trade deals no longer suited us because increasingly we make and sell such different things.
With our own negotiators, we can start haggling out the kind of treaties that work for the UK. Get them right and there is no reason why this country should not flourish.
‘In reality, the British economy has been drifting away from the rest of Europe for the last 10 years’