Brian Gardner's Blog

Not so free trade?

Britain’s splendid, free-booting, liberal traders, now leading the UK into the economic wild blue yonder, believe that most of the world’s trading nations will be queuing up to sign lots of lovely, lucrative trade deals as the country breaks away from the European Union. They are in for a nasty shock.

Most obviously, most of the world’s industrial product, financial and agricultural trade now takes place within existing preferential trade agreements(PTAs). Since the turn of the millennium, over 400 PTAs have been forged. As a result, over 70% of world trade now takes place within those agreements. It is therefore not a matter of the UK setting up bright new relationships with the world’s major trading nations, but rather of breaking into existing agreements.

Most obviously, the most potentially advantageous agreements are dominated by the European Union which has preferential trading agreements with almost all of the world’s most prosperous and expanding economies. Modern trade agreements are now part of what has been described as a “spaghetti bowl” of overlapping trade agreements. ‘Spiders web’ would however be a better description, with one dominant partner – either the EU or the US – at the centre. The European Union is the dominant partner of some 26 PTAs. The reality is that all of those agreements that matter to the UK have the EU in this central role. Breaking into these established deals will not be easy – particularly where acceptance of membership will depend on the acquiescence of a probably hostile EU.

The UK’s bold Brexiteers have already had a taste of what they are up against in tentative approaches to India, Australia and New Zealand. The message from them has been pretty clear: ‘we are prepared to forge new agreements, but only if you are prepared to accept freer access to the UK for our citizens’. Heard that one somewhere before, haven’t we? This pathetic attempt to rebuild old Commonwealth relationships which were thrown out in the process of the UK’s acceding to the EEC in 1973, was very soon shifted to the back burners in Canberra, New Delhi and Wellington. ‘Thanks very much but we are already in the process of negotiating access to a much bigger market – the 27 countries of the EU’, was the general response.

On the same tack, the UK needs to ask itself if a modest boost to current annual exports to the US of €53.56 billion is worth shutting itself out of a Single Market to which it currently exports €257 billion?

If UK ministers think that a new deal with Washington is one alternative to a trade relationship with the EU they should bear in mind the long standing guiding principle of US international trade negotiating: ‘free trade in your market, but not in mine’. To quote international trade expert Professor Jagdish Bhagwati: “The US has adopted bilateral FTAs to advance the agendas of domestic lobbies, agendas that are not related to trade. The US is using one-on-one agreements with small countries as models for other multilateral trade agreements, hawking them around the world as the ideal way to further trade liberalisation”. This approach is likely to become even more aggressive under President Trump.

The collapse of the negotiations on TTIP demonstrated this fundamental clash between the United States’ desire for greater market access through demolition of non-tariff barriers, which protect consumers and businesses, and the determination of the European Union to protect sensitive parts of its economy. Realistically, piffling increased access to the US market can never match tariff and NTB free access to the EU Single Market. Access, it should not be forgotten, that currently equals close to half of the UK’s entire exports.

Messrs Davis, Fox and Johnson should learn from the Australian experience with the United States. In little more than a few months after the US–Australia FTA was implemented in 2005, America’s trade surplus with Australia grew by almost 32% to more than $2 billion. Largely driven by its industry and business interests, who saw gains for service industries and inward investment, Australia signed up to an agreement that has disadvantaged its agricultural industry and gained little for its industry and financial services.

While Australia granted duty free access for all US agricultural products from the very beginning of the agreement in 2005, the US granted only limited concessions on agriculture – and then mainly on products where there is no direct competitive challenge to US farmers. The only important gain for the Australian agriculture industry was duty free access for lamb – which the US does not produce.

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