Tangle Trade Talk: when economic viability is at stake

Searching for synergy: Craig Emerson, the former Australian trade minister, points to a fundamental first test of trade policy.

The UK needs to develop a clear economic framework for the post-Brexit era before even thinking about who they could have as negotiating partners, reports Geoff Kitney.

The first step towards a possible, post-Brexit trade deal in which Britain signs up to join the Trans Pacific Partnership international trade agreement has been taken.

After it appeared that the TPP had been killed off by US President Donald Trump following his withdrawal of the US from the negotiations a year ago, the governments of the 11 remaining Pacific Rim countries that comprised the TPP have agreed to go ahead without the US.

Actually, the agreement reached last week by the TPP remainers has a different name. It is now called the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTTP). And it won’t formally become a trade zone until the agreement is ratified by the 11 member countries, which is not a foregone conclusion.

But, even assuming it does, it will still take several years for the agreement to be put fully into effect, by which time the Brexit process (however it turns out) will be completed and the UK will be free to find new partners for preferential trade deals (which is what the CPTTP will be).

The big question, however, is this: Does it make sense for the UK to join, or even aspire to join, the CPTTP?

 

So far, the British government has not made a case for why it would and a veteran trade policy specialist has told Chief-Exec.com that he doubts the British government will ever be able to do so.

Dr Craig Emerson, a former Australian Minister for Trade with a long background in economic and trade policy, said that the idea of the US in the CPTTP failed a fundamental first test of trade policy – synergy.

‘But it sounds as if the UK is casting around a map of the world and saying: ‘Who can we do deals with … let’s try this one…’

“If a trade agreement is to have genuine economic viability it should be based on some sense of economic complementarity,” Dr Emerson said.

“This means you need to be able to identify potential gains for you from more open access to the economies of your trading partners for them to be able to identify potential gains for their economies from more open access to yours.

“The UK joining the Trans-Pacific Partnership would not appear to pass that test.

“With Brexit looming, the UK will inevitably look further afield for trade opportunities and so it should. But to identify the TPP as a suitable forum or suitable alignment of countries seems to fail the basic test of economic complementarity.”

Dr Emerson, as someone who has sat at the table for major trade negotiations on behalf of Australia with a number of major trading partners, said in his experience, the other parties to the negotiations always applied very stiff tests to decide whether there was significant potential economic gain from a proposed Free Trade Agreement (FTA).

He thought it would be very difficult for the 11 member countries of the TPP to see such potential gain from including the UK in the agreement.

“The greatest economic synergies that the UK has are in its geographic region (Europe).  But it has decided it doesn’t want to be part of that, for reasons other than the value of that trading relationship. So it is being forced to look [for] other options.

“But it sounds as if the UK is casting around a map of the world and saying: ‘Who can we do deals with … let’s try this one…’”

Dr Emerson was similarly skeptical about suggestions that the UK could replace its access to the European Single Market by deals such as an Anglosphere free trade agreement (with the major English speaking nations – the US, Canada, Australia, New Zealand and South Africa).

“Are they suggesting this because we don’t have good translators to do a deal with non-English speaking countries,” Dr Emerson said, jokingly.

The fact, he said, is that Britain’s overwhelmingly strongest economic interests lay in trying to retain as much free trade with the European Union as possible and trying to reach a free trade agreement with the United States.

The EU and the US currently account for around two thirds of the UK’s export and import trade.

Australia and New Zealand combined account for 1 per cent of UK trade.

“They need to develop an economic framework before even thinking about who they could have as negotiating partners.

“After that – and given that they have turned their back on the countries where the most profitable opportunities lie – they have to look at doing trade agreements with countries with the greatest potential to replace the trade they will lose by leaving the European Single Market,” Dr Emerson said.

The fact, he said, is that Britain’s overwhelmingly strongest economic interests lay in trying to retain as much free trade with the European Union as possible and trying to reach a free trade agreement with the United States.

The British Government revealed recently that the newly created Department of International Trade – set up in July 2016 to give the UK the competency to conduct trade negotiations which it did not need as a member of the European Union – was working on a comprehensive global assessment of potential new trading opportunities after Brexit.

The DIT now has a staff of nearly 4,000 people and had hired outside experts, including from Australia and New Zealand, to prepare for the challenge of negotiating its own trade agreements.

Meanwhile, Dr Emerson also questioned what the re-shaped Trans Pacific Partnership might offer in potential economic gains without the United States.

With the US in the TPP it accounted for more than 40 per cent of global GDP. Without the US the other countries accounted for just 13 per cent of global GDP and independent analysis had indicated that the projected gains to the members of the new CPTTP would be just 1 per cent of GDP by 2030.

Dr Emerson said that, so far, the details of the revived, post-US deal were secret so it was not possible to make judgments about it.

However, he expressed concern about one controversial issue – the apparent inclusion in the agreement of so-called Investor-to-State Dispute Settlement (ISDS) provisions.

He said that he had deep concerns about these provisions because they gave to foreign corporations’ legal rights to seek compensation for decisions of sovereign governments that the corporations claimed imposed costs on their businesses.

Dr Emerson said these were “sovereignty depleting” provisions that should raise concerns for the nations considering signing up to such agreements.

He said ISDS provisions should be of particular concern to Britain in any trade negotiations it may enter post Brexit, given that the Brexit decision was fundamentally about reclaiming British sovereignty lost through being a member of the EU and the Single Market.

 

For futher information:-
Craig Emerson Economics. The question mark that hangs over TPP

 


kitney-vb1

TPP map credit: WindVector/Shutterstock.com

 

 

 

Be the first to comment on "Tangle Trade Talk: when economic viability is at stake"

Leave a comment

Your email address will not be published.


*