Cheerleaders for “Global Britain” claim Brexit will free the country to cut deals around the world that sweep away foreign trade barriers and prise open promising markets for its exports writes Guy de Jonquières.
But once the Government gets down to negotiating those deals, it will find that the reality is rather different and that its hopes of blazing trails of glory abroad will depend heavily on its ability to navigate obstacles at home.
How many fruitful foreign opportunities remain to be harvested is debatable. Some, such as International Trade Secretary Dr. Liam Fox, enthuse about the prospect of deals with countries such as the US, China, India and Australia, with none of which the European Union has FTAs. Others, such as Martin Donnelly, former permanent secretary at the Department for International Trade, are doubtful, saying it is highly unlikely that enough new deals can be done to offset the potential loss of trade with the EU caused by Brexit.
One thing, though, is certain: FTA negotiations will not be a one-way street and Britain cannot expect to get something out of them for nothing. Indeed, some prospective FTA partners have already indicated that they will press Britain hard for concessions in exchange for improved access to their markets. Deciding what those concessions should be will pose hard choices and domestic political challenges for the UK - at least as tough as those it faces in bargaining with foreign governments.
Its position will be made no easier by the fact that its market is far smaller than the EU’s and hence of less interest to other countries. Britain is also widely perceived abroad to be a demandeur, anxious to do deals quickly. Both factors risk weakening its negotiating position, depriving it of leverage and placing it under pressure to give more than it gets in return. And that is where the hard part begins.
FTAs rarely involve both sides liberalising the same sectors. Because countries’ economic make-up and commercial strengths and interests differ, they have to try to trade off concessions in different areas. What Britain most wants from India, for instance, is cuts in its whisky tariffs and freer access to its services market, while India’s top demand from the UK is for more short-term immigration visas for its professional workers.
Reconciling such demands requires squaring the conflicting interests of those domestic constituencies that will not benefit or be worse off from trade deals and those that stand to gain from them. Getting that balance right calls for political management skills of a high order.
The key lies in building domestic coalitions, either by fending off recalcitrant forces or by pitting pro-trade constituencies against them. The US administration and the EU have established structures and systems for dealing with that task. The former consults closely through various channels with both industry lobbies and Congress, while the latter relies heavily on consultations between member states and the Commission, which negotiates on their behalf.
Britain has no comparable mechanisms yet and its government is only just starting consultations with “stakeholders” about its future trade strategy. What these yield remains to be seen, though they seem likely to elicit responses from those wishing to preserve the status quo and protect their home markets as well as from those seeking to expand exports. The need to square divergences between the government’s own priorities and keep public opinion on side will add further complications.
The government has already been given a taste of the task ahead. The US has signalled that it will prioritise better access for its farming, pharmaceuticals and healthcare industries, among its most powerful producer lobbies, while Australia and New Zealand will be seeking to lower barriers to their beef, dairy and lamb exports.
However, opening the UK market to American chlorinated chicken, hormone-treated beef and genetically modified foods could prove unpopular with British producers as well as consumers, since it would threaten their exports to the EU, which bans those products, while competition from lower-cost antipodean producers could drive smaller UK farmers to the wall. Meanwhile, allowing private companies to make inroads into the National Health Service would risk triggering public outrage.
Any such moves would almost certainly become a magnet for well-organised activists who have repeatedly campaigned around the world to thwart trade deals. Furthermore, UK farmers, though employing only one per cent of the labour force, could prove a political force to be reckoned with. As Mancur Olson, the US economist has shown, the smaller lobbies are, the more influential they often can be.
The government has yet to explain how it plans to deal with these potential tensions and conflicts. It is not yet even clear that ministers fully recognise that they exist. Indeed, their “Global Britain” rhetoric sometimes contrives to give the impression that the country’s business community consists entirely of companies straining at the leash to expand abroad.
Yet in reality very few British companies – estimates suggest 10 to 15 per cent of the total – are exporters, and the bulk of exports is generated by a relatively small number of large companies. It has yet to be seen how successfully they can be mobilised to counterbalance pressure from those that see few benefits in FTAs or view them more as a threat than an opportunity.
Furthermore, the ranks of those prepared to lobby hard in support of trade agreements could dwindle further if the UK achieved a bad Brexit deal – or no deal at all. That could encourage many exporters to move operations abroad in order to avoid EU barriers, leaving behind companies mainly interested in serving the domestic market and in shielding it from international competition. The result would be the very opposite of “Global Britain”.
As the government ponders how to do it, it needs to be mindful that if you aim to present a bold front to the world and move the international trade agenda forward, you need to make sure you keep watching your back.
Guy de Jonquières is a senior fellow at the European Centre for International Political Economy and an associate at LSE IDEAS. He was previously Financial Times World Trade Editor and Asia Commentator. This article was first published by the UK Trade Forum. More information about the UK Trade Forum cam be found at https://uktradeforum.net