BRITAIN’S FREE TRADE OPPORTUNITY
The world seems to be on the cusp of a major change in attitudes to trade with “globalisation” being abandoned in favour of more national-centric policies. President Trump is leading this trend. But it also can be seen in Premier May’s Brexit policy since one of its aims is for the UK to be able to fix its own tariff levels, and also able to make its own separate bilateral agreements on tariff levels.
Obviously this is not a Free Trade policy. Such bi-lateral agreements (the EU has some 750 which will have to be renegotiated under Brexit) remind us of the “two legs bad – four legs good” rule in “Animal Farm”, George Orwell’s satire on the Russian Revolution.
The “four legs” version, namely the multilateral-trade treaties established under GATT (the post-war General Agreement on Tariffs and Trade). is seen by President Trump as having worked “unfairly” for the United States. This in spite of the US winning 80% of the cases it has brought before the WTO.
GATT is administered by the WTO, the Geneva-based World Trade Organisation. This has been headed since 2013 by the Brazilian career diplomat Roberto Azevedo and has made admirable progress in some areas, notably respect for intellectual property rights. But negotiation of major trade treaties has virtually stalled since the Doha round of 2004 failed, mainly due to arguments over agricultural products.
Yet during this 16-year period world trade has grown fast (4.5% in 2017) and its nature has also changed greatly. Also developing countries in areas such as south-east Asia and Latin America are starting to coalesce into trading blocs which cut across the multilateral system.
Also a dangerous lack of trade balance has developed with the EU, China and Japan accumulating annual export surpluses while the USA has an intractable trade deficit. All this indicates the WTO may have passed its peak usefulness.
President Trump’s response to this has been his version of “reciprocity” (by which he means putting up tariffs on specific items to sky high levels, and then bringing them down on reaching agreement on “market access”). Such a US trade policy is likely to result in the smaller nations which were protected by WTO rules losing out because of the economic power that can be exercised by the stronger nations.
As for China it continues to insist that foreign businesses seeking to expand on its soil must “give something back” (by which it means they must share intellectual property with Chinese partners). Combined with China’s new drive to provide support and preference for China-based innovation and intellectual property development this is a challenge to the dominance of the USA in technology.
These factors may tend to lead to the USA pursuing greater internals self-sufficiency in manufacturing. That inevitably will end in a need to sell surplus production abroad, as will China’s policy of State-capitalism.
The Free Trade League’s argument is that in the face of these trends, and also the likelihood that it will prove impossible to negotiate a tariff-free deal with the EU, there is now an opportunity emerging for the UK to move towards an “open-door” policy – one in which “market access” to the UK is open to the globe, and not conditional on tariff reciprocity, nor stifled by heavy-handed regulation.
Such an abandonment of the bargaining “leverage” power provided by tariffs is anathema to our present generation of trade negotiators. But we believe that the benefits to be derived from trade are such as to make a unilateral Free Trade policy timely for the UK.
Further we would argue that world trade will need at least one major economy to pursue such an open market policy, if only as a safety-valve for the tensions that will result from the multiplicity of trading blocs now evolving.