Shanker Singham: Breaking the Gordian knot of agricultural trade negotiations. How the TAC has risen to the challenge.

2 Mar

Shanker Singham is CEO of Competere. He is a former adviser to Liam Fox when he was Secretary of State for International Trade, and to the Office of the United States Trade Representative.

Agricultural trade is one of the most difficult areas to negotiate, and has long been the bugbear of international trade negotiations. The lack of liberalisation in developed country markets has done significant damage to developing countries and is a profound source of friction between developed and developing worlds.

In its report for the Secretary of State for International Trade, the UK’s Trade and Agriculture Commission might have just come up with a way of breaking the Gordian knot of agricultural trade negotiations.

I was privileged to be a TAC commissioner, and while, as commissioners we came to the subjects with very different perspectives, we have, I believe managed to resolve the tensions in a way that makes a major contribution to trade policy. We have done so on a unanimous basis – a credit to my fellow commissioners and our chairman.

The heart of the TAC report’s import policy contains an innovative proposal that attempts to simultaneously promote a trade liberalising agenda in agriculture, while at the same time protecting the UK’s high standards in food production and ensuring the UK fully complies with WTO rules on animal and plant health, as well as technical regulations that apply to food trade.

This proposal includes a mechanism to deal with some of the most difficult issues in agricultural trade which relate to animal welfare, environment and labour rules. The heart of this mechanism is the potential for the application of a tariff in cases where an aggrieved party can show that a trading partner is violating agreed standards in an FTA.

The result of the mechanism is a tariff based on the scale of the distortion which operates like a trade remedy. The mechanism can also be used offensively where a country is preventing market access by the UK as a result of the market distortion, or defensively where a distortion in a foreign market leads to excess exports from that market.

Unlike the UK-EU TCA rebalancing mechanism with which it has some similarities, the tariff would be calibrated to the scale of the distortion and would apply only to the product category in which the distortion is occurring. The advantage of this over a more conventional trade remedy is that it is based on cost as opposed to price and is designed to remove the effects of the distorting activity. It would not be applied on a retaliatory basis in other unrelated sectors.

In exchange for this mechanism, the UK commits to trade liberalisation and, within a reasonable timeframe, zero tariffs and zero quotas. This in turn will make the UK’s advocacy of higher standards in international organisations much more credible, another core TAC proposal.

The TAC report also notes that behind the border barriers and anti-competitive market distortions (“ACMDs”) have the capacity to damage UK exports and therefore suggests a similar mechanism or set of disciplines could be used offensively. Certainly, where the ACMD is being used to protect a particular domestic industry, using the ACMD mechanism to apply a tariff for the exports of that industry would help, but this may not apply where the purpose is protective, and the industry does not export much.

I would argue that in this case, it would be important to ensure that UK FTAs include disciplines on these ACMDs which if breached could lead to dispute settlement and the potential for retaliatory tariffs for sectors in the UK’s FTA partner that do export. This is certainly normal WTO-sanctioned practice, and could be used here to encourage compliance. It is clear from the experience in dealing with countries that engage in ACMDs for trade or competition advantage that unless there are robust disciplines, mere hortatory language would accomplish little or nothing.

But this sort of mechanism with its concomitant commitment to freer trade has much wider potential application than just UK agricultural trade policy. It could also be used to solve a number of long standing trade disputes such as the US-China dispute, and indeed the most vexed questions in trade involving environment and climate change in ways that do not undermine the international trading system itself.

This is because the mechanism is based on an ex post tariff as opposed to an ex ante one which contains within it the potential for protectionism, and is prone to abuse. Because the tariff is actually calibrated to the cost advantage which is secured as a result of the violation of agreed international standards, it is much more likely that it will be simply limited to removing this cost advantage as opposed to becoming a punitive measure that curbs ordinary trade flows.

It is precisely this type of problem solving and innovative thinking that the international trading system needs as it faces a range of challenges that threaten liberalisation itself and the hard-won gains of the post war GATT/WTO system itself. The TAC report represents UK leadership that has been sought after since the decision to leave the EU. It has much to commend it.

Daniel Hannan: Ignore the Europhile sneers. Joining the Pacific bloc marks the rebirth of Global Britain.

3 Feb

Daniel Hannan is a writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

She’s unstoppable, that Liz Truss. The epidemic has put most Whitehall ministries in damage limitation mode, but the Department of International Trade is on a roll, signing 62 free trade agreements to date – plus, obviously, the deal with the EU itself.

Those who can’t bear the thought of Brexit succeeding are, naturally, scoffing. These deals, they say, are largely replicas of what we already had as EU members. Their new line of criticism is, I suppose, an improvement on the position that they took until 12 months ago, namely that we would barely be able to strike any deals at all.

But it’s still not true. Many of the “rollover” treaties go further in small ways: more generous quotas, fewer restrictions. True, these liberalisations are chiefly tokens of intent. But that intent is real. With limited capacity, our priority has been to negotiate new FTAs – that is FTAs with countries where the EU currently has no trade deals, such as Australia and the United States.

Where there are serviceable existing arrangements, we have tended to say, in effect: “Let’s leave things roughly as they are for now, and agree to come back to it next year”. Even in these cases, though, we have often taken the opportunity to go further. The UK-Japan deal, for example, is more comprehensive when it comes to services and cross-border data flows than the EU-Japan deal, even though the latter had only just entered into effect.

This week, Britain took a momentous step when it applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade zone comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Again, many Europhiles are sneering. Joining a Pacific trade pact, they say, defies geography. And it is of course true that Britain is not a Pacific country (other than in the technical sense of owning the Pitcairn islands). But we have exceptionally close links to a number of CPTPP members. Australia, New Zealand, Singapore and Canada are common law, English-speaking nations. So, to a degree, are Brunei and Malaysia.

One of the arguments for Brexit was that, in the internet age, cultural proximity trumps physical proximity. That argument is stronger now than it was a year ago. The lockdown has habituated us to using Zoom or Teams for important discussions. When travel returns, it is hard to imagine that business people will be as ready to hop over to Düsseldorf for the day to make a presentation. If you’re online, Rotorua is no further than Rennes – indeed, nearer in the sense that it shares your language, legal system and accounting methods.

Another argument for Brexit was that, by global standards, the EU was a slow-growth region. That argument, too, is now looking stronger. Although we talk of the pandemic as a global event, the truth is that it hit Europe much harder than Asia, Africa or the Antipodes.

But the biggest difference between the EU and the CPTPP is that the latter is a trade agreement rather than a state-in-the-making. Its members simply seek to maximise their prosperity through greater specialisation and exchange. Joining the CPTPP does not involve making budget transfers to its poorer regions, or accepting the supremacy of its laws over our parliamentary statutes, or adopting a common flag, passport or anthem. Nor does it require a member to alter its standards on non-exported goods and services.

Viewed purely as a trade pact, the CPTPP is preferable to the EU because it elevates mutual recognition over harmonisation. The essence of the CPTPP is that its members agree to refrain from certain actions that would restrict free commerce. It is perfectly possible for CPTPP members simultaneously to have ambitious trade deals with each other and with the EU – as, for example, Japan and Canada do. On services and on professional qualifications, CPTPP uses a “negative list” approach. In other words, it assumes that whatever is legal in one state is legal in all the others unless it is expressly exempted in the treaty.

It is fair to say that the CPTPP is wide rather than deep. It does not go as far as, say, the Australia–New Zealand deal, which is arguably the most advanced on the planet. But, as Australia and New Zealand demonstrate, a deeper trade deal can nestle within a broader one.

Our aim should be to negotiate a deal similar to that which Australia and New Zealand enjoy with one another – assuming that is, that our protectionists in DEFRA and the NFU will let us. We should, in other words, seek both to participate fully in the CPTPP and, under its auspices, to secure even more ambitious agreements with the countries closest to us in terms of GDP per capita and regulatory interoperability – namely, Australia, Canada, New Zealand and Singapore.

Indeed, New Zealand, Singapore and Chile – three of the world’s greatest free-traders – are currently setting the pace when it comes to digital trade. If Britain peels itself away from the wary and watchful EU, which has never been comfortable with the free-wheeling nature of the internet, and joins these Hayekian states, it is likely to end up crafting standards on digital trade that every competitive country will want to adopt.

Finally, there is a geopolitical case for membership. Donald Trump’s decision to pull out of the Pacific deal at the last minute opened the door to China which, three months ago, created a rival trade pact with Australia, Japan, New Zealand, South Korea, and all ten members of ASEAN.

My guess is that the Biden administration will want to reverse Trump’s mistake. After all, many of its leading members had been involved with putting the Trans-Pacific Partnership together in the first place under Obama. British membership of the zone, as well as being in itself a useful counterweight to Beijing’s ambitions in the region, will set the context for UK-US trade talks.

To sum up, then, our CPTPP application will boost jobs and growth, strengthen the Anglosphere, improve the prospects for a bilateral American deal, accelerate our pivot to the fastest-growing markets on Earth, and elevate Global Britain. Not bad. Not bad at all.

Andrew Rosindell: How close we came to waking up in the backstop

8 Jan

Andrew Rosindell is the MP for Romford.

How close we came to waking up on January 1 trapped in the backstop. That misery would have been quickly overtaken by the new national lockdown announced on Monday night. But this would in no way have diminished in the longer-term the ramifications of being trapped in a customs union with no way out.

To the true Brexiteers, the sensible outcome to the Brexit process was always a Canada-style free trade agreement which took back control of our laws, money, borders and waters, while still allowing both the UK and the EU to trade together as equal partners on mutually-beneficial terms.

Unfortunately the EU spent the next few years in a desperate and arrogant attempt to punish our nation for the Brexit vote. It tried to trap our nation in a customs union, demanded tens of billions in exit fees, demanded a continuing role for its courts in UK affairs and made blood-curdling threats of economic punishment.

In a way it showed self-awareness. Because it is only with threats and traps – much in the fashion of the Chinese Communist regime (with whom the EU is now engaging in a nauseating romance) – does EU membership become preferable to the freedom of being a sovereign, independent nation.

All told, the EU generally appeared aghast at the affirmations by the British people of their democratic right to decide their future. To me this demonstrated that the only way out was a completely clean break: to walk away, for good if necessary.

It is why I and my Spartan colleagues voted on three separate occasions against Theresa May’s Brexit deal. If we hadn’t held out against the pleas of our colleagues, from both the Remain and Brexit wings of the party, then we would have woken up on New Year’s Day trapped in the backstop. What should have been a moment of restored sovereignty would simply be a new future paralysed by the EU’s protectionist trading bloc.

The Prime Minister voted for that deal, at the third attempt. I believe he feared for Brexit if the deal wasn’t passed. Fortunately for him, the Spartans gave Brexit a chance. And once Boris was at the reigns he was always ready to walk away. He realised no deal really is better than a bad deal.

With this strategy he was able to bring before the House of Commons an agreement which facilitates free trade with zero quotas and tariffs, without the UK being part of the Single Market or Customs Union and with no control over us by the European Court of Justice.

It will give us the freedom to chart our own course. It will mean the establishment of freeports and new enterprise zones to turbocharge the regions. It means we can change our VAT policy, for example on home insulation products as my friend and colleague John Redwood has noted.

It means we can revitalise nationally important industries with targeted support, such as shipbuilding. It means we can sign free trade deals with our closest friends and allies in the Commonwealth, and improve economic ties with some of the fastest growing economies.

Liz Truss, the Secretary of State for International Trade, has already negotiated trade deals with 61 countries, including one deal, the UK-Japan FTA which goes beyond the existing EU-Japan agreement, particularly on data and digital matters. The backstop would have precluded much of this.

The new agreement with the EU is not perfect. There are flaws in the deal. The transition period for fisheries is too long, the Northern Ireland protocol threatens to divide our country and I am nervous of the separate deal on Gibraltar, given Spain’s record.

Finally, I was disappointed that our British Overseas Territories and Crown Dependencies did not seem to be fully included. I also share David Davis’s comments on this website, where he highlights how far ahead of the EU we are in many areas of regulation, particularly animal welfare, but also on energy and labour law. Any arbitration panel which rules on deviations from the “level playing field” must recognise that there is no “level playing field” at present. It is the EU undercutting the UK in many ways.

There are problems, then. However, I and my colleagues have come to the conclusion that this is still a good agreement: it restores our sovereignty, avoids temporary disruption of ‘no deal’ and avoids the acrimony which would define UK-EU relations going forward if no agreement had been reached.

There is nothing in the agreement which compromises our sovereignty in the manner of the backstop. Yet where there are flaws, there are fights still to be had. I have demonstrated that I am ready for these battles, as have my fellow Spartans.

For now, let’s celebrate the restoration of sovereignty to these islands and move onto the next challenge: getting the country vaccinated, lifting these Covid-19 restrictions, and revving up the UK economy for a new, better, more prosperous and, I hope, a more united decade.

Stephen Booth: Agreeing to disagree on the trickiest parts of the UK-EU deal may be the best way forward. For now.

26 Nov

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

A UK-EU trade deal is said to be 95 per cent there. However, it seems that every passing week has promised to be the “crunch” point that will mark the breakthrough.

An agreement is probably more likely than not, but the last five per cent is always the trickiest bit. Ursula von der Leyen, President of the European Commission, confirmed yesterday that it is the three familiar issues of fishing, governance and the level playing field that remain unresolved.

Risks remain. Perhaps one of the biggest is that the EU, and Emmanuel Macron in particular, misjudges the UK mood and refuses to yield on fishing. It may be macro-economically insignificant to the wider UK economy, but it is particularly important for communities in Scotland and therefore the politics of the Union. The Prime Minister must be able to claim a victory on the issue.

The two sides are reportedly discussing whether review clauses and transitional arrangements can ease the path to an agreement. One suggestion is that the EU could retain part of its current fishing quota for several years, after which the arrangements would be reviewed.

In practice, this would not necessarily present a major concession from the UK, since it does not currently have a big enough fleet to catch all the quota in its waters. According to the latest available statistics, EU vessels landed an annual average of 790,000 tonnes of fish in UK waters, while UK boats landed 546,000 tonnes in domestic waters and a further 94,000 tonnes in EU waters. Therefore, a transition period could make sense, providing the UK with additional quota immediately and time to increase the capabilities of its domestic fleet.

The question is what happens at the end of any transitional period. The UK would want to move to annual negotiations. The EU negotiating team is apparently willing to consider the concept of a transitional period, but only if a review clause was linked to the broader UK-EU economic relationship.

Another idea is that a review mechanism might establish the possibility of imposing tariffs on trade in goods if Britain no longer wanted to abide by the agreement’s terms on level playing field areas such as state aid. The obvious risk is that these issues simply return to destabilise the wider trade relationship in the years to come. It would be better to settle these issues now, but agreeing to disagree may be the only way through at this point.

At this late stage, negotiators have no doubt mapped out a multiple of technical fixes that could be employed. This is now about political decisions and choreography.

With difficult compromises required, it has suited both sides to run down the clock in the hope the other would give ground. And compromises will inevitably leave some constituencies on both sides unhappy. Reducing the time available for any grievances to fester is not necessarily unhelpful to politicians’ efforts to ensure a deal sticks at home.

Both sides had previously insisted that a deal had to be reached in October in order to allow for the process of ratification and, just as importantly, to provide traders with details of the new rules and processes they will need to operate under next year. However, deal-making within and by the EU is often done at the last minute and, all along, the only genuine deadline has been the December 31, when the transition period is due to end.

Nevertheless, with little over a month to go until the new year, time is actually running out. If a political deal is done in the next week or so, there are procedural challenges to ensuring it is in force by the January 1.

On the EU side, time is needed for so-called “legal scrubbing” and translation of the text. The agreement is likely to be defined as a “mixed agreement”, which means that it covers powers conferred exclusively to the EU institutions and those reserved by the member states. This means that a deal must be ratified by EU leaders, the European Parliament and every national, and in some cases regional, parliament.

EU leaders can defer national ratification until next year by agreeing to “provisionally apply” any deal. However, the European Parliament must consent by year end and is planning an emergency session on December 28. MEPs might complain about the timetable but would not be expected to scupper a deal.

On the UK side, we don’t yet know exactly what the parliamentary process will look like. David Frost previously told the House of Lords EU Select Committee that the Government’s assumption is that “there will have to be primary legislation for at least some elements” of the agreement. Civil servants are reportedly drawing up a “future relationship bill”, which will need parliamentary approval at breakneck speed before the end of the year.

It is noteworthy that there is apparently a debate within the Shadow Cabinet on whether to back a deal or abstain. However, this is more about internal Labour Party politics, since abstentions would not hinder the passage of a deal. Implementing primary legislation would be amendable but it is unlikely that the Labour Party would have the votes required to do so.

It has been suggested by some that the economic difference between the likely “thin” trade deal on offer and no deal is not that significant, so in the end no deal might be the more politically palatable option for the Government. Only time will tell.

However, this Government explicitly sought a “Canada-style” deal from the outset of the negotiations, accepting that some friction on UK-EU trade was worth exchanging for greater independence over UK regulatory and trade policy.

The economic benefit of a so-called “thin” deal – provided that the compromises on fishing and governance are acceptable – is that it would provide for tariff-free trade, which remains important for certain sectors, such as automotive, chemicals and agriculture.

Equally, while there is unlikely to be a formal implementation period for a deal, if both sides are invested in the agreement, a pragmatic approach can be taken to border checks and greater priority given to the free flow of trade. This goodwill would also help to resolve the disputes over the implementation of the Northern Ireland Protocol.

A deal might provide a platform for greater engagement and cooperation in the future. Or it might need to be revisited in the event of future disputes. However, a no deal would likely result in further immediate and bitter negotiations on the fallout. It would probably suit the UK and the EU to draw a line and move on, for now.

What would President Biden and Vice President Harris mean for the Special Relationship?

12 Aug

Ben Roback is Head of Trade and International Policy at Cicero Group.

Contrary to some of the analysis of late, Joe Biden is by no means a shoo-in for the presidency in November. Nationally, polls are tightening and at the same point with 84 days to go in 2016, Hillary Clinton’s lead in the Five Thirty Eight polling average was 6.6 per cent. The Biden campaign will begin to face accusations of losing momentum if Donald Trump continues to chip away at his lead. On that basis, it makes sense that Biden has sought to wrestle back the narrative by announcing Senator Kamala Harris as his running mate. If the Biden-Harris ticket is victorious in November, the White House will look like a very different place to the current occupants of 1600 Pennsylvania Avenue.

Biden on Britain and Brexit

Biden is no Brexiteer like Trump. Biden and his old boss, President Obama, fell into line with David Cameron when they effectively backed the Remain campaign by declaring an independent UK would be at the “back of the queue” when it came to negotiating a US trade deal. The day after the EU referendum in 2016, Biden was in Dublin and remarked “We’d have preferred a different outcome”.

Nevertheless, the political imperative of the Special Relationship means there is no chance that Biden would abandon the UK on day one of his presidency. On the contrary, one would expect a presidential visit to London, Edinburgh, Belfast and Dublin within the first six months of President Biden’s tenure. It is the final two stops of that likely trip that provide the most interesting topics for discussion.

Both presidential candidates have direct links to the UK. Donald Trump is an Anglophile and reveres his Scottish heritage. Biden’s proximity lies in Ireland. His great grandfather, James Finnegan, emigrated from County Louth as a child, in 1850. In advance of his 2016 visit to Ireland, Biden said: “James Joyce wrote, ‘When I die, Dublin will be written on my heart. Well, Northeast Pennsylvania will be written on my heart. But Ireland will be written on my soul.’” On a purely personal basis therefore, we have grounds for optimism that the Special Relationship is in safe hands no matter the election outcome.

Negotiating a US-UK FTA in a Biden presidency

Biden would almost certainly cool some of the Trump White House’s more aggressive trade policies such as obstructing the work of the World Trade Organization. But Biden’s 40 years of political experience means he knows which way the wind is blowing on trade. He will want to ensure any deal is seen to protect US jobs and domestic production, while maximising export potential.

What is more, Harris, Biden’s newly announced running mate, has said she would oppose any trade deals that don’t include high labour and environmental standards. She opposed the Trans-Pacific Partnership in 2016 citing insufficient protection for US workers.

That rings alarm bells for those hoping the UK could ascend to the CPTPP – assuming the United States would do the same – therefore subverting the need for a bilateral US-UK FTA. Furthermore, Harris has little experience of the Special Relationship to speak of. On the foreign policy section of her website, she lists as “key partners” Japan, India, Mexico, and Korea. The UK is conspicuous in its absence for a potential future Vice President of the US

Where Washington and Westminster could align

In four clear instances we see Washington and Westminster aligning under the prospective leadership of Biden and Johnson respectively.

First, the Trump campaign and Republican Party are trying to paint Biden as a puppet of China. Consequently, he is being pushed into a more hawkish corner. That will mean alignment with an increasingly Sino-scepetic Downing Street and Parliament. Trump initially courted Chinese President Xi Jinping but since then has made an aggressively anti-China stance a key plank of his presidency. Having banned Huawei from our 5G infrastructure, Downing Street looks set to be largely in lockstep with Washington regardless of the outcome in November.

Second, Johnson’s government has shown little interest in entertaining Trump’s more excessive foreign policy ideals. The Trump administration has done its best to erode the World Trade Organization, considering it too kind to China. Conversely, Johnson has nominated Liam Fox to be its next Director-General. Both Fox and his successor at DIT, Liz Truss, extol the virtues of global trade and the rules-based international order that governs it. The British government aspires to be an invisible link in the chain that connects trading nations. In that regard, Biden would be supportive.

Third, environmental policy is one area in which Johnson and Trump do not see eye to eye. The stark divergence in approach has become an awkward rift between the two allies. The UK was a key supporter of the Paris Climate Accord from which Trump removed the US. As the Chair of the COP26 summit in Glasgow, Downing Street would undoubtedly favour a US President who considers climate change one of the world’s biggest and most pressing priorities. That only applies to Biden.

Lastly, Iran. As Foreign Secretary, Johnson failed in his attempt to persuade the Trump administration to stay in the Iran nuclear deal. Biden would rejoin it in a heartbeat, having been a part of the Obama administration who orchestrated it in the first place.

In summary, the Special Relationship will endure irrespective of the winner in November. Built on a shared understanding and common values, the relationship transcends presidents and prime ministers. On China, the US and UK look set to form an even closer alliance alongside their Five Eyes allies. That is something both Trump and Biden appear to agree on.

Stephen Booth: The UK’s parallel trade negotiations are of unprecedented ambition

6 Aug

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Brexit is necessarily reshaping Britain’s trade relationship with the EU. Meanwhile, the UK is simultaneously trying to ensure continuity of, or build upon, existing trade agreements with non-EU countries, such as Japan, and reach entirely new deals with partners including the United States, Australia and New Zealand.

The UK also intends to accede to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which currently includes 11 countries on the Pacific rim including Japan, Australia, New Zealand and Canada.

Predictably, the EU negotiations are set to go down to the wire. Since Boris Johnson became Prime Minister all signs have pointed to a so-called “skinny” free trade agreement (FTA) or none at all. For this Government, Brexit is primarily about establishing sovereign independence, while the EU has sought to underline and assert its role as the dominant regulatory and economic power.

It is no wonder that politics has trumped economics throughout the Brexit process. The EU is a political endeavour pursued by economic means. The €750bn economic recovery plan agreed by EU leaders last month illustrates the extent to which the UK’s preference for confining deeper political and economic integration to the Eurozone faced an uphill struggle had it remained in the bloc. It is impossible to imagine any British government agreeing to such a dramatic expansion of the EU’s financial firepower or the precedent it has set for further moves towards a common EU fiscal policy.

Nevertheless, there are reasons to be cautiously optimistic about a UK-EU deal being reached. The latest negotiating round appeared to mark a breakthrough on governance issues. David Frost’s statement welcomed the EU’s “more pragmatic approach” on the Court of Justice and suggested the UK was ready to consider the EU’s preference for one set of governance arrangements, rather than a suite of separate arrangements.

The remaining sticking points are fishing and state aid. Fishing is not significant in terms of GDP but is politically totemic in the UK and certain EU member states. Therefore, a deal must be left to the last minute. Establishing a “level-playing field” on state aid is proving to be the biggest substantive issue to resolve. The EU is moving away from its request for dynamic alignment and the issue now is what domestic regime the UK will propose.

Negotiations with the US appear to have got off to a good start. However, both sides accept that a deal cannot now be reached until after the US elections in November. Therefore, the most difficult areas, such as agriculture, will not be addressed until later in the year at the earliest.

The most pressing issue Liz Truss, the Trade Secretary, discussed on her trip to Washington earlier this week is the removal of US retaliatory tariffs as part of the ongoing Airbus/Boeing dispute, which sits outside the FTA negotiations. The US has levied tariffs on whisky and further tariffs could be extended to gin and other products if the dispute is not resolved.

The prospect of delay with the US has made UK engagement with the Asia-Pacific countries all the more important and pushed accession to the CPTPP up the agenda. Toshimitsu Motegi, the Japanese Foreign Minister, is in London this week in an attempt to finalise talks on the UK-Japan FTA.

The Japan deal is an important stepping stone towards CPTPP accession, since Japan is the biggest economy within the agreement. The Japan negotiations are working to a condensed timetable because the parties are aiming to ensure a successor to the EU-Japan FTA is in place before the end of the Brexit transition period on January 1, 2021.

The time constraints mean that a UK-Japan deal will be largely modelled on the EU precedent. However, media reports have suggested Japan might be prepared to accelerate tariff cuts for British pork, and Japan is seeking the immediate elimination of car tariffs. The major opportunities for innovation in UK-Japan trade relations is on regulatory cooperation in the services and digital sectors. The FTA can provide the architecture but domestic regulators will need to work together to realise long-term gains.

Another reason why the CPTPP may become increasingly important is that Joe Biden has indicated that he might be prepared to (re-)join the CPTPP if his presidential bid is successful. President Trump pulled out of its previous iteration, the Trans-Pacific Partnership, spearheaded by President Obama. However, this could be a slow process, since Biden’s campaign has also emphasised that his primary focus will be on domestic investment and he has previously suggested he would seek to renegotiate CPTPP if the US were to re-join.

Some have suggested that engaging with the US via the CPTPP rather than bilaterally would defuse some of the thorniest issues, such as agricultural standards on chlorine-washed chicken or hormone-treated beef. However, the reality is that while the optics might be different, the UK will face many of the same substantive trade-offs whoever is president.

The CPTPP rulebook is much closer to the US approach – indeed the World Trade Organisation’s (WTO) approach – to regulating agriculture than we have inherited from the EU. Blanket bans on agricultural imports, not supported by scientific evidence, will not only be viewed as a protectionist move by the US but potentially by other members of the CPTPP.

The question of agricultural liberalisation cannot be ducked for much longer. Equally, as we noted in the recent Policy Exchange paper, The art of the UK-US trade deal, the issue need not be as stark as some of the hyperbole has suggested. The starting points should be to promote consumer choice, while ensuring consumer safety. The UK already has the right, under WTO rules, to prohibit the import of unsafe food. Labelling, either via domestic legislation or voluntary certifications, can be used to inform consumers of food production methods.

The UK’s domestic and international policies must also work in tandem. UK tariff liberalisation can be phased in gradually, giving UK producers time to adjust to new trading conditions. This would reflect the gradual introduction of the UK’s Environmental Land Management scheme, replacing the EU’s Common Agricultural Policy. Meanwhile, it should also be remembered that agricultural liberalisation is an export opportunity for high quality UK products, particularly beef and lamb.

In today’s world, trade agreements do not merely set tariffs or regulate cross-border investment. For medium-sized powers in particular, they are important building blocks for wider political relationships and alliances. However, in order to unlock these relationships, the UK must be willing to live up to its rhetoric on free trade.

David Gauke: Without a proper state aid regime, the UK is unlikely to make a deal with Brussels

1 Aug

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Within the next three months, Boris Johnson is going to have to make the decision that will define his premiership and determine the future of British politics – especially the Conservative Party – for a generation. And the subject matter of this momentous decision? The previously obscure issue of the regulatory regime constraining the ability of the Government to provide taxpayer support for private sector companies. In other words, state aid.

Before turning to the issue in hand, let me set out a little context. My last two columns (here and here) have made the case that there is an electoral logic that points towards the Conservative Party moving in a leftwards direction economically but in a rightwards direction when it comes to social issues or, to put it more precisely, issues of national identity. Politics appears to be realigning as the biggest dividing line ceases to be about economic class or ideology but in relation to cultural issues.

The consequences of such a dividing line – and the Conservative Party unambiguously placing itself on one side or the other – is an uncomfortable one for those Conservatives with a desire for intellectual consistency.

At least since Margaret Thatcher’s premiership, the Conservative orthodoxy has been in favour of sound money and free trade. That is not to say that the State had been banished from making any kind of intervention in the economy – no recent government could accurately be described as laissez faire – but that any such intervention would be made carefully, recognising that the market was, by and large, a rather good way of allocating resources.

As for cultural issues, the Conservative Party has been a broad church consisting of social conservatives and social liberals, tub-thumping patriots and committed internationalists. Generally, we rubbed along alright.

These Conservative traditions were abandoned in 2019, resulting in the Prime Minister’s electoral triumph in December when he won previously safe Labour seats. He did so by promising an economic policy that involved more spending and greater government intervention. He also promised to deliver Brexit at whatever cost. It was an uncompromisingly Leave prospectus that appealed to patriotic/English nationalist working class voters.

This brings us to the UK/EU negotiations over a comprehensive Free Trade Agreement. Contrary to promises of an oven-ready deal, discussions have not yet made a lot of progress. There are two sticking points. The first is fish. This is a matter of economic irrelevance (our fishing industry contributes less to GDP than Harrods) but of disproportionate political importance. As one can make a similar point about the EU, it would be an extraordinary failure for this matter to prevent a wider deal being reached.

The more substantive issue relates to the level playing field provisions. These are the EU’s requirements that the UK will not engage in “unfair competition” by undercutting the EU’s social and environmental legislation, nor provide anti-competitive subsidies.

The UK Government’s response to these demands has been to argue that this is an outrageous attempt to fetter the actions of a newly-independent nation. Given that (1) free trade agreements inevitably involve accepting some restrictions on a country’s ability to determine its own rules and (2) the UK accepted the principle of level playing field provisions in October’s Political Declaration, the EU is less than impressed by the argument.

The particular focus of the dispute has been state aid. At one level, this is surprising. The UK has traditionally eschewed state aid spending, seeing it as market-distorting and a wasteful use of taxpayers’ money. We spend less of it than the French and Germans and, as EU members, consistently argued against its use.

Nor has it traditionally been a touchstone issue for Eurosceptics. From my days in the ERG, I recall plenty of conversations about how the EU imposed regulatory burdens on businesses, prevented trade deals with rising economies like China and resulted in too much power in the hands of the unelected (oh, happy innocent days). Restrictions on bailing out private sector companies were not so much of problem for us Thatcherites.

This issue could have easily been de-escalated if we had put in place our own, independent and robust state aid regime, perhaps enforced by the Competition and Markets Authority. Such a regime is probably necessary (albeit not sufficient) in order to reach a compromise with the EU on this topic.

Instead, we have refused to set out our own domestic regime and there is much talk of how we can use our new freedoms as ex-members of the EU to support our own companies, like the rather odd acquisition earlier this month of a £400 million shareholding in a failed satellite company.

According to the Financial Times, Dominic Cummings is digging in against anything other than a “minimal, light-touch” state aid regime, believing that once you have left the EU “you should just do whatever you want”.

This brings me back to the nature of the Conservative victory last year and, in particular, the new supporters. If the Government’s focus is appealing to nationalists who favour an interventionist state, it would want the ability to back national champions or other businesses in favoured locations.

And if you are temperamentally inclined to think that any constraint on your ability to “do whatever you want” (whether by the EU, Parliament or the legal system) is an affront to democracy, then you will be all the more the likely to resist a robust and independent regime.

There are, however, consequences. First, it is very hard to see how the EU will agree to a deal if the UK does not have a proper state aid regime. I wrote in February how there may be a political case for not getting a deal (any deal will be very thin in any event, some parts of the economy will suffer as a consequence of leaving the Single Market, better to collapse the talks and blame the EU for the consequences) and that argument still applies.

But, as a consequence of the handling of Covid-19, the Government is more vulnerable to the charge of incompetence. In addition, a no deal Brexit would be a gift to the SNP, thus weakening the Union yet further.

Second, even putting aside the EU dimension, there are very good arguments for having in place a robust state aid regime. The Treasury will be arguing the case. Both as a finance ministry (ensuring that taxpayers’ money is spent wisely) and as an economics ministry (wanting resources to be allocated productively in order to maximise economic growth), it institutionally hates state aid. Presumably, the Chancellor of the Exchequer, well-regarded by his officials, will have similar views and will be making the case forcefully. At least, he should be.

It will be for the Prime Minister to decide. Go for the purist view of Brexit (“you do whatever you want”), embrace the new political alignment and splash the cash in order to play to the Red Wall voters. Or keep open the possibility of a deal, look after the interests of taxpayers and maintain some kind of consistency with economic orthodoxy. Whichever way he goes, it will be a hugely consequential and revealing decision.