David Gauke: Rwanda and the ECHR, the Protocol and law, steel and the WTO. All show that sovereignty isn’t absolute.

20 Jun

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

The curious thing about being in Ministerial office is how much power other people have. There is something you want to do – or something you want to stop – and despite your supposedly exalted position it turns out that not everything is under your control. It can be annoying.

The most contentious element of this phenomenon in recent times has, of course, been membership of the European Union. This meant that a large number of policy options that Ministers might want to pursue were no longer available. It did not matter who voters elected, the Government was not permitted, for example, to scrap VAT on domestic fuel. This, it was argued, is undemocratic and therefore we should take back control and leave the EU. It was an argument that many found persuasive in the 2016 referendum.

One point that has been highlighted in recent days is that membership of the European Union is not the only constraint on the policies that the UK government can pursue. In the past week, we have had controversies over compliance with the EU Withdrawal Agreement and Northern Ireland Protocol, the European Convention on Human Rights and the rules of the World Trade Organisation.

In each case, the Government finds itself in the position of wanting to do something but is constrained by international obligations. It does not want border checks in the Irish Sea but such checks are imposed by the Northern Ireland Protocol. It wants to deport asylum seekers to Rwanda but may only do so in accordance with the provisions on the European Convention on Human Rights. And it wants to maintain tariffs on Chinese steel but may only do so in accordance with WTO rules.

The Government has a problem with each case and with each case it is taking a different approach. With the Northern Ireland Protocol it is trying to argue that there is a legal justification for unilaterally changing the terms of the agreement (its arguments are widely seen as hopeless, but let us not dwell on that here). In other words, it is looking to change the obligations placed on it. On the ECHR, it is going through the legal process arguing that it is complying with existing law. And, from what we know about Lord Geidt’s resignation as the Prime Minister’s Ethics Adviser, the Government appears to be considering openly breaching WTO rules.

If the Government were fully to embrace the logic of ‘take back control’ it would simply pursue the policy it wanted and damn the consequences. If the UK Government with the confidence of the House of Commons wants to remove border checks, deport asylum seekers and subsidise domestic steel, why should it not?

At this point, we collide with reality. An absolutist approach to sovereignty comes at a very high cost.

The Northern Ireland Protocol was designed to resolve a problem that ultimately allowed the Trade and Cooperation Agreement to be concluded. This gives the UK and the EU tariff-free and quota-free access to each other’s markets. Some of us think this deal is inadequate but it is still of value. Jettison the Protocol, and we risk losing tariff-free and quota free access to EU markets.

The ECHR is less transactional in its nature, but was driven forward by the UK during the 1950s as a means of protecting individual rights at a time when Europe’s future as a liberal democracy was far from assured. It has helped secure liberal values, exerted pressure on authoritarian regimes and, more recently, played a crucial role in agreeing a framework to Northern Ireland that has ensured peace.

As for the WTO, its rules based system has enabled free trade to thrive in recent decades which has contributed to our own prosperity and lifted millions out of poverty across the globe. Protectionism is a bad policy but it can be popular. As my old friend, Daniel Hannan, points out, tariffs on Chinese steel polls well but results in higher prices for UK consumers. We have an expert Trade Remedies Authority that has looked at this, and advised that the tariffs should be scrapped, which we should follow. (There are times when policy based on evidence and expertise is preferable to adhering to the whims on public opinion, as Daniel most definitely did not put it.)

Not only would the UK be faced with immediate problems of retaliation and enforcement if were to step away from our international obligations but we would also be influencing the international environment for the worse. Other countries might follow suit, contributing to a breakdown in cooperation and trade. This is not in the interests of the UK or the world as a whole.

This is an argument that really should not be terribly contentious. Of course, we can have a debate about whether – in a specific case – the costs of restricting the actions we can take are justified by the associated benefits from the agreement we can reach with others but this should be a debate about trade-offs not absolutes. The challenge here is that this may not be possible in a post-Brexit world.

We are already hearing the argument being made – including, for example, by Suella Braverman, the Attorney General – that people who voted for Brexit will find it very hard to understand that the Government is not able to implement a policy it wants on immigration because it has been overruled by a European Court. There is increasing talk that the Conservatives might fight the next general election on a pledge to take the UK out of the ECHR, to ‘complete Brexit’ and fully take back control.

I have no doubt that is exactly how many Brexit voters will feel, just as many will feel that the UK Government should be able to subsidise UK steelworks and determine for itself how Great Britain-Northern Ireland trade should work. Maybe those are the voters the Conservative Party wishes to focus upon – I suspect they may be – but it would be a disastrous course of action.

To deliver good and effective government, it is necessary to accept that certain constraints apply, that sometimes sovereignty has to be compromised in return for international cooperation. Decisions in this area lie along a spectrum; this is not about absolutism.

This argument is, however, very hard to make if you have spent the last few years suggesting that any such restrictions on Ministers’ discretion as a consequence of our relationship with the EU constitutes an affront to democracy. Unless Ministers get a bit more grown-up in their rhetoric, they are going to set expectations at a level they cannot – and should not – meet.

The post David Gauke: Rwanda and the ECHR, the Protocol and law, steel and the WTO. All show that sovereignty isn’t absolute. first appeared on Conservative Home.

Gerard Lyons: We must rise to the challenge of dealing with China. Here’s a strategy for doing so.

14 Dec

Dr Gerard Lyons is a senior fellow at Policy Exchange. He was Chief Economic Adviser to Boris Johnson during his second term as Mayor of London.

Last week, the Foreign Secretary gave a powerful speech at Chatham House on “Building the Network of Liberty.” One of its central theme was that “now is the time for the free world to fight back, and to use the power of economics and technology to promote freedom not fear.”

It was the prelude to a successful meeting in Liverpool of G7 foreign ministers and those from other democratic countries.  What then is the ‘power of economics’ referred to and its implications?

The UK can have a global influence through its own actions and via global institutions. This can include its hard power, namely defence spending or sanctions; soft power through speeches, wider diplomacy; and participation in global institutions and foreign aid, all of which shape global perceptions of the UK, as well as help it take a leading role in framing the terms of debate on specific issues; and then there is sheer economic clout, particularly in terms of bilateral relationships with other countries or regions.

This is of utmost importance as the UK repositions itself globally post-Brexit, and is of immediate relevance for our relationship with China.

The UK is the fifth biggest economy in the world. The largest seventeen are each more than $1 trillion dollars in size, and of these it is China (second) and Russia (11th) which are most visibly in the G7’s focus, not just in terms of their size, or how free their societies are, but also because of their manoeuvres regarding Taiwan and Ukraine respectively. Others in focus include Saudi Arabia (19th), Turkey (20th), and Iran (26th).

While the Government can’t micro-manage bilateral economic relationships, it can set parameters and incentives that influence behaviour.

Our relationship with China has cooled since President Xi’s state visit in 2015. The UK has rightly opted to highlight human rights abuses, notably with the treatment of the Uyghurs, and has become wary of China’s increasing military might and actions in Hong Kong.

Yet, at the same time, our economic ties with China remain significant and cannot be ignored. It is now one of our biggest trading partners, and has invested heavily in a broad range of UK assets.

Equally, China has a huge presence in the City of London, which the UK should be keen to grow to further cement the capitals’s position as one of the world’s top two global financial centres. Notably, the Chinese continue to rate the UK’s education and university sectors highly.

What then should we do? How to deal with China is not a challenge unique to us. The EU has described the country as a ‘cooperative partner, a negotiating partner, an economic competitor and a systemic rival.’ Furthermore, no one doubts the US’s tough stance on China regarding defence and security, but this is not at the expense of US firms doing business with China. Such stances are not contradictory.

The UK needs a fresh, robust template in its relationship with China. The Government should outline its red lines, so that business and finance can continue to operate. Central to this should be a differentiation between strategic and non-strategic areas.

Strategic areas could include those in which we perceive China as a threat to national security, including defence, intelligence and telecommunications. This might require clarity over the scope of the National Security and Investment Act, and a fresh look at the relationship that certain universities have. Non-strategic areas would be those parts of the economy in which firms and the City can interact and compete with China, freed from politics.

China is also viewed as being ahead of the race towards a central bank digital currency, likely to aid its global influence.  As it seeks to grow its economy and move up the value-curve, there will be opportunities for UK business.

For example, there are areas, such as the green agenda, in which we can be partners. China may be building more coal fired stations, but it is a global leader on renewables.

Equally, globalisation has boosted interdependencies with links across countries and regions. Indeed, we should ask ourselves in the West why it is that the technology for giga factories, which many European governments have been subsidising to attract this year, lies with China, South Korea and Japan. The lesson is to focus on research into the next generation of batteries.

Recent developments suggest a shift in strategic thinking across the globe. For instance, as part of its “dual circulation” economic policy, China is seeking to reduce its dependency upon imports of food, fuel and technology. In contrast, recent months have highlighted the EU’s dependency upon imports of Russian gas.

Strategic dependency on other countries has thus become an important consideration to address, without undermining economic growth and future cross-border investment flows.

Working with others at the World Trade Organisation, we should ensure that protection of intellectual property and fair trade.

The West has been somewhat slow to rival China’s Belt Road Initiative (BRI), and it will take them to see if the G7 can provide an alternative with enough financial power. Positively, the UK recognises the need to act and has revamped its British finance development institution. For many countries the BRI has triggered significant investment and economic growth but at the same time, it has been dubbed a form of financial colonialism with many countries incurring debts.

Last year, the UK announced a temporary cut to its overseas aid from 0.7 per cent to 0.5 per cent of GDP. While understandable given the fiscal hit from the pandemic, reversing this cut as soon as possible makes sense. Not only will it make a much needed difference on the ground, but it will give weight and credibility to the UK’s rhetoric on the global stage.

Indeed, prior to this, the UK had been the only country in western Europe to meet the two international commitments of spending two per cent of GDP on defence and 0.7 per cent on overseas aid.

We should also continue to cement stronger economic and financial ties across the wider Indo-Pacific region, stretching from India in the West to the US in the East. This region is set to be the dominant driver of future global growth. This shift in the balance of economic power to the Indo Pacific is one of two pre-pandemic trends likely to dominate in the future.

The other is the fourth industrial revolution that is already underway. Both of these featured heavily in the Government’s Integrated Review earlier this year, and leveraging off both will make an important contribution to our future economic and diplomatic success.

Post-pandemic, the world will naturally change. This can be summarised by three G’s: grassroots, green and geopolitics. Grassroots goes to the heart of an ongoing debate about whether globalisation has reached its limit. I don’t think it has, but more firms will onshore some operations closer to home in light of supply-chain disruptions. The green agenda will continue to be at the fore of international fora as countries meet ambitious net-zero targets.

Alongside the need for a sensible future working relationship with the EU and delivering upon a pro-growth economic strategy, the UK has the ability to punch its global weight in strategic and economic terms.

David Green: Britain’s investment in China, not China’s in Britain, is the bigger threat to our national security

3 Aug

David Green is Chief Executive Officer of Civitas.

The former Australian Prime Minister, Tony Abbot, now a UK trade adviser, has warned the Government not to allow Chinese companies to buy British manufacturers that are vital to our national life.

He is surely right, but China buying our companies is not the biggest threat to our national security. It is money flowing in the opposite direction from UK companies to China. A recent analysis by the Department for International Trade shows that the stock of foreign direct investment (FDI) from China into the UK was £3.2 billion in 2019. The total stock of FDI by British companies in China was £10.7 billion.

When a company dominated by the Chinese Communist Party takes over one of our high-tech firms, we lose the technological lead, and the expertise falls into the hands of organisations that might be committing human rights violations against their own people, or who have links to the Chinese military.

The same is true when our companies build factories in China. The expertise changes hands, and companies fall under the influence of the Communist Party. There is no such thing as a genuinely private company in an authoritarian dictatorship. Managers must do as they are told.

Many Americans are now concerned about the flow of funds from America into China. The American Enterprise Institute (AEI) estimated that in December 2020 total American investment in China exceeded $1 trillion, mainly in the previous six years. The vast majority was portfolio investment, defined as amounting to less than a 10 per cent stake in the voting shares of the recipient company. These funds may not provide a controlling interest, but they help Chinese companies to out-compete Western rivals and to support the Chinese military build-up.

The total stock of US FDI (involving more than 10 per cent of the voting shares) was $198 billion in 2019 (including Hong Kong). Accurate figures for portfolio investment are not produced, but the US Treasury put it at $163 billion in 2017.

That figure, however, ignores the flow of funds through offshore tax havens, notably the Cayman Islands. In 2017, AEI estimated total portfolio investment at $745 billion, including investment in the numerous Chinese entities registered in the Cayman Islands. Investment via the Caymans surged after the election of Donald Trump in 2016.

At present, US Treasury figures treat funds flowing to the Caymans as investments there, when it serves merely as a conduit. AEI has called for full transparency, so that the final destination of funds is known. We should do the same, not least because the Cayman Islands is a British Overseas Territory.

There is a tendency to see the relationship with China through the prism of the Cold War with the Soviet Union, but Russia was not closely integrated with Western economies. It was rare for Western firms to invest in Russia and, forced back onto its own meagre economic and cultural resources, communism was unable to withstand Western competition.

Since joining the World Trade Organisation in 2001, China has become deeply integrated and has found a way of getting Western companies to fund their own ultimate destruction. A big chunk of China’s growing GDP has been the result of Western investment. The Cold War made the struggle for freedom and democracy against authoritarian dictatorship seem like a battle between economic systems. We can now see that we are in a moral struggle for human freedoms, civil rights and the ability to transfer political power without bloodshed.

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.

The China genocide amendment. Our politicians should decide our trade policy – not our judges.

18 Jan

There is no trade deal negotiation between the UK and China.  And the way the world is changing, there isn’t going to be one.

That being so, why has an amendment been tabled to the Trade Bill, which will be considered in the Commons tomorrow, that would empower our courts to consider claims of genocide and revoke trade deals with countries found guilty of it?  The amendment is aimed fairly and squarely at China over its treatment of the Uighurs.

The answer is that campaigners against genocide, or the Chinese Communist regime (or both) are frustrated twice over.

First, there is no way that a case against China would be heard by an international court.  It can block hearings both by the International Court of Justice, since these need the consent of the parties concerned, and to the International Criminal Court, as a member of the UN Security Council.  And it would smother any special tribunal plan at birth.

The second is that, when campaigners seek to evade that obstacle by finding ways of taking cases to domestic courts, the Government replies that these shouldn’t rule on them…adding that they must therefore be considered by international courts, such as the International Criminal Court of the International Court of Justice.

This circular logic infuriates campaigners, and their anger, as expressed by David Alton recently during the Lords’ consideration of the Bill, is understandable.  However, it doesn’t necessarily follow that the Government’s position is wrong.  What are its main arguments?  Essentially, there are three.

First, that our own courts are unwilling to hear genocide cases, being nervous of rushing in where international ones are wary of treading.  (Only some of the Rwandan and Bosnian killings during the 1990s have been so designated.)  But it may well be that our judges have a duty to consider such cases whether they want to or not.

Second, that UK courts are not in a position to act as international ones would: in other words, gather and consider evidence. Perhaps – though there is video evidence; there are witness statements.  Furthermore, if the co-operation of China’s regime with genocide claims against it is considered indispensable, there will never be any trials at all.

Third, that it is for the Executive and the Legislature, not the Judiciary, to determine the conditions for trade deals: that these are a matter for politics – not the courts. This is a more powerful point.  Furthermore, as Ministers point out, if judges were to be empowered to rule on such deals, why set a bar for investigation as high as genocide?

Why not also allow our courts to rule on claims involving war crimes, torture, slavery, imprisonment without trial – and other offences that, while heinous, nonetheless fall short of attempts to elimate a national, ethnic, racial or religious group?  And what of positive as well as negative rights?

What about countries that allow the segregation of students based on disability, or discrimination against gay people at work, or suppress information about abortion?  Ministers worry that this amendment suggests a further extension of judical power, as dramatically highlighted last year by the Supreme Court’s ruling on prorogation.

When the Trade Bill was considered in the Lords, anti-genocide campaigners made it clear that they aren’t opposed to our courts ruling, if necessary, on those other major human rights abuses: as good and humane people, why would they be?  And amendments had indeed been tabled which sought to allow our judges to hear such cases.

Mull the implications for a moment.  No country in the world is incapable of being dragged before the bar of a human rights claim – including, by the way, the UK itself: for example, Human Rights Watch says that “the government refused in 2019 to order a fresh public inquiry into alleged UK complicity in rendition and torture”.

If you think that example is what a lawyer would call argumentative, return to the matter at hand: trade deals.  Liz Truss has rolled over more than 60 of these (it is hard to keep up).  More or less off the top of our heads, we zoom in on three of the trading partners involved: Egypt, Peru and Vietnam.

“Security officers routinely commit serious human rights violations, including torture, disappearances and extra-judicial executions, in near-absolute impunity,” Human Rights Watch says of Egypt.  “Under Abdel Fattah al-Sisi’s government…it has been experiencing its worst human rights crisis in many decades”.

Of Peru, it writes that “threats to freedom of expression, violence against women, and abuses by security forces are …major concerns”.  “Vietnam’s human rights record remains dire in all areas,” it says. “The Communist Party maintains a monopoly on political power and allows no challenge to its leadership.”

It isn’t hard to see grounds on which a British court might wish to strike down all three of these deals, were it empowered to do so.  Would the UK be a hero or a mug to put itself in such a position?  A hero, blazing a trail for justice worldwide?  Or a mug, handing over jobs to less sentimental competitors at the bang of a judge’s gavel?

The more one thinks about it, the more one sees that anti-genocide campaigners, in search of a vehicle to take them to their destination, have boarded the only one available, suitable or not – the Trade Bill.  But empowering our courts to make a determination of genocide is one thing; giving them the right to rule on trade deals in so doing is another.

For once that say is granted in principle, why deny it in practice? If China really is inflicting genocide on the Uighars – and so it seems to be – why not let our courts rule on whether UK firms should be trading with it at all?  Do our present exports to China really come with cleaner hands than the future ones that would follow a putative trade deal?

MPs’ assessments of how to vote on China, genocide and the courts will be influenced as much by Parliamentary tactics as by political principle.  Would opposing the amendment send a signal of weakness to China?  Maybe.  But what will happen next if enough MPs make that calculation, back the amendment, and it passes?

A Government concession could be on the cards.  In the Lords debates on the Bill, Ministers argued that they agree with action on trade deals over human rights, and that they are already acting anyway – “we seek to ensure that human rights are recognised and protected in all our free trade agreements,” as Lord Grimstone, the Minister, put it.

With the China Research Group on the case – plus the Board of Deputies of British Jews, ever-active when genocide claims are concerned – the scene may be set for Ministers tightening up their human rights’ tests for trade deals.

If so, they will try to balance justice concerns, British business interests and Parliamentary accountability in such a way as to persuade Tory supporters of the amendment to abstain, and those MPs who are preparing to abstain to go through the Government lobby instead.

Looking wider than the context of a trade deal that won’t happen anyway, Dominic Raab says that China’s treatment of the Uighars amounts to torture, and that companies profiting from it should be barred from business in the UK.

Ministers also have the option of discouraging investment in China, cracking down on its subversion, influence-peddling and espionage here – and even imposing sanctions, if that’s a route voters and MPs are willing to pursue. Unlikely?  Perhaps.  But less problematic than extending judicial power to trade policy.

Syed Kamall: There may be advantages to No Deal for both the UK and EU

18 Dec

Syed Kamall is the Academic and Research Director at the Institute for Economic Affairs, and was an MEP for London from 2005-2019.

As the clock ticks down towards the end of the year, it’s still possible that there may be a No Deal Brexit. Both sides warn that they would prefer a deal and that no deal would be damaging.

While probably most people would prefer a deal, myself included, a No Deal scenario may not be as bad as predicted. In fact, from a purely political perspective, there may be some advantages to no-deal for both the EU and UK.

Let’s start with economics and trade. No Deal does not mean no trade. One of the myths of international trade is that countries trade with each other. In fact, it is people and businesses in one country that trade with people and businesses in other countries, for mutual benefit. Governments can either facilitate trade by getting out of the way or hinder trade by getting in the way, usually in the form of tariff and non-tariff barriers. UK companies already trade with businesses and consumers in many countries with which the UK has no trade agreement.

Often this is under WTO rules. Where a company faces tariff or non-tariff barriers on its exports it will continue to sell to customers in that country if it can do so profitably despite the barriers. Therefore, British companies will continue to sell to customers in EU countries and companies from EU countries will continue to sell to UK customers. Of course, there will be some disruption and where costs increase, companies will seek to reduce or absorb them, raise prices or seek alternative markets. As with any change, there will be short term winners and losers, but No Deal does not mean no trade.

Before the EU referendum in 2016, the Government published statistics warning of the dire impact of Brexit on UK trade. However, this was based on a gravity model of trade, which views international trade as an extension of internal trade. In other words, an economy such as the UK gravitates towards trading with its closest neighbours and economies which are similar in terms of size, cultural preferences and stage of development. It sees trade with more distant markets grow more weakly than ‘neighbourhood’ trade.

Gravity in trade creation can be thought of as a function of distance and size. But as Patrick Minford of Cardiff University demonstrates in his latest book After Brexit, What Next?, modelling UK trade using the gravity model leads to widely inaccurate results. The Treasury has since changed its models, but makes assumptions which come to similar conclusions.

In a recent Institute of Economic Affairs webinar, Minford explained that while he has challenged the Treasury’s assumptions, they had so far refused to engage. Sound familiar? He also contends that while there will be some disruption to trade, the Treasury has also underestimated the gains from trading with the rest of the world.

Brexit is also about more than about trade. As a Professor of Politics and international relations, I naturally also take a political view of the situation and from this perspective, there may be some advantages to No deal for both the UK and EU.

Many EU and UK observers, including colleagues at the IEA, have been exasperated by the emphasis that UK negotiators have placed on defending the UK-based fishing industry. But while this may seem puzzling from a macro-economic perspective, it makes sense when looking at both domestic politics, as well as the politics of the negotiations.

The UK adopted a tough stance on fishing, since it was the one of the few strong bargaining chips left after the EU had out-negotiated the UK over the Withdrawal Agreement. The EU had set the terms of the negotiations, insisting on a Withdrawal Agreement before a new trade deal instead of parallel negotiations, and the UK meekly followed

From the perspective of Michel Barnier, the EU’s chief negotiator, this made sense. He regularly told me that he saw the best future relationship as a customs union, and one or two of Theresa May’s negotiating team seemed to agree. He attempted to put as many elements of a customs union as possible into the Agreement, but this effectively gave the impression that the UK was only half-leaving.

So now, for the UK, No Deal would effectively tell the EU: “we are leaving and we want to make our own rules.” For the EU, it would tells eurosceptic political parties in EU countries: “don’t think leaving the EU is easy” – especially those countries for which the EU accounts for much more than 50 per cent of exports.

The UK leaving the EU without a trade deal may be less preferable for many, but it allows both sides to reset the relationship. So would what happen next?

One scenario is that we would negotiate sector-by-sector agreements, as in the EU-Switzerland relationship, while for other sectors we would trade on WTO terms.

Another scenario is that both sides would see the advantages of an EU-UK trade deal and begin negotiations almost as if the UK had never a member of the EU. This mind-set was probably difficult against a background of withdrawal, negotiated by a Prime Minister who didn’t really want to leave, but might becomes easier if No Deal is the result at the end of the year. No Deal would offer a fresh start.

Garvan Walshe: Democracies need to pull together to stop Chinese subversion of the open global economy

3 Dec

Garvan Walshe is a former National and International Security Policy Adviser to the Conservative Party. He runs TRD Policy.

Chinese aggression hit the headlines after Beijing imposed punitive tariffs on Australian wine. But resisting Beijing’s exploitation of the international economy to build up its own power needs democracies to do far more than buy the odd bottle (or case) of Cab-Sauv.

On Tuesday, the China Research Group, led by Tom Tugendhat and Neil O’Brien, released a hard hitting report, Defending Democracy in a New World, describing a toolkit of things democracies can do to limit China’s abuse of the international system (I was involved in drafting the report).

Quite rightly, the report emphasises the importance of engaging with China, and welcomes Chinese economic progress, which, since Deng Xiaoping began to open the Chinese economy in 1979, has brought huge gains in the standard of living of billions of Chinese people, and indirectly, to the rest of the world.

Yet that international economic system is based on fundamental principles that China has been systematically violating. Human rights abuses have intensified since Xi Jinping consolidated power, from the concentration camps into which Uighurs have been crammed, to the destruction of civil liberties and democratic rights in Hong Kong, and the totalitarian oppression to which all Chinese citizens are subjected. China is bullying its neighbours, even to the point of preventing Taiwan helping fight the Covid–19 pandemic through the World Health Organisation, and has been rearming to back that intimidation with force.

Defending Democracy’s most important contribution however, is that it identifies the core source of Chinese Communist Party power and presents a set of practical measures democracies can take to blunt this expansionism. Today’s China is capable of reaching into the open economies of the West and pressing the undoubted economic achievements of Chinese industry and technology into the service of the Chinese state.

When globalisation brought barriers between states down, it did so on the implicit assumption that in market economies, the purpose of business was to make money – not serve the home states of the companies’ owners.

This created a world where it’s possible for all of us who can afford it, no matter where we are from, to own parts of foreign companies by buying shares in them, and have that ownership protected by the foreign country’s legal system. Instead of competing politically-like nineteenth century powers, we invest in each others’ economies and reap the benefits of companies competing with each other across a massive international market.

This ideal, however, is based on governments’ understanding that their job isn’t to promote “our own” companies at the expense of “theirs”, but to create an economic environment where a market economy could meet people’s needs and create jobs. Notwithstanding occasional outbursts of protectionism like France’s declaring dairy producer Danone a “strategic” industry, or outright state capture in some of the smaller ex-Communist European states, this ideal has mostly been upheld in the advanced economies of the world.

Xi Jinping’s China has seen that it is possible to apply the subversion of open Western economies, pioneered by the KGB, at industrial scale. When Western countries began to open up to each other after World War II, we did so on the condition that foreign trade and investment would not be used as a crude tool of political influence.

Perhaps seduced by the size of the Chinese market, and deceiving ourselves into thinking that as the Chinese grew richer, their political system would automatically grow democratic, we neglected to apply the same condition to Beijing. China is now going further, and using its power not only to enrich itself at the expense of a naive international economic and political system, but to start shaping the system’s rules in its own favour, and against liberal democracy.

This report is the start of a line of thinking that democracies, including of course the incoming Biden administration, need to join forces to impose costs on China for as long as its abuse of the international system continues. It contains some powerful measures that we can take to limit proposes some powerful measures that can be used to limit the extent of Beijing’s exploitation of our openness to further entrench its totalitarian rule.

As well as innovative specific measures to support the people of Hong Kong, and British National Overseas passport holders, to which the UK has a special responsibility, the report develops policies that can be applied by other democracies.

These include the systematic extension of Magnitsky Act-style sanctions to individuals responsible for human rights violations in China, including those in leadership positions.

Another key proposal is a “know your supplier” obligation to hold companies responsible for goods they sell that have been produced in supply chains where slave labour has been used.  Companies that fail to adequately investigate their own supply chains could be fined, and their directors be subject to personal liability and asset forfeiture if it is found that their wealth resulted from forced labour.

Chinese state-owned enterprises could be excluded from national-security sensitive infrastructure projects. Indeed, given the control the Chinese government exerts over even non-state owned enterprises such as Huawei, through its own national security legislation, the report could perhaps have gone further here, though considerable work is needed to make such restrictions compatible with WTO rules.

China’s participation in the open global economy has been good for China, and good for the rest of us,  but it has become clear that China is actively undermining the separation of politics and business upon which economic openness depends. Until Beijing changes its behaviour, democracies need to work together to ensure that China can no longer use its economic power to to bend the international system out of shape.

David Gauke: If Johnson goes for a Brexit trade deal, as he should, he should also go for a further implementation period.

7 Nov

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

It is time to talk about Brexit again.

Understandably, the country’s attention has been focused upon the second wave of Covid-19 and the Government’s response to it. And in the past few days, many of us have welcomed the chance to change the subject and follow every twist and turn of the US Presidential election. But it is all too easy to miss the fact that the next week will be one of the most important in the protracted saga of the UK’s departure from the European Union. Just this afternoon, the Prime Minister is speaking to the President of the EU Commission.

We are so used to deadlines whooshing past with little or no practical consequence, there is a temptation to be complacent about the EU’s position that, for a free trade agreement between the UK and the EU to be ratified in time to take effect by the end of the transitional period, such agreement would need to be concluded by 15 November. After all, the Prime Minister has previously said that talks would need to conclude by 15 October in order to reach a deal and – save for a brief and rather unconvincing walk-out – the parties carried on talking.

This time, however, the difficulty is that we are not dealing with a deadline imposed for political reasons in order to focus the minds. We are now at the stage of running out of time to go through all the practical hurdles to ratify any agreement amongst member states and the European Parliament.

The stand-off remains as it has been for months. The two sides remain some way apart of the level playing field provisions, particularly on state aid, and how any agreement is enforced. In addition, the economically irrelevant issue of fish continues to be contentious.

Progress has been made on many of the technical issues, but on these fundamental points the talks have stalled. Both sides have given some ground, but will have to move further. And the side that is going to have to move the furthest will have to be the UK. If Boris Johnson wants a deal, at the very least he will have to accept something which recent leaders of the Conservative Party would consider to be desirable regardless of the EU implications – a robust and independent state aid regime.

I do not know whether the Prime Minister will decide to go for a deal. As far as I can see, it is not clear that he knows himself. Making decisions is not always a strong point for Johnson, and he made one big difficult decision a few days ago by re-imposing a lockdown. Now he has to make another.

At one level, the decision should be straightforward. The right to waste public money by subsidising loss-making businesses has never been a demand of most Eurosceptics, save for a few Bennites, and was a non-issue in the 2016 referendum campaign. (Johnson has praised the EU on this point.) He went to the country in 2019 promising he had a deal: failing to conclude an FTA looks like a failure of competence and a breach of trust. An already fragile economy will suffer a further blow.

However, it has been reported that the Prime Minister is ‘emotionally drawn’ towards a WTO Brexit. Why might that be? It is possible that he believes that any constraint on decision is an unacceptable suppression of sovereignty, but that suggests a purity of view that would make a free trade agreement with anyone impossible.

The politics and the Prime Minister’s perceptions of his own self-interest may tempt him to turn down a deal. Nigel Farage is relaunching himself (again) and is ready to cry betrayal (again) which will panic plenty of Conservative MPs (again). Johnson will also be aware that he has taken on many of his Parliamentary colleagues over the Government’s response to Covid-19 – he might not want to take on many of the same people on a second issue. And – a point I made back in February  – even a deal will cause economic disruption. If the Prime Minister agrees to a deal in the next few days, he will have to proclaim a triumph, but also explain to businesses that time is running out to prepare for it being much more difficult to trade with the EU.

The evidence that – even with the thin deal we may get – the end of the transition period will damage the economy is growing. On Thursday, the Bank of England pointed out that the UK’s trade and GDP will be adversely affected in the first half of 2021, even with a deal. On Friday, the National Audit Office published a report expressing concerns that UK business will face widespread disruption in 2021 because of failures to prepare for post-Brexit borders. A deal will help because it might provide an opportunity to ease rules in particular circumstances but the fundamental problems remain the same.

The approach of the Government has been to blame businesses for not being prepared. Some businesses may have been complacent about the consequences of the end of the transition period, but they can hardly be blamed when the Government, until relatively recently, has not been able to provide details of our future relationship and presented this moment as an opportunity. It simply is not. At a practical level, leaving the Single Market and the Customs Union only makes it harder to trade with the EU.

The Prime Minister might be tempted to try to escape responsibility for the predicament that he, more than anyone, has got us in. He could collapse the talks, and blame the EU for the consequences that the country will face in January. We saw how Brexiteers rather enjoyed the prospect of the talks collapsing in mid-October. A bitter dispute with the EU which could last for years would be truly thrilling to some. And quite a lot of the public would swallow mendacious claims for the reasons of the negotiations breaking down. In terms of the next few weeks, walking away from the talks might be the easier path to tread.

It would also be grossly irresponsible. In the medium term, it would not be possible for Boris Johnson to escape responsibility for a decision that will have a major impact on many people’s lives and livelihoods. The timing could not be worse with the economy already shrinking and businesses restricted in what they can do because of Covid restrictions for at least four of last nine weeks until the transition period ends.

If the Prime Minister wants a soft landing for Brexit, he will need to make concessions, but he needs to do more. Time has run out to prepare properly for 31 December. Even at this late stage, he should ensure that his deal has a further implementation period of another 12 months. A combination of Covid and the Government’s failure to prepare the nation for the realities of Brexit means that ending the transition period at the end of the year will cause even greater problems than necessary. A responsible Prime Minister should seek to prevent that from happening. He should get a deal that gives everyone time to implement it.

Iain Dale: If Milling isn’t up to being Party Chairman, why was she appointed in the first place?

9 Oct

Iain Dale presents the evening show on LBC Radio and the For the Many podcast with Jacqui Smith.

I have to admit that I didn’t watch any of the Conservative virtual conference online. Judging by the number of registrations, it can be deemed a success. Twenty thousand people registered, and there were often more than 6,000 people watching.

I’m told fringe meetings proved more popular than the set-piece cabinet minister speeches (wasn’t it ever thus?) with some events, including those hosted by ConHome) attracting online audiences in four figures.

Given that normal fringe meetings might attract a couple of hundred people at most, this ought to give the conference organisers food for thought for the future. CCHQ told me this week that future conferences would almost certainly be hybrid events, and that’s exactly right. The more people who are able to take part, the better.

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Watching highlights of the US Vice-presidential debate between Mike Pence and Kamala Harris, it almost seemed like normal politics had returned.

For the most part, the debate was conducted with mutual respect, good humour and dignity from both candidates. Yes, there were some interruptions, but that happens in debates. We had none of the abuse, insults and acrimony that characterised the debate between Donald Trump and Joe Biden a week before.

And it wasn’t just the President who was guilty. We don’t know yet whether the next debate, due to take place in Florida next week, will go ahead. If it does, let’s hope that it’s more edifying than the first one.

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On Tuesday, I deputised for Charles Moore in the Daily Telegraph.  I thought long and hard about writing what I did – but it had to be said.

I wrote about the role of the Party Chairman, and how its importance has diminished over the years, and how the present incumbent, Amanda Milling, was performing no useful role, except to travel the country and eat a few rubber chickens

It gave me no pleasure, and in many ways it’s not her fault. She’s performing the role dictated by Number Ten. She has no power to change anything, and scant little influence. Her co-chairman, Ben Elliot, is the one in control and we all know it.

The one role she could perform, but hasn’t got the experience to do, is to get out there on the media and be a lightning rod for the Prime Minister. That’s what Cecil Parkinson did. It’s what Norman Tebbit used to do. It’s what Brian Mawhinney did for John Major. And it’s what Brandon Lewis did for Theresa May.

Amanda Milling went on Any Questions last Friday, and proceeded to read out lines from her briefing notes. It was buttock-clenchingly embarrassing. A programme insider reckoned she was the worst guest they had had on in recent memory.

Again, in many ways, I don’t blame her for that. Everyone tells me that Milling was an excellent Deputy Chief Whip, but we all know that whips don’t do media, and don’t speak in the chamber.

So to appoint someone with little media experience as co-Party Chairman was bizarre to say the least. It did her no favours whatsoever. By all accounts, the Number Ten machine is frustrated by her performance. No shit, Sherlock. Well, they shouldn’t blame her for it, they should apportion the blame to the person who made the appointment.

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I was disappointed but not surprised to see Liam Fox fail to reach the final two in the race to become the next director general of the World Trade Organisation.

The EU was always determined to scupper him, which says far about them than it does about him. He is very well qualified to do the job, which will now be a straight fight between candidates from South Korea and Nigeria. Péter Szijjártó, Hungary’s Foreign Minister, has spoken out and said the whole charade has not been “to the greater glory of the European Union”.

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Just as the Conservative Party has had to put its conference online, so have literary festivals – or at least some of them. I’ve done quite a few on Zoom over the last few months, but appeared in person last Saturday at the Cheltenham Literary Festival, as trailed on this site last week.

The event was organised it very well, ensuring that both speakers and audience were safe. Next Friday ,I’m doing the Bristol Festival of Ideas remotely, but the Wells Festival of Literature in person on the same day.

Then on Sunday October 18, I’m in Twickenham being interviewed on stage by LBC’s Steve Allen, and then on  October 24 in Diss, Norfolk.

On that occasion Brandon Lewis will interview me, which I suspect he’s going to relish, given he tells me I always give him such a hard time when he comes on my show. Ticketing details can be found here.