The government would like to implement its vision for a ‘Global Britain’ after Brexit. But, says Stephen Woolcock (LSE), for the next few years at least companies are likely to favour the continuity of European trading practices. He looks at the factors shaping that preference.
There are competing visions for British trade policy: ‘Global Britain’, which sees a sovereign Britain trading free from the shackles of the EU on the basis of WTO rules, with an ability to shape its own rules; and what might be called the “European continuity vision” that sees UK interests closely linked to the EU. Looking beyond the immediate chaos of Brexit, what vision best corresponds to British trade preferences in the medium term (4-5 years)?
A legacy of liberal trade
British leadership on unilateral free trade shaped the world trading system after 1846, when the protectionist Corn Laws were repealed. But Britain could not contain inter-war protectionism or economic nationalism and resorted to imperial preferences in the 1930s. Pragmatism then prevailed over free trade in the 1950s and 1960s, as British governments intervened to promote employment and competitive national industries.
For more than half a century British trade policy has been both shaped by and has shaped European policy. Conservative governments after 1979 pursued neoliberal policies of deregulation and free trade and Labour in the 1990s retained their liberal trade and investment policies. The UK has been at the liberal end of the spectrum on trade in the EU. So it can be argued that Britain’s trade has a liberal legacy and this nourishes the ‘Global Britain’ vision, but the country’s power to shape a (liberal) trading order lies in the past – and was short-lived even then.
Norms and values
Currently, the norms shaping UK trade policy find expression in the acquis communautaire, which facilitates trade within the Single Market and shapes EU external trade policy. This European model of a rules-based trading system adapts and codifies norms developed as part of wider international cooperation such as in the United Nations (climate), the International Labour Organization, the World Customs Organization, the Internatioal Organization for Standardization (product standards), the Organisation for Economic Cooperation and Development (procurement, competition, investment export credit, tax etc.) and financial regulatory standards, through specialist institutions such as the Basel Committee on Banking Supervision and equivalent bodies for securities and insurance. In other words, the norms and standards adopted in the UK through its membership of the EU are essentially international. Business has come to see conformity with these as a means of facilitating trade and investment, and civil society expects the UK to follow the environmental, health and labour standards. This points to Britain’s interests being in continuity. But as EU membership entails hard law, the countervailing normative force underlying ‘Global Britain’ is that of sovereignty and voluntary soft law. However, expectations on norms and standards appear to be a force for continuity, with little likelihood of a consensus for a major break from these in the medium term.
Britain’s trade in goods in both manufacture and food products is tied to European supply chains. Surveys of businesses show a clear preference for continuity, with MAKE UK (the manufacturers’ trade association) reporting more than 65% of its member companies favouring a revocation of Art 50 over no deal, because the impact of the latter on supply chains (10% favoured no deal.) In the food and drink sector, 80% of companies favoured continuity and revoking Art 50 over no deal, and car manufacturers fear a devastating loss of competitiveness that no deal would entail. Meat, livestock and dairy sectors of agriculture also favour continuity, as does the financial services sector represented by The City UK and other service sectors such as business services. Support for continuity and close links to the EU is reflected in the policy statements of all the major business associations, such as the Confederation for British Industry, Institute of Directors and the Trades Union Congress. There seems little doubt, then, that the private sector and organised labour favour European continuity over a less concrete ‘Global Britain’ vision.
When it comes to markets outside the EU, the short- to medium-term interests of UK exporters lie in the conclusion of continuity agreements that match as closely as possible the existing access to third country markets that they have under existing EU preferential agreements. This means matching the EU Free Trade Agreements on tariffs, mutual recognition of regulatory measures and other non-tariff provisions as far as possible. The ‘Global Britain’ vision offers the prospect of new agreements, such as with the US or Britain joining the Comprehensive and Progressive Transpacific Partnership (CPTPP) or participating in plurilateral agreements on e-commerce, but these are less certain and likely to be longer-term options. So in trade with third countries, UK preferences in the medium term at least are for European continuity. The Global Britain vision finds expression in a redoubling of efforts, led by the British government, to increase UK exports and investment. But this is not inconsistent with a vision of European continuity. Export and investment promotion has always been a Member State competency – in other words, nothing changes with the UK leaving the EU.
Who determines policy?
National preferences can be defined by ‘old style’ or ‘new style’ trade policy. In old style policy, the executive branch defines the national interest/preference and conducts negotiations with limited scrutiny. Trade agreements are ratified by the legislature after signature, in other words once the parties have concluded negotiations. ‘New style’ trade policy entails greater transparency and engagement by stakeholders and continuous scrutiny, including by the legislative branch of government, during negotiations. EU trade policy has moved from old to new style since the adoption of the Lisbon Treaty in 2010.
Britain’s trade policy decision making process is a work in progress, and based on declaratory statements rather than statutory provisions. The Trade Bill is blocked, so the legal basis rests on the Constitutional Reform and Governance Act (CRaG), under which Parliament has no positive power to ratify trade agreements but only the ability to reject implementing legislation. As this comes after signature of an agreement, it favours neither accountability or effectiveness. A veto after signature is a ‘nuclear option’ that Parliament is unlikely to use, and the risk of voting not to implement an agreement will undermine the UK’s negotiators. The current position is that the royal prerogative gives the executive power to negotiate agreements. All this suggests that for the time being Britain has an ‘old style’ trade policy process. This means that the policies of the government of the day will remain an important factor in shaping trade policy, but it may also mean conflict between the executive and legislature on trade.
The current Conservative government exhibits a clear ‘Global Britain’ vision. The Labour Party is more ready to intervene in markets and favours European continuity in the shape of a customs union and regulatory alignment. The Liberal Democrats and Scottish National Party have strong European continuity positions. But looking beyond Brexit, trade policy seems likely to revert to a more classical political economy model of trade, based more on competing sector interests with concentrated costs and diffused benefits. Unlike on Brexit, on which the parties have been competing for Leave or Remain voters, trade policy in the medium term is unlikely to have the same traction in the political debate. A recent Department for International Trade survey found that 65% of voters did not feel they had knowledge of extra-EU trade. So trade policy in the medium term should be less populist, and more shaped by rationalism and interests.
The ability to shape outcomes in the reciprocity-based trading system that we have today still relies on market power, or what you can put on – or take off – the table in terms of market access. The UK has a relatively small, largely open market, except for a few tariff lines. State-market relations are based on the rule of law, and there is no consensus on using threats of market closure to gain leverage. In comparison, the US and Chinese markets are much larger. The rule of law is not assured in China, and its market is as a result much less open when it comes to regulatory and other non-tariff restrictions. The US has proven to be far more ready to threaten market closure in order to gain leverage in negotiations. This would be less of a problem if the WTO rules were effective. But the WTO lags developments in the market, and its rules are openly challenged by the USA. The UK is therefore unable to shape outcomes alone and when one considers which major trading power best matches the UK interests, it is the European Union – with its open rules-based order – rather than either of the other major poles.
In summary, this qualitative assessment of Britain’s medium-term preferences in trade points, on balance, to European continuity rather than ‘Global Britain’.
This post represents the views of the author and not those of the Brexit blog, nor LSE.