MULTIPLE TRADE DEALS ALWAYS LIMIT GOVERNMENT POLICY FREEDOMS – A POLITICAL TRUTH UNDERMINING BREXITEER ‘CONTROL’ GOALSAugust 23rd, 2018
BRITAIN is about to embark on a withdrawal from the European Union (EU) that could leave its government with much less control over many policies and laws than at present because the policy’s promoters – dubbed Brexiteers – may have ignored a major contradiction in future trade policy.
They say the UK can forge its own future by negotiating bespoke trade deals that reflect British interests rather than those of Brussels. But the more comprehensive deals Britain strikes, the more its room to manoeuvre will shrink – because all its trading partners (who are also striking deals with each other) will have to agree the same or similar terms for such deals to work.
It is a consequence of free trade deals that cannot be avoided and could expose the hopes and dreams of Brexit supporters to criticism that their promises of ‘control’ and ‘national sovereignty’ were false.
The problem is rooted in the nature of modern trade deals.
In the past, these focused on tariffs and quotas limiting imports of goods. Today, they are far more comprehensive, involving promises to write principles on investment protection, food safety, labour rights, environmental controls, packaging rules, chemical safety, aviation, intellectual property rights and more, into signatories’ national statutes.
The idea is that by removing red tape barriers to trade and accepting each other’s laws on a range of international issues, businesses, workers, campaigners and citizens all benefit from increased trade.
Britain’s department for international trade wants to forge such deals, with major trade partners such as the USA, China and India, and, of course, post-Brexit, the EU.
But think about this. What happens when such a trade deal is struck? Answer: a government must agree to enact laws and standards that it trading partner wants, maybe changing local national laws agreed by its parliament.
So, when country A – say – Britain – agrees with country B – say the USA – to abide by one common law affecting trade – let’s say on investment protection standards (a big political hot potato for many campaigners), both countries will have to write these rules into their national laws.
That’s a compromise between national sovereignty and prosperity.
And when a government wants to strike another deal, further compromises have to be made – with national laws being adapted to suit the second trade deal partners’ wishes.
Moreover, when those partners want to strike deals with each other, the risk of loss of control gets even worse. The EU and the USA have in the past and will in future want to strike a trade deal together and will want it to be comprehensive too – maybe after President Donald Trump leaves office.
When they do – they will agree standards and rules on a wide range of domestic policy – like investment protection (basically rules on compensating companies for changes in government policy that damage their financial interests).
And having made such an agreement – they will insist on such rules applying to other trade deals, maybe with the UK, which would have had no say in the matter.
Why? It is simple. Countries cannot have two laws on the same topic at the same time.
Britain, the USA, the EU and others cannot have a different law on investment protection, or labour rights, or environmental controls, it can only have one. The same applies to any government or regional jurisdiction.
Another example: creating a level playing field on labour rights. Britain and America may want to tie any reduction in duties to promises their employers will not underpay their workers, creating unfair low-cost goods – a common concern of President Trump about existing trade agreements. But any such commitments will have to written into local labour laws. If Britain and America strike a deal after Brexit, and then the UK and the EU, or the US and EU want later to strike a trade deal, that labour law will already exist in Britain and America. If any of these parties want to insist on better treatment for local workers so that exporters can benefit from low or zero duties, then these labour laws would have to be changed – and hence the pre-existing trade deal will have to change too.
Those changes would take account of all three trading partners, and henceforth could not be changed without mutual agreement – a huge reduction in national sovereignty,
The same applies to environmental controls. In new trade deals, signatories want to make sure that their trading partners do not allow their exporters to spew out millions of tonnes of carbon, which could help them reduce their bottom line and lower the cost of their exports. It would be unfair, and of course such pollution has a global impact on climate change. So, a trade deal might insist on pollution caps for companies wanting to take advantage of the new trade deal’s low or zero duty provisions. These rules have to be written into national or regional bloc laws. When the next trade deal talks are opened, these laws are already in place – if a partner wants to demand that exporters are cleaner (or dirtier), then such eco-rule would have to be amended, and the original trade deal changed.
Many non-tariff issues integrated into a modern trade deal have to follow this rule: trade deal A+B, must have the same rules as trade deal A+C and trade deal B+C.
In other policy areas, there may be more flexibility – but this is far from the picture of unfettered national sovereignty painted by Brexiters.
Take hormone treated beef. American consumers are happy to buy plentiful beef culled from cows pumped up on steroids. Not so British and remaining EU consumers – they worry that such chemical residues are bad for your health. But if Britain wants a trade deal with America, it may have to accept the sale of hormone treated beef in British shops. That means – effectively, government policy would have abandoned its principled position on hormone treated beef to strike a trade deal with Washington. Hardly a great example of ‘control’.
If the EU wants a deal with America, it would have to work hard to convince the Americans to accept its continental hormone treated beef ban. But say it did? Then British food exporters to Europe would have to take extra steps to show their products do not contain American beef – which would be expensive and time consuming. British farmers would have to do the same – if they wanted to tap a new American market opened to British beef, they may have to feed cows hormones to be competitive. But then they would be locked out of European markets, unless they could prove the cows reared for EU exports were hormone free. Brussels might just decide UK controls are unreliable and ban British beef from Europe.
Another key policy area fraught with such problems is automotive safety. Britain and Europe have the same rules on air bag operation, steering, brakes, lights and so on. America does not. British trade negotiators might want to negotiate access to American motor vehicle markets post-Brexit. But to do this – London would almost certainly have to recognise American-standard vehicles as safe to drive, if (and it would be a BIG if) Washington was to accept UK cars as being safe to drive in America. This would be a major surrender of control over British car safety rules, as it would henceforth have to accept whatever controls the Americans decided upon.
And if the EU struck a deal with the USA, it would have to do the same. If it chose not to – and wanted to insist in EU rules only (which the UK currently follows). Any British manufacturers who expensively retooled to meet American safety rules would be blocked from, selling into Europe, which would be a tough choice. Ultimately, for all sides, to strike any kind of workable trade deal, the US, Britain and the EU would have to agree one set of auto safety standards to apply through all their trade deals, which could only be changed by mutual consent. Hardly unfettered national sovereignty for Britain….
What about civil aviation? If Britain strikes a deal with the USA on compensating passengers for late flights – a key part of EU aviation legislation, that covers international flights within Europe, this would throw up similar problems. America may insist on lighter compensation for flights involving US territory than those available for Europe. While the EU would insist that its current compensation scheme remains for European flights. Airlines would be left in the difficult situation where they might have to offer different rates of compensation for delays on different routes. And that is before you get into the difficulty of deciding what compensation regime applies for flights that start in Europe, visit London and end up in New York. Such agreements would be ripe for consumer-based legal challenges arguing that only one set of compensation rates should apply to British airlines. If that happened, a trade deal on civil aviation with either or both the US and EU could be undermined or even fail.
So, if Britain wants to have a trade deal with the USA and the EU, it will have to agree to the same or broadly similar terms with both trade partners on any policy areas within their bilateral agreements. And these issues will cover almost every key domestic policy issue that can be imagined.
The trade deal A+B, must have the same rules as trade deal A+C and trade deal B+C rule applies most of the time.
There lies the crack in the edifice of Brexit. It runs deep. It is a flaw that has been ignored and will cause this political edifice to crumble.
And the risks for Britain are especially profound, as a medium-sized economy that relies on trade for its well-being. As we all know, the UK economy is much smaller than the USA, the EU, and China, and in future other more populous countries will become far more powerful economically.
As a result, when it embarks on negotiations to strike a trade deal with its key partners, because Britain will have less to offer its larger trading partners, it will come under pressure, again and again, to accept whatever rules and standards their would-be trading partners insist upon.
Moreover, given these trading partners will want to strike deals with each other, this pressure to accept foreign rules, regulations and standards will become much more intense over time. Britain won’t have any control over what regulations are agreed by Brussels and Washington, in their trade deals – and for these two countries, an agreement with each other maybe more important than a deal with comparatively unimportant Britain. If it wants a trade deal with the USA and the EU – surely of paramount importance to British prosperity, the UK will have to accept rules on labour, energy, travel, IP, and more that the EU and the USA agree together.
That surely is the Brexiteers worst nightmare: Britain has to accept rules and laws that are not only created by the Eurocrats in Brussels, but also laid down by President Donald Trump. Or his successor.
And by withdrawing from the EU, Britain will have removed all the influence it now has on shaping what that EU trade policy says. So, Britain risks become a rule taker in any policy area affected by trans-Atlantic trade, having to accept whatever rules are approved by the US and the EU.
If that is not bad enough, because Britain can have only one law on all these topics – it will have to accept them in any other trade deals – with India, Australia, China, New Zealand and more. If they are not interested in following Britain’s EU/US laws, then there may be no deal, because to these countries, British trade simply doesn’t matter that much, and for Britain, EU and US trade is and will remain critically important.
So, when the department for international trade claims will have a much freer hand to negotiate new trade deals after Brexit – those claims should be treated with a healthy degree of scepticism.
This freedom of scope to strike deals will also become much more limited in future. The world will continue to turn, and governments and regional blocs will continue to strike trade deals, even if the World Trade Organisation (WTO) continues to fail in approving a comprehensive global trading agreement.
Ultimately, a critical mass of governments and regional jurisdictions, also including south America’s Mercosur bloc which is negotiating its own deal with the EU, will sign up to so many deals that a common global set of rules on domestic policy will emerge.
Because all these powers can only have one law at a time, these rules will become increasingly detailed and difficult to change – to do so will mean breaking a commitment made to governments representing billions of citizens.
All governments will end up following largely the same standards. Indeed, in many cases they already are – from the international technical rules that govern how civilian airliners work, to the rules laid down by the Codex Alimentarius in Rome on how foods should be canned and preserved, which are the law for WTO disputes on food safety.
Given this reality, supporters of international regulation say the most transparent way of enabling citizens to have control over such policies through their governments having membership of regional bodies such as the EU, so they can have more influence over what is agreed by the biggest players in global trade talks.
They say governments and international organisations need to set up more transparent and clear systems on the development of global rules that can be written into trade deals, that have as light a touch as possible, rather then creating detailed global rules by accident through a mass of comprehensive bilateral trade deals.
*Keith Nuthall is the editor of International News Services, a 20 years’ old news agency providing specialist business and trade publications with international news and features – see https://www.internationalnewsservices.com