By Peter Ungphakorn
NOVEMBER 21, 2017 | UPDATED NOVEMBER 21, 2017
International Trade Minister Greg Hands has again proclaimed the UK is a global trade champion only needing to “reclaim our position at heart of global trading system”.
I have written a longer piece on this. Here are some key points for busy readers. I’m using the WTO as the context since that’s where “the heart of the global trading system” is.
How to be a trade champion
- Have a policy
- Sort out the UK’s WTO membership terms
- Be large(-ish)
- Have a position that resonates with others
a. be constructive so everyone likes you
b. be stubborn so everyone has to put up with you
- Have a good supply of skilled diplomats and trade officials
- Accept that you still might not be at the top table
The WTO operates a consensus system, which means a decision is reached when no one objects.
In theory all 164 members should have the same decision-making power. In practice, there is an unofficial power structure, even though consensus is ultimately needed: the power structure influences the consensus outcome.
At the top: these days it’s the G5 — the US, EU, Brazil, China, India.
Next level down: the “Green Room” or equivalent — 20 to 30 members because of their influence or because they represent constituencies. They include the G5 plus Canada, Japan, Switzerland, Australia, Argentina, and others representing various groups of developing and least developed countries.
This is roughly how they got there and what the UK would need to join them
Obviously. But when politicians talk about the UK being a champion of trade, they are also advocating the UK being much more of a free trader than it is now, particularly in agriculture. This has not been debated properly and is certainly not the official policy of any of the main British political parties. In particular, this government has promised to continue to support farmers at present levels, at least for a time. Moving away from that would involve some substantial changes that have barely been discussed.
If the UK ends up in a customs union with the EU, then its trade policy for goods (not services) will be more or less the same as the EU’s. If it doesn’t, it may have a freer hand, but a lot also depends on how it aligns its regulations. Even though a customs union is not government policy, some still advocate it. Other policies are also still up in the air.
The UK (and EU) have only just started talking about establishing their separate commitments in the WTO on tariffs, “tariff quotas”, farm subsidies, and on opening services and public procurement markets — explained here (WTO membership), here (tariff quotas) and here (UK negotiations in the WTO). It’s taken months just to prepare data for the tariff quotas and the real negotiations have only just begun (in mid-2018).
These commitments will be needed by Brexit day, March 29, 2019, so that the UK’s WTO membership terms are clear, and it’s going to be hard work. There’s no harm in having a long term vision, but for now the focus should be on the more urgent nitty-gritty.
A key reason for being either in the G5 or the Green Room is economic size, particularly the share of world trade. As a rough guide we can look at WTO figures for goods exports.
Among the G5, the EU would be top if counted as a single entity, followed by China and the US. But the WTO ranks EU member states individually (Germany 3rd, the Netherlands 5th, etc) and this puts India 20th and Brazil 25th.
Among countries in the Green Room, with their ranking, are: Japan (4, after Germany), Canada (12 after a number of EU states, Hong Kong and South Korea), Switzerland (15), Australia (23), and so on.
And the UK? Tenth, putting it well inside the Japan, Canada and Switzerland group.
The factors that affect trading size include the size of the economy (population size and per capita income), the value of products (which goes some way to explaining Switzerland’s high ranking), and also having a large port (as with Hong Kong and Singapore, and to some extent the Netherlands).
Size is not the only reason Brazil, China and India are in the G5. They each speak on behalf of different groups of developing countries. Brazil tries to bridge the differences between agricultural free traders (Thailand, Uruguay) and those wanting to protect their poor farmers (India, Indonesia, Kenya). In different ways China and India sometimes speak on behalf of weaker developing countries.
At the next level are coordinators of various coalitions of shared interests. Australia represents agricultural free traders. Switzerland coordinates a group of more advanced but more defensive agricultural producers. Others represent the African Group, the least-developed countries, and so on.
If the UK sticks to its present trade policy, it could find that the EU still best represents its position even after Brexit.
Or will its trade policy change? For now, that’s unclear. To be a leader of any kind, it would have to develop a new separate policy of its own, and one that would resonate with other members. But the field is already crowded. In agriculture, the UK might have to accept the leadership of Australia or Switzerland, depending on which direction it chooses, or be a lone voice with no followers.
One way of winning friends and influencing people in the WTO is to help break a deadlock by proposing a compromise that everyone likes enough to want to work on it. This requires knowledge, skill and subtlety. It means understanding what might and might not be acceptable to others and the creativity and imagination to produce something new.
Countries rarely do this on their own. In the past few weeks, China has produced a new proposal on disciplining fisheries subsidies on its own, but the paper essentially reflects a Chinese concern and will need to be negotiated. By contrast, the EU and Brazil approached the negotiations on curbing farm subsidies from different directions and proposed a draft compromise. Whether that succeeds remains to be seen.
India has a decades-old reputation in the WTO for being a blocker although it would argue that it is defending the weak and vulnerable. Most recently, it held up a new agreement on streamlining border procedures (“trade facilitation”) in order to push a separate proposal that would free public stockholding of food from WTO subsidy disciplines.
Anyone can be stubborn. From time to time the US and EU have been too, so size counts as well. There’s no doubt that a large and vocal India was difficult to ignore.
An anecdote. In 1986 the US and EU wanted to launch a major new round of negotiations. Some hardline developing countries led by India, Brazil and Argentina opposed the move. Finally two smallish countries, Colombia and Switzerland decided to take matters into their own hands. They produced a joint compromise proposal (appropriately nicknamed “café au lait”). More and more countries signed on, and that eventually became the basis for launching the “Uruguay Round” talks, which created the WTO.
In that example, constructive compromise trumped stubbornness.
If you’ve read this far, the need is obvious. Trade is technical and political. If a country is to operate effectively and credibly it needs skilled officials who can understand both the technicalities and other countries’ concerns.
Right now, the UK is in the early stages of rebuilding its capacity to negotiate trade. Its initial focus will be on sorting out its trading relationship with the EU, then on negotiating or renegotiating bilateral free trade agreements with other countries.
Those deals will be important for the UK, but they are not enough to make it a trade champion on the world stage. For some time to come, they will also draw British resources away from work in the WTO.
In fact there is really little chance that the UK will be in the G5 or whatever evolves next. A proper analysis of how countries fit into the power structure is bound to show that.
There is no shame in this. Constructive middle-level roles in the WTO — such as by Canada, Australia, Argentina, Japan, Switzerland, etc — are vital for the trading system. They are all realistic about what they can achieve and they get on with it.
The UK should do the same. Misguided self-importance will only backfire.
• October 7, 2018 — to reflect that WTO talks on UK commitments began in mid-2018, with updated links
• Harbour scene by Abraham Storck, public domain