The Problem With Post-Brexit Trade Deals

There has been a lot of talk about Britain signing trade deals with far flung countries once it has formally left the EU in 2019. Talk is cheap, but trade deals won’t be…

The UK…will most likely copy the EU’s “schedules,” which set tariffs on goods imported from elsewhere. Once complete, the UK will not be allowed to increase tariffs beyond this level.

But here’s the catch. Countries like China joined the WTO with relatively high tariffs– around 15% on average, though they have dropped to 10%. The UK will join the WTO in 2019 with relatively low tariffs – around 2%, based on those currently applied by the EU. China will be able to trade with the UK on these terms, giving it a significant advantage, which may obstruct the creation of a bilateral trade agreement.

This is such a fundamental point that it’s amazing so little attention has been given to it. If China can already trade on good terms with the UK, it has less need for a free trade deal with the UK than the UK does with China. Why then, would China give Britain a good deal, either in terms of beneficial tariffs, liberalised service markets, assurance that British investors will be treated the same as Chinese?

China exports a wide range of products into the UK, with most of its major exports receiving an applied tariff of no higher than 2%. The UK charges 12% on sweaters, pullovers and vests, but these make up only 2% of China’s overall exports into the UK. By contrast, UK exports into China are heavily dependent on the automotive industry. Unfortunately, these receive some of the highest tariffs in China: 8.26% for internal combustion engines and 25% for completed motor vehicles. If China can already easily sell its goods into Britain, it has no reason to give Britain a beneficial trade deal.

The same is true of investment. Indeed, the UK is one of the most welcoming countries in the world to foreign investors, much to the chagrin of left-wing populistslike Jeremy Corbyn. On the OECD openness scale, the UK scores 0.1 (where 0 is completely open), significantly below the OECD average; China scores 0.4.

In both goods and investment, China already has significant access to UK markets. But despite this, the UK attracts a small fraction of Chinese exports – 2.7%, to be precise.

Some people suggest that the UK could get a better deal by offering political support to China. Right. Given the two countries hold polar opposite views on almost all political matters – from North Korea to human rights – it seems deeply unlikely that any agreement could be found.

So the UK’s post-Brexit strategy is a catch 22.

In the absence of real economic or political gains, China has little reason to agree to a trade deal with the UK, let alone offer serious concessions. The reason is clear. Having a liberal market economy is a blessing. But it also enables foreign businesses to trade with relative ease, stripping the liberal country of bargaining power. If Brexit Britain wishes to retain the liberal attitude to trade espoused by Michael Gove, it will have to accept that good free trade agreements might be difficult to find.

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Our National Parks Show How To Make Brexit Work

I grew up on the edge of the Peak District, so national parks are close to my heart. Places like the Peak District depend on farmers to keep the environment in shape and the rural economy running. In turn, those farmers depend on European money. As far as Brexit is concerned, the stakes are high:

Although just 1% of British people work in agriculture, 12% do in the Peak District National Park, a pattern of economic activity found across all the national parks. In Snowdonia, for example, 80% of the average farmer’s salary – a shockingly low £13,000 a year – depends on European funding.

The income of these farmers is integral to the rural economy, because their land management practices keep the natural landscape accessible to the general public, which in turn draws in domestic and international tourists. Some 25% of people in the Peak District depend on tourism for their livelihoods. Directly and indirectly, farming is the lifeblood of the rural economy.

It is also the root and stem of the natural environment. Despite the damage that overgrazing has done to areas of the Lake District and other national parks, evidence suggests that the environment would suffer if farmers were unable to support themselves. Emyr Williams, Chief Executive of Snowdonia National Park Authority agrees: “without the CAP, there would be nobody to manage the landscape.”

The challenge posed by Brexit is that agriculture, environment and economy – the three pillars of national park existence – are interrelated. Replacing EU funding will not, in itself, ensure that national parks continue to thrive. Like all public bodies, parks need to work with each other, with central government departments and with local stakeholders to survive. Unlike all public bodies, the national parks are doing this already…

If the British national parks are a microcosm of the challenges thrown up by Brexit, they are also case studies in how to solve them. Meeting Brexit head on requires the alignment of agricultural, environmental and economic policy at a local and national level. As Paul Hamblin, Executive Director at National Parks England (NPE), explains: “Policy in national parks is rooted in place. Being place-based means these three areas can be integrated.

In fact, national parks already operate on this basis. Every five years, each park is required to produce a Management Plan. In contrast to corporate or departmental management plans, these are written for the park as a whole, not the authority which manages it – produced through consultations with farmers, business owners and other local stakeholders. Emyr Williams says that, “these could work as a template for agricultural and business payments post-Brexit. But politicians at the centre do not take them seriously enough.” It is time they did.

So the process for solving the challenges of Brexit is already in place. However, there is a lack of clarity over what the solutions will look like.

The national parks appear to endorse a progressive system of payments for environmental management, building on the second pillar of the CAP. They have also displayed a willingness to adopt elements of the market-led approachproposed by the Green Alliance, and trialled in Defra’s Payments for Ecosystem Services (PES).

But this feels incongruous with some of the rhetoric from the farming community itself. The National Farming Union’s Vision for the Future of Farming takes account of environmental priorities, but gives equal weight to ‘productivity’ and ‘volatility’, where it concerns the commercial viability of farms.

….and:

Indeed, for all the important collaboration between parks in England, each authority seems acutely aware of the competitive pressures they face, and each has begun to prepare accordingly. The Peak District plans to emphasise its potential to boost local economic growth – a strategy for advancing the positive impact that parks can have beyond their borders, but also a way to strengthen the case for conserving the natural landscape.

The same is true of the Lake District. Richard Leafe, CEO at the park authority, says that world heritage status – which it won last weekend – will “help make the tough arguments about receiving funding after Brexit.”

National parks offer lessons in the impact of Brexit, the way to address the complex questions posed by it, and the potential barriers to success. It would be a travesty if these barriers led to the loss of truly unique landscapes. To quote one park Chief Executive I spoke to:

“What politicians don’t understand is that we only have one chance…you cannot replicate this landscape anywhere.”

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The people’s Brexit

Amidst all this talk of ‘cross-party collaboration,’ it seems to have been forgotten that political parties and politicians are to blame for landing us in this Brexit mess.

According to the most recent estimate, 73% of Parliament voted for Remain, as against 48% of the electorate. MPs are also far more likely than the general population to have attended private school, to have been to university and to hold liberal views on important matters such as immigration and the death penalty. Building consensus in an essentially homogenous group does very little for society as a whole. The UK needs to find another way.

What are the options then?

One way to do this would be to run public consultation exercises, designed to collect the views of normal people and apply them to post-Brexit policy-making.

But such exercises are too often used as means to market policies which have already been agreed in Whitehall. All too often they descend into politicised ‘show trials’ like the French debate on national identity in 2009, which was seen on the left as a political ploy by President Sarkozy to bolster his support among right-wing voters in the upcoming election. Most importantly, in traditional public engagement, the citizenry is divorced from the decision-making process – they influence but do not determine policies.

The sham of public consultations in a sense epitomises the UK’s democratic deficit. Politicians who do not share the views of their constituents pretend to get ‘the people’ involved while retaining actual policy-making power. A better option is to actually get the people involved…

In a Citizen Jury, small groups of roughly 12 people meet to discuss policy issues in a structured manner and reach consensual agreement – exactly the kind now advocated by politicians from all parties. The theoretical potential of these discussions has been elaborated for several decades, since they were first trialled in the USA in the 1970s. Now, however, psychologists have proven their vale experimentally. Numerous studies show that face-to-face contact is the best way to foster cooperation between different groups: each side demonstrates verbally and visually that they are willing to cooperate, which in turn encourages the other side to compromise and find the middle ground.

Maybe I’m a bit of a romantic, but as a liberal I stand by the principle that every view has a right to be heard and that most people have the capacity to understand the other side, if given a chance to hear it…

There are real issues to be discussed here – values to be traded off and prioritised – but a Parliamentary elite comprised of university and privately-educated liberals is not best-placed to do this. The rallying cry of ‘take back control,’ which inspired so many voters, will not be realised within the constraints of our Parliamentary democracy. More ambition is required. In the 18th century, Britain’s Parliament redefined modern democracy; in the 21st, it can do so again.

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The cost of costing manifestos

Making sure to add up the cost of all your manifesto promises seems like common sense. As I show in this article, though, it is anything but…

The costing of the manifestos is perhaps the most unrelenting of all the election traditions. Like the interminable bore who insists on only paying for his exact share of the restaurant bill, the media police party manifestos of all colours: crying foul for each and every ‘uncosted’ policy and giving praise where spending has been matched with tax – a sort of Tinder for fiscal rectitude.

Costing is a new phenomenon, based on poor economics and politically biased…

But governments are not really like households at all: they are different in type rather than size. Unlike the average household, governments can create money, by borrowing from the bond market. It is this which funds the NHS, public schools and the Royal Navy, not tax income. Sure, governments cannot borrow indefinitely – as the Greek crisis has shown – but in normal times they are able to do so with relative ease. In 1945, for example, British national debt stood at around 200% GDP (it is now ‘only’ 81%), but the Attlee government was still able to fund the construction of the welfare state.

In reality, each penny of new spending does not need an extra penny of tax. To insist that it does is to fundamentally misunderstand economics.

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Theresa is not a leader

There has been lots of broad criticism of Theresa May’s leadership style in the past few weeks. Unfortunately, very little of it digs into which leadership qualities she lacks:

Any leader is defined by their capabilities and the context in which they act. Some excellent leaders can be derailed by an unfortunate change in circumstances. Equally, some poor leaders are able to fly under the radar through periods of relative stability. Until this week, Theresa May appeared to be the former; now it is almost certain that she is the latter – a limited leader whose personal foibles have been exposed by the collapse of political order…

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Why you won’t be buying a driverless car any time soon

A great invention they might be, but excitement won’t buy you a driverless car. As always, the political barriers have been overlooked.

In a time of squeezed living standards where increased government borrowing and privately-funded infrastructure have fallen out of favour, it is likely that revolutionary changes to global infrastructure will be opposed from all quarters. Driverless cars could be run off the road.

But perhaps more importantly, there is a real human dimension to this story, lost behind the giddy squeals of tech nerds:

…driverless cars pose existential questions for several important interest groups. By some accounts, there are 10m Americans employed in industries related to driving…

Consider the introduction of autonomous school buses. It would not be practical to roll out autonomous buses across the board instantly – even in the fastest of revolutions, things can be staggered. So imagine the fear and outrage of those parents whose children go first into the driverless death machine. With nothing less than a well-orchestrated campaign, moments like this could easily spiral out of control, halting the entire process.

It is both frustrating and deeply unsurprising that policy makers have failed to recognise any of these obstacles. But just because Zuckerberg and Musk say it’s cool doesn’t make it good policy.

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The Wrong Time For An Election

At 11.15am on Wednesday, Theresa May announced that there will be a general election on June 8th, a significant step towards implementing her vision of a hard Brexit. In announcing an election – having refused to offer one, up to now – May has taken on considerable political risk.

After all, the very Brexit vote result which delivered her to Number 10 was never meant to have happened. The greater risk, however, is that this election misleads an electorate weary of endless Brexit chatter. If the terms of the debate are not set clearly, Britons may inadvertently allow the Conservative party to define the nature of Britain for decades to come.

And how?

In June, empowered by her election victory, May will argue that she has a mandate for her particularly hard kind of Brexit, when the electorate will, in reality, have voted for her strength in leadership. A vote about competence will be held up as a vote for ideas – delivery as destination…

Her majority secured, May will have the democratic mandate to guide not only the negotiations running up to 2019 but also the shape of the political economy thereafter. Under the conditions of the Fixed-term Parliaments Act, May has the right to govern for five years – up to 2022. This will give her government a three-year free license to alter domestic policy, after negotiations close in spring 2019.

Voters be wary – this election is more important than it seems…

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