What does an inclusive UK trade policy look like?

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5 September 2016

In the face of severe and competing pressures, a UK trade policy that ‘works for everyone’ – to use Prime Minister Theresa May’s phrase – is going to be immensely difficult to achieve, writes Steve McGuire.

The legal and political obstacles to the UK’s construction of an independent international trade policy have been well documented. The legal complexities are eye-watering; as my UKTPO colleague Emily Lydgate points out, the relationship between Article 50 and UK trade policy is unclear. Nor does the UK government have enough expertise in the negotiation and implementation of trade rules.

‘Trade policy has become an increasingly contested area of public policy over the last two decades’.

As messy as this is already, there is a whole other level of complexity to deal with. Setting the legal uncertainties aside, just how will the UK go about constructing a UK trade policy? And how should it?

Trade policy has become an increasingly contested area of public policy over the last two decades. In the context of increasing scepticism about the benefits of globalisation, anti-World Trade Organisation (WTO) protests that culminated during the 1999 Seattle ministerial meeting can be seen as a canary in the mine.

Police pepper spray anti-WTO protesters in Seattle in November 1999.
Photo courtesy of Steve Kaiser (CC BY-SA 2.0)

Though the WTO became a much more transparent organisation – publishing more of its work than ever and admitting private involvement in ways not originally envisaged – broader trade negotiations become more and more difficult to conclude.

In recent decades, the multilateral process has wilted, partly because of societal disinterest and often opposition to grand liberalisation projects.

On the other hand, the number of regional and bilateral agreements has increased sharply. These can be easier to negotiate both because of the smaller number of partners and, until recently, the reduced scope of the negotiations, making concluding agreements easier.

And, in fact, the two recent mega-regionals that attempt to go further than simple trade liberalisation – the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) – are now in serious political trouble. Many civil society groups oppose both pacts because of the privileging of corporate interests in liberalising commerce over social and environmental concerns.

A mural in Valencia, Spain, protesting against the proposed Transatlantic Trade and Investment Partnership (TTIP).
Photo courtesy of Coentor (CC BY-SA 3.0)

Symbolically, both agreements represent the globalisation and liberalisation agendas that have come to be opposed by many voters in the US and Europe.

‘The political leaders of the Leave campaign espouse views on trade that do not necessarily accord with the economic expectations of many Leave voters.’

Brexit can also be seen as a UK-specific rejection of the liberalisation of the movement of goods, services and labour. The political leaders of the Leave campaign espouse views on trade that do not necessarily accord with the economic expectations of many Leave voters.

If the latter were indeed motivated by a dislike of the consequences of liberalisation, then it is not clear that they will welcome a future trade policy predicated on the negotiation of far-reaching bilateral free trade agreements.

As a recent paper by Chad Bown noted, the countries offering the greatest scope for a UK bilateral are developing countries with comparatively high tariffs on UK goods – notably India and China. These are not countries that will be quick to agree to concessions to populist concerns about fairness and wage competition.

There will be even more that will upset sceptics of globalisation.

However unpopular the activity might be, lobbying is a necessary element of the policy process. Governments need to know how proposed regulations will affect their businesses. US trade negotiators have a legal obligation to consult companies when negotiating deals but, even leaving that extreme example out, governments will look to corporations and business associations for information, advice and support.

So, as the UK formulates its new trade policy, lobbying activity will increase dramatically. Firms and trade associations are even now increasing their presence in Westminster to complement their traditional lobbying operations in Brussels.

Firms and organisations are already increasing their Westminster lobbying activities following the vote to leave the EU.

We are already hearing talk of sectoral deals for financial services and automobiles. But sectoral deals are susceptible to the criticism that they favour corporate interests whilst neglecting the broader economy and society.

And non-governmental organisations have been increasingly effective in voicing opposition to corporate dominance of the trade agenda. They were arguably instrumental in galvanising opposition to TTIP.

The Conservative government will come under pressure to create a trade policy that ‘works for everyone’ – to use Prime Minister May’s phrase. Doing that implies greater concern for environmental and social regulatory standards (ironically the very things the EU prided itself on safeguarding in its negotiations) as well as protecting government autonomy on matters like regional economic assistance and sectoral policies.

While no-one should expect a veto, none should feel entirely excluded from the debate.

In short, the government will soon face very severe and conflicting pressures on the content of trade policy. Maintaining the competitiveness and access of UK multinationals means giving a significant say to the very firms implicated in causing the adverse outcomes of globalisation, while addressing the needs of voters implies an element of protectionism that will not sit well with potential trade partners.

How to address this dilemma? This a job for the politicians but it seems necessary that the UK has a full and informed debate about how to make these trade-offs in which business, labour and civil society all have a chance to present their views and the government has acceptable ways to mediate between them.

Both the aggregate benefits from trade and their distribution between broad segments of society need to be aired and, while no segment can expect a veto, none should feel entirely excluded from the debate. Conducting such a debate will be a challenge for both the players and for the press, and perhaps, pace Mr Gove, there might be a role for impartial experts after all.

Professor Steve McGuire is the Head of the School of Business, Management and Economics at the University of Sussex, and is a member of the University’s UK Trade Policy Observatory (UKTPO).

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not represent the opinions of the University of Sussex or UK Trade Policy Observatory.