Brexit: Brexit Britain has a big role to play in promoting free trade and reform of international aid

Brexit: Brexit Britain has a big role to play in promoting free trade and reform of international aid

Need to talk more about Brexit? Well here you go…

The world is certainly changing. That’s not a new phenomenon – it’s been changing now for four and half billion years. But for those of us who measure change over a period of our lifetimes, it is probably changing as fast as anyone can manage.

Yet the change is not just around how we earn a living (who would have thought you could make millions out of posting cute kitten videos on the internet?), or the threat to many people’s future (what do we offer redundant Uber drivers after artificial intelligence gives us driverless cars?). Much of the change will be about how we see ourselves in the world as traditional structures alter in the 21st Century.

The West has a rich and mature economy. We have a standard of living that half the world desires, a broadly stable population and high and stable GDP per capita. We enjoy high productivity. Yet the three things that are fundamental to strong and rapid economic growth – a young population, a growing population and a low starting point – are in abundance across the globe outside the West.

Markets such as Asia are developing fast. Africa, while currently offering little excitement as a destination for Western global traders, will grow at a rate that we risk overlooking, passing up an opportunity to secure ourselves opportunities.

And as economies grow and the economic balance of power shifts, how will the world look in a decade’s time? What will be the role of the US, with its interesting politics, its America First approach and reluctance to enter into plurilateral trade deals? How will it influence the world and play its part?

China is rapidly about to take on the mantle of the world’s largest economy – a position it has enjoyed for all but the last three or four centuries of the last three or four millennia. But China’s economy, as a controlled market economy, is not one we intuitively understand in the West, and its approach to global influence and investment is characterised by the Belt and Road Initiative. BRI seeks to help nations develop a strong infrastructure, but uses Chinese capital, Chinese constructors, Chinese labour and Chinese machinery. The recipients of this investment find themselves mortgaged to the Chinese – and the growth that comes from it helps China as much as the recipient. Yet are those of us in the West, committed to the OECD’s definition of international aid, just a little envious of the Chinese approach of aid tied to trade?

Meanwhile, Russia asserts itself quietly through covert influencing of the West, and looks to build its global presence again; India’s population and influence grow every day (aspirational British brands such as Jaguar are now owned by Indian investors); and smaller economies such as those of South East Asia gather together, strengthening their ties established 52 years ago via the Association of South East Asian Nations (ASEAN), a collective whose economy is expected to surpass that of the EU by 2050.

In this changing world, we need to recognise that the world looks towards Britain with a sense of affection, a recognition that we have a rich cultural history, a tradition of standing up for decency and honesty – and a brand in the Union Jack that sells across the world.

It is remarkable that Hunter wellies have franchises in Tokyo; that housing developments in the outskirts of Shanghai are modelled on suburban Home Counties towns; and that owning a British car – a Bentley, Rolls-Royce, Jaguar or Aston Martin – is seen as the global epitome of class and success (irrespective of who the investors are).

Institutions such as the Commonwealth bring together a diverse group of nations that have a common, British heritage and they are proud of that. But it is not all that simple.

A Thai banker or property investor would be understandably baffled that just a decade after the Asian banking crises in the late 1990s, Britain and America constructed their very own banking crash, having apparently not learnt a single lesson from recent history halfway around the globe. Similarly, as countries look to work together and form alliances, such as ASEAN, there is collective bemusement that Britain seeks to separate itself from what appears on the outside to be a good trading bloc. That confusion is only compounded by the extraordinary splits in the two main political parties and the possibly terminal drive to the left of Britain’s Labour Party.

As a former Trade Minister, my experience in the two years after the Brexit vote sums up how the world view has changed.

Understanding the importance of exporting

In the first few months after the vote, the wider world looked at Britain and asked the question: “What on earth are you crazy Brits doing?’, bemused by the decision to separate from a successful, complex organisation. But as time went by, the refrain changed to: ‘Actually, this Brexit looks interesting,’ as companies realised that if a UK bilateral deal with a third country was better than their own country’s bilateral, it was worth investing in the UK to take advantage of that opportunity.

But the third stage was more worrying. As people looked more closely at Britain, and the chaos of parliamentary splits, it has become more apparent that a guy who might introduce exchange controls, who might nationalise people’s investments, who might tax wealth, might just become a hard-left Prime Minister. Even if he doesn’t, the theory goes (for some), the Conservative Party might pivot left to counteract his influence.

This recent view of Britain, however, might give us a clue as to what lies ahead. Because while we introduce greater risks for ourselves, we also bring forward greater opportunities. As the geo-economic tectonic plates shift, we need to assess whether we leave ourselves more vulnerable by being outside a trading bloc, or more agile, nimbler and more fleet of foot to seize the advantages of global opportunities. So while the risks are greater, the prize is greater. The potential volatility increases.

And we need to ask ourselves just what our role should be in the wider political spectrum of a changing world.

In 1776, Adam Smith published The Wealth of Nations. In it he argued that we should move from mercantilism (where we sold stuff to the rest of the world in order to secure greater gold reserves) and adopt free trade, where we exported our surpluses and imported those things that others made better or more easily than us.

This has been going on now for a few hundred years, and despite flirting with Marxism and socialism, we keep coming back to Smith as a way that works and a way that fits the human spirit. But we must ask ourselves: are we, the sons and daughters of Adam Smith, truly living up to his ideas?

In the broadest sense, the answer has to be yes. We are advocates of free trade and we pride ourselves on our ability to trade freely with the rest of the world. But there was a common refrain during the EU referendum in 2016. Some Brexit campaigners challenged that the EU was holding us back, that we couldn’t trade with the rest of the world because of the EU. In the fog of war, much is said, including myths that don’t bear up to the hard reality of fact.

The broadest measure of a country’s financial internationalisation is the current account – the measure of all money coming in and going out, whether from trade, investment, borrowing, dividends or remittances.

Of the G20 nations, the UK in 2017 had the third highest current account deficit, behind Turkey (5.5 per cent of GDP) and Argentina (4.9 per cent). At 3.7 per cent of GDP, our current account deficit looked shameful compared with China’s surplus of 1.5 per cent, Italy’s 2.8 per cent, Korea’s 5.1 per cent or Germany’s amazing 7.9 per cent.

Even looking at our export performance, far from being held back by the EU, our numbers held back the EU’s. Our exports of goods and services were the equivalent of 30.5 per cent of our GDP, leaving us a lamentable 28th out of 28 EU members in terms of export performance. France was not much better. But a broadly (very broadly) similar economy to ours such as Germany saw exports reach 47.2 per cent of GDP, while the star performer was Luxembourg at a whopping 230 per cent (which is what you get when you combine a tiny economy with a vast financial services sector).

Trying to understand what lies behind these figures is hard. While much was made of our enthusiasm to export more during the referendum, the experience of the Department for International Trade was that the demand for British brands far exceeded our ability to supply. An estimated 400,000 British businesses which had exportable products were not exploiting their overseas opportunities. In taking their products to market, it seems, British businesses do not instinctively look overseas.

When I served as Minister for International Trade, I addressed a Chamber of Commerce business breakfast of 100 or so attendees. Just 15 were exporting already and only half a dozen were looking to export. That was disappointing in itself. But when asked how many were importing, just three hands went up. This from a room of people who sit on Swedish furniture, watching American films on Korean televisions, listening to Japanese hi-fis, wearing clothes made in the Far East, driving German cars. Birmingham’s signature dish is a Balti. We all love a Chinese takeaway. The truth is, we engage with the world – but mainly when it comes to us.

Brexit’s opportunities and challenges

Brexit is the most brilliant opportunity for this country. Brilliant because it can be used as a focal point for us to redefine how we engage with the world. It is the match that lights the blue touch paper of our global rocket. While divisive now, it can be the unifier that joins us in this great endeavour to engage globally. It can define us as a global influencer for good.

But we need to think about a few things first.

In his book The Road to Somewhere, David Goodhart looks at ‘the new tribes shaping politics’. He raises the point that two thirds of all people live within 14 miles of where they lived as a young teenager.

There is, among as many as three quarters of us, a strong sense of place, of loyalty to the local community, of attachment to the locality that we value so much. What a wonderful aspect of our nationhood that we feel so paternal about our neighbourhood.

But there is another side to this. That sense of care and devotion also leads to a sense of protection, a worry that the local way of life might be harmed or changed. As politicians we see this in its simplest form when planning applications are made. Once built, a new development is accepted almost immediately, but not until after quite a protest.

In trade, this manifests itself in odd arguments. Take TTIP – the almost certainly defunct Trans-Atlantic Trade and Investment Partnership between the EU and the US. Hundreds of thousands of emails to MPs were generated complaining that TTIP would result in a sell-off of the NHS as US firms would buy up vast swathes of our much loved health service. Or the recent row when British firm DeLaRue lost out to a French security printer in winning the contract to manufacture our new, blue, non-EU British passports.

Those howling in outrage (including from DeLaRue) protested that it was an abomination that the French should have anything to do with our sacred and symbolic passport. The reality is that these agreements form part of the Government Procurement Agreement, a deal among nations to open up their government buying contracts to other nations, thus creating a more efficient and fair market. We could withdraw, but in so doing DeLaRue would lose far more international contracts to produce other countries‘ passports (and banknotes) than it would gain in keeping the UK’s blue passport. Similarly, companies selling medical equipment and services to US health operators would lose out if we closed our medical market to outsiders.

The same applies to consumer interests and standards. This debate manifests itself with the so-called chlorinated chicken. Under EU standards, chickens are reared in pens at a significantly lower density than American chickens. The result is happier but more expensive chickens. In being happier, there is less chance that our chickens carry campono bacteria, so they are washed in fresh water during preparation for the meat market. But in America, they are washed in chlorine (or the modern equivalent) to kill off the bacteria (something we humans do every time we go to a public swimming pool). Although this sounds unsavoury, it turns out that you are four times less likely to pick up a bug from an American chicken than a UK one.

However, if we maintain our production standards, we will make our home-grown chickens uncompetitive against those imported from outside the EU. The result will be that domestic chicken farmers fail due to a price war. ‘But,’ ask some consumers, ‘if there is cheaper chicken available, why should I pay more just to keep some local farmers happy?’

Similarly, a producer of a desirable product, currently facing barriers to entry in the US, might suggest that we open up our chicken market to US exports in return for his access to the US. And all the while we do these trade deals, we must concede that having just won back sovereignty from the EU, we are ceding just a little bit of our hard-won sovereignty every time we sign a new free trade agreement with another country.

So, the challenge we face as we turn our trading eyes to the horizon is to bring the nation with us. The Brexit dividend – global free trade – is one that is not as clear-cut as one might think. We abandon the European Court of Justice only to replace it with the World Trade Organisation courts. We extract ourselves from the Lisbon Treaty merely to create new, and many more, deals elsewhere. But it is a challenge we must embrace and win.

The aid debate

There is another argument that needs to be won: aid. One of the Conservative Party’s greatest achievements is reaching the 0.7 per cent aid target. Set by the Development Assistance Committee (DAC) of the OECD, the UK is one of just five members (of 30) who have achieved the target. This is something to be incredibly proud of.

But it is understandable that, in the latter stages of the austerity process, people challenge whether this money would be better spent at home. The ‘charity begins at home’ mantra is well used.

Yet consider something as simple as a person’s need for clean water. Every individual needs 1.5 litres a day of drinking water to survive. Two billion people across the planet have limited or no access to fresh clean drinking water, yet we Brits each flush 35 litres of water down the lavatory every day.

It’s almost certainly too simplistic an argument for a complex debate. But a UK shipbuilder recently challenged a decision by DFID to give a developing nation tens of millions to build a ship. “Why’, they reasoned, ‘didn’t DFID commission the ship from us and then give them the completed ship instead? It’s a very good question. Job creation in the UK and help to a developing nation. I struggled to find a good answer.

This brings us back to the Chinese Belt and Road Initiative. China’s money helps developing nations achieve infrastructure ambitions while helping China develop economically. It also secures a Chinese footprint that straddles the globe.

Of course, there is a reduced economic benefit for the receiving country as little of the investment money is spent locally. But China is expected to invest something in the region of US$1 trillion. That blows Western aid commitments out of the water.

Yet it has to be a good thing – a wealthy nation sharing its wealth with those who need it, creating for itself a new market, more global stability, lower migration. But with just one sixth of DAC members achieving the aid target, should we ask if there is something wrong with the target?

So the challenge for new Global Britain is this. First, we must come to an agreement that international aid is a good thing, and that we want to continue to give 0.7 per cent of GDP as Overseas Development Aid money (ODA). If we achieve that, do we want to be free to choose how we give it, tying aid to trade, by abandoning the DAC definition and our membership? Or do we remain in DAC and try to modify the definition of ODA spend, thereby encouraging others to up their contributions? Or should we be quiet and carry on as before?

I suspect that an ambitious, truly Global Britain may want to be an influencer. I suspect that we would proudly hold our head up high if we can change DAC to a more achievable definition, helping others achieve the 0.7 per cent target.

The World Trade Organisation (WTO)

A confident Britain should be looking to extend its reach further. An organisation such as DAC within the OECD is important, but it is already something where we have our own voice. In the new, post-Brexit world it is important that we look to speak up in forums where our membership has been subsumed by our membership of the EU. There is no better example than the World Trade Organisation.

The WTO, and its predecessor GATT, have been instrumental in reducing tariffs to trade. This has been a good thing, freeing trade and helping both consumers and producers within the 164 member countries. But in the last few years, the WTO has identified a fourfold increase in non-tariff barriers – even before we saw the locking of horns of the world’s two biggest economies.

The trade war between the US and China reflects nationalism in the US and game-playing by the Chinese. With the world’s second biggest economy (soon to be the biggest) maintaining it is still a developing economy, and the world’s current biggest economy introducing blatantly protectionist measures, it is clear that consumers will suffer. And not just Chinese and American consumers. When elephants fight, goes an African saying, it is the grass that gets trampled.

What is clear is that a confident Britain has a big role to play post-Brexit. But for its role to be clear and effective, it has to have a sound strategy. It is not good enough to simply say that we need to get our current account deficit down, or to boost our exports. Simply being an advocate of free trade is good in itself, but by itself it does little more than help consumers.

Conclusion

A grand strategy that draws together free trade, reform of aid and ODA, that brings with it the enthusiasm of the population of these great sceptre’d isles, will put Britain front and centre of a maturing and developing globe.

In working as global reformers and free traders, we will play a leadership role in securing a safe and reliable future for our global economy. In so doing, our people will be proud of our achievements, hold our head high as global leaders, yet certain of the security of their local communities.

Moreover, as we develop our own trade policy, and influence others, is now the time for the UK to seek to introduce our social values within trade deals? Workers’ rights, the rights of minorities, women’s rights and protections, animal welfare, tackling modern-day slavery, ridding the planet of plastic waste: these are just a small handful of many progressive policies that we are proud to have championed in the UK. Can we demonstrate, successfully, our ability to influence others to follow our leads though not just our new-found independent membership of global organisations, but by the choices we make when securing free trade deals?

Brexit is just the catalyst we need. The future is exciting. Now is the time to embrace it.

The above is one of more than 35 essays by Conservative politicians included in the new book, Britain Beyond Brexit, just published by the Centre for Policy Studies.









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