How should Britain negotiate trade deals post-Brexit?
Jul 18, 2016
Policy Exchange hosts Dr Geoff Raby, one of the most pre-eminent trade negotiators in the world.
Dr Raby is a former Australian Ambassador to China and to the World Trade Organisation. As the new government looks to secure the best possible deals with non-EU countries, and with countries such as Australia already indicating they are keen to strike a free trade deal with the UK, the event sets out the challenges and opportunities of negotiating these agreements.
Featuring contributions from Alexander Downer, Australian High Commissioner to the United Kingdom, and closing remarks by Sir Lockwood Smith, High Commissioner of New Zealand.
Introduction: Dean Godson (Director, Policy Exchange)
Good afternoon. Welcome. My name is Dean Godson. I’m Director of Policy Exchange and it’s a great pleasure as always at Policy Exchange to be ahead of the game, and certainly we’ve proven that today with the spontaneous, near spontaneous arrival in London of one of the great authorities on world trade, Dr Geoff Raby, formerly Australian Ambassador to China and Ambassador to the WTO. Also honoured to be joined, in light of this very timely discussion, not least on trade with the Commonwealth, by Alex Downer, High Commissioner of Australia. Obviously there have been conversations between the Australian Prime Minister and the British Prime Minister this past weekend, and Sir Lockwood Smith, High Commissioner of New Zealand, whose government of course so generously offered to provide trade negotiators to the United Kingdom when it was discovered that it was a skill which we ourselves had lost some years ago. So it’s a great honour to be able to welcome all of our guest speakers. We’ll then be throwing it open to the floor for questions, so look forward now to calling upon Geoff Raby to do the keynote address. Thank you.
Dr Geoff Raby, former Australian Ambassador to China and to the World Trade Organisation
Thanks Dean. Good afternoon everyone. It’s a great honour and privilege to be here. I just happen to be transiting on my way from Beijing to Rotterdam for my daughter’s wedding at the end of the week, and Alex, never backwards in coming forwards, seized the moment and put me in for this. It’s a huge honour to be here, and I’m not really sure if I’m the right person to be speaking to you. It’s some time since I’ve been at the front line of Australia’s multilateral trade, regional trade negotiating efforts. I should also say that being here with Alex is a very special moment because he appointed me not once but twice as Ambassador, first time to the World Trade Organisation and then to Beijing. It suggests Alex is a bit of a slow learner.
But luckily he won’t have to make the mistake a third time.
Lockwood Smith, Lockwood and I have spent hours and hours locked in rooms in different parts of the world negotiating trade deals and it’s terrific to see Lockwood back again after these years.
It goes without saying that Brexit has created enormous uncertainties and to abbreviate Donald Rumsfeld’s famous saying, there are many more unknown unknowns than other things, known knows at this stage. It’s a very uncertain period, particularly, I find, in trade policy, and as I was thinking about my remarks today I was reflecting on just how complicated this whole exercise is going to be for the UK to work its way through it. The more you look at it, the more complex it seems to get. I will only deal, today, with the non-EU options. I’m not very expert on Intra-European negotiations and I think the external elements, the WTO and the bilateral dimensions to it are really quite important, and require, I think, a great deal of careful thought and assessment. The sort of relationship, though, that the UK establishes with the EU will have obviously a major bearing on the UK’s trading relations with other countries, and of course with the WTO. However, and this is probably the main [3:33] of my remarks here today, working out the UK’s relations with the WTO will be essential to the UK’s negotiating trade deals bilaterally and plurilaterally with other countries. So it needs to fix the WTO dimension before it really can make, I think, much progress in the bilateral and the plurilateral.
With Brexit, for the first time, a country that was part of an existing trading bloc, and which has relied on the bloc’s trade negotiators and legal agreements, will now have to assume responsibility for its trade policy and negotiations. For 43 years since joining the EEC, Brussels has led trade policy and negotiated on behalf of the EU. In the years since the UK devolved its national responsibility for trade policy to Brussels, the world trading system has changed profoundly. The single biggest change was the creation of the World Trade Organisation in 1995 at the end of the Uruguay Round of multilateral trade negotiations.
Contrary to expectations at the time the WTO was created, the world trading system today is dissected by numerous bilateral and plurilateral trading arrangements, whereas the leading trade economist, Jagdish Bhagwati once memorably described them as a spaghetti bowl of overlapping and intersecting trade arrangements. And not all, in fact probably most of these arrangements are not as free and as open as the names often imply. The UK and its Trade Minister and trade negotiations now find that they need to leap forward almost half a century of international trade developments into the present. The task is enormous. It is reported that the UK is seeking to employ 300 experienced trade negotiators urgently. It is likely that this number is far underestimated. The Australian government, for example, through the Department of Foreign Affairs and Trade alone, employs about 160 officers to deal with multilateral and bilateral trade, and key departments such as our agriculture department or our industry department would have 20 or 30 experienced trade negotiators among their ranks, and the customs department, which administers Australia’s antidumping and countervailing duties regime, would have even more. Moreover, in the case of Australia, most of these people are administering mature agreements. Where new trade agreements are being negotiated, the staff resources required spike up significantly. The UK could also … and most likely will be negotiating on many fronts simultaneously.
With Brussels having responsibility for trade negotiations for so long, there is probably very little existing experience within the UK on which to draw. Of course some UK trade negotiators will return to the UK from Brussels, along with the general efflux of former UK Brussels officials. Ironically, while Brexit had a lot to do with community concerns about immigration, at least in the trade area this is likely to create demand for more migrant labour.
The New Zealand government has already, as we’ve heard, offered the technical assistance in this regard. 50 years ago, the WTO did not exist. Britain then was a member of the GATT, the General Agreement on Tariffs and Trade. Then the GATT had something like 50 members. It was a small club with strong US commitment to it as a bulwark against communism during the Cold War. The GATT used to be described, wittingly, as a group of national officials gathered on the shores of Lake Geneva, conspiring against their national governments in their national interest.
The GATT had a long and strong trade liberalising ethos. Officials and members of its tiny secretariat really did believe that they had a mission to prevent their governments intervening in trade in ways which harmed their own economies. A much heard saying in those days was that the GATT was a member-driven organisation. Its secretariat existed to assist members to manage their treaty obligations towards each other. With the creation of WTO, the GATT was replaced with an entirely new organisation.
Firstly, the range of areas of a country’s trade covered by internationally binding agreements expanded considerably. Whereas the GATT was limited to trading goods, the WTO covers, as well as trade and services, intellectual property rights, trade-related investment measures, sanitary and phytosanitary measures in agriculture, government procurement, and, concluded subsequently to the Uruguay Round, a supplementary agreements covering trade in information technology products, environmental technologies and the trade of least developed countries.
The WTO also created a dispute settlement mechanism. This was a major international institutional innovation of the Uruguay Round, and is the only multilateral dispute mechanism with power to enforce its decisions, or rather to impose costs on those members who are found to be in breach of their obligations but conferring benefits on the trading partners at the expense of those found to be in breach. So it’s not a punitive arrangement; it’s intended to restore the balance of rights and obligations between members if they’d been breached, the balance of rights and obligations that were struck at the conclusion of the round. The dispute settlement mechanism is an essential part of the WTO. The UK will need quickly to come to grips with its jurisprudence, which after 20 years now of operation and hundreds of disputes having been heard, is now quite substantial.
Most members of the WTO have today deep experience in the WTO’s dispute settlement mechanism, with dedicated teams of lawyers who have specialised in this area of international law. The major players, the US, EU, China, India, Canada and Australia, have invested heavily in developing skills necessary to represent their countries and defend their interests. In the WTO, the UK does not have its own schedule of commitments in goods and trade and services, and this is going to be a key issue to resolve in coming months.
The UK’s commitments are those of the EU. It also has to sort out tariff rate quotas and agricultural subsidies and it needs a way of apportioning these between the EU and the UK which will be satisfactory to all other WTO members.
Legally it would seem unclear at what point in the Brexit process the UK could begin to do this, to enter into these negotiations with other WTO members, but preparatory work should be underway soon. Indeed, UK officials should be trying, if they’re not already, to reach an understanding with Brussels that while still legally a member of the EU, the UK could commence preparatory work for negotiations with the WTO membership as a whole. At the appropriate time, the WTO will need to convene a UK working group to negotiate these matters. That’s the schedule of commitments. This will comprise interested WTO members.
In view of the UK’s trade and investment reach, its working party is likely to have many acting participants. Unfortunately, as we know, in international negotiations, the bigger the number, the slower the negotiations will be. In principle the process should be relatively straightforward. The UK’s economy is largely open. While under the EU’s competency the UK has implemented all the relevant domestic laws and regulations to bring itself into conformity with the full range of WTO agreements. From an economic perspective, there would be little or no adjustment to be felt. The question then arises whether the UK can negotiate a EU Plus agreement in the WTO on its own, now it is freed from the EU’s protectionist baggage.
The EU’s trade liberalising potential was always constrained by agricultural sensitivities in member states such as France and the usual group of suspects. Britain, together with Sweden and the Netherlands, was always something of an outlier, being more relaxed about opening agricultural markets, but in the event all ended up toeing the more protectionist line from Brussels.
The UK’s approach to the WTO will be an important early post-Brexit test for the British government. To negotiate an EU Plus agreement would take longer than simply adopting the EU’s schedule of commitments, but it would confer a lot of advantages on the UK. Many people talk about a minimums way of dealing with this WTO issue. A delete and replace exercise, deleting the name EU wherever it appears in the schedules of commitment and replacing it with United Kingdom. Some people feel this could offer the quickest route, but it’s not clear at this stage whether such an option is in fact open to the UK. Presumably most members of the WTO would go along with this in principle. While it seems fair and reasonable, some members might, however, take the view that the extent of the EU benefits also relates to the size of its market and hence the reciprocal benefit for non-EU members; by which I mean, other members of the WTO might say, well, we paid for that opening for the EU, but that was a much bigger prize to be had than one that’s just the United Kingdom. So that’s why I say a delete and replace approach I think could be unlikely to get broad support amongst the WTO membership.
So as an example, India for example may have agreed to a certain amount of market opening in a product or service in response to the EU’s demands because of the value of a reciprocal opening to the whole of the EU market; but it may be much less interested in expanding that opening to the UK alone. It may also feel that the balance of its commitments with the EU has been diminished by the UK’s absence from the schedule. The more one looks at the UK’s position within the WTO, certainly to me the more complicated it seems. The UK then could be looking at a protracted negotiation as it tries to strike a balance of rights and obligations with all WTO members.
It would be surprising if the highly competent Secretariat at the WTO is not already working on a creative solution to this. Having said that, I would note that a search of the WTO’s website for Brexit this morning only threw up the question, ‘Are you looking for Brett?’
Whoever she is, because it was spelt in the Scandinavian way. In any event, it’s important for London to understand that because of the consensus-based decision-making of the WTO, which is both its major strength but also a significant weakness, nothing is likely to happen quickly. Nevertheless, let’s look at some of the bilateral and plurilateral opportunities. If the WTO then seems too hard and the UK feels it cannot wait that long, bilateral FTAs may offer alternatives. However, we’re in relatively unchartered waters and really expert legal opinion will need to opine on this if the UK hasn’t settled its schedules in the WTO.
The US, for example, has legislated that it would not negotiate FTAs with a country that did not have legally binding WTO schedules. Assuming, however, that the WTO issues can be sorted out expeditiously, then the UK is actually very well-placed to begin FTA negotiations with other medium-sized, relatively open economies. The UK should see to secure agreements which aim for high levels of liberalisation across goods, including of course agriculture, services and investment. The agreement should also achieve high levels of intellectual property protection. The UK’s FTAs should be WTO Plus, that is going beyond what has already been negotiated in the WTO. Negotiating FTAs on its own account and not with Brussels also has the advantage that the European social agenda does not have to be brought into the trade negotiations. The EU has also been constrained in its trade negotiations, especially with developing countries, by insisting on including nontrade issues such as labour standards and human rights. The UK is likely, however, to continue to follow Europe on including trade and environment links in any trade agreement. And this is also a potential sticking point when dealing with developing countries.
While some may be correctly concerned at the loss of the UK’s bargaining weight when negotiating agreements outside of Europe, in the past two decades of heightened FTA activity, we can find many examples of small countries achieving outcomes which met their objectives from the negotiations: Chile and China, New Zealand and China are very good examples of this, as was Australia’s FTA with the USA and more recently with China. Relative economic weight is therefore less decisive, in my view, than clarity of purpose and objectives, skills of negotiators and government cohesion around negotiations to be held over a longish period of time. The UK then has many options and many countries that would be keen to conclude an FTA with it. The UK’s dance card is likely to fill up quickly and as we’ve already heard, the Australian Prime Minister has already offered his hand. To some extent, given that all FTAs involve large amounts of work, the biggest challenge for the British government is to set its priorities judiciously. Strategically it’s important for the UK to begin its FTA negotiations with countries that it will be able to achieve high standard WTO Plus agreements, so that it sets the bar high for any subsequent negotiations. Medium-sized, open economies with a track record of successfully negotiating bilateral FTAs are obvious early starters. In view of the size of their economies, they have the advantage of having interests across a broad range of sectors, just as the UK does, providing wider scope for trade-offs in the negotiations. These countries could, for example, include Canada, South Korea and Australia. Smaller open economies also with substantial recent experience in negotiating bilateral FTAs, such as New Zealand, Chile and Singapore, would be also obvious early targets.
While potential agreements with these countries, the smaller ones, might be concluded quickly, their main interests are limited in each case to relatively few sectors and industries. Not only are their markets small, but more limited sectoral coverage also reduces their overall value. The US would of course be a priority and certainly ahead of other big economies, but it would be a major exercise in terms of the resources that would need to be committed. Alex lived through that when we negotiated our FTA with the US. It’s a huge undertaking.
China and Japan, both offer massive markets if agreements can be concluded. Encouragingly, over the past decade both have done FTAs with a range of countries. These FTAs, though, are of varying qualities. Doing a high-quality agreement with either China or Japan will also take a big negotiating effort. We started our negotiations with China in 2005 and only concluded last year. New Zealand, of course, started just before us and concluded much more quickly than we did, but that reflects, I think, the breadth of the sectors and the range of industries that are involved in the different negotiations. After many years, both China and Japan did conclude with Australia, last year both China and Japan concluded high-quality agreements, high-standard agreements, notwithstanding ongoing differences over agriculture.
In Japan, Prime Minister Abe has shown that he’s prepared, politically, to stare down the agricultural interest if he believes a wider geopolitical interest can be advanced via an FTA. For him this is usually competition with China and to avoid Japan’s being marginalised by China internationally. An FTA with the UK would therefore be particularly attractive and possibly even urgent for Abe.
Brexit has upturned a central plank of China’s strategy for Europe. China has for some time viewed the UK as its entry point for Europe. When strategic settings and assumptions change unexpectedly for China, the leadership often takes a long time to assess the implications and reposition itself. This is likely to be the case with Brexit. While an FTA with the UK would have its attractions and advocates within the Chinese system, Europe strategically is a much bigger prize for China than of course the UK. China will want to assess the implications of a possible FTA with the UK in terms of its broader strategic priorities with Europe. India always generates excitement as a potential FTA partner, but it has shown itself reluctant to do deals and bring negotiations to conclusions. It’s a most difficult negotiator. Were the UK to enter into negotiations with India, it would chew up a lot of resources with, in my view, very little chance of a high-quality agreement ever being concluded.
Regional agreements also offer good prospects, so the more partners involved, the less trade diversion that occurs, so it’s more economically efficient, but regional agreements, like a multilateral agreement, tend to be less deep and less market specific than bilateral agreements.
So to bring all this to some sort of conclusion, post-Brexit trade policy for the United Kingdom is replete with many complex and difficult challenges. Sorting out its trade standing with the EU and schedule of commitments in goods and services in the WTO are by far the two highest priorities. Both have a lot of unknowns and are likely to be messy and protracted. Understandably the British government will want to be seen to be active across many fronts and to draw attention to the new possibilities of the UK negotiating its own bilateral FTAs with countries around the world.
Once its WTO schedules are sorted out, the UK does have an attractive list of countries with which to negotiate. It also has a real chance to begin with high-standard agreements that may become models for subsequent negotiations, for example with China. It must therefore avoid doing quick and dirty agreements for the sake of short-term domestic political advantage. It must also set about educating the public on this point.
Whatever the government’s priorities and ambitions, ministers need to understand it will require a lot of resources and skill to support each of the negotiations, even when dealing with small countries, and a long-term commitment at the political level to see various negotiations out.
Thank you very much.
Alexander Downer, Australian High Commissioner to the United Kingdom
Well thanks Dean, ladies and gentleman I just want to say it’s a pleasure for me to come along with Geoff Raby, who, as he was explaining earlier, has been our ambassador to the WTO and also to China in the time that I was the Foreign Minister, so we worked together on some pretty challenging, amongst other things, international economic issues.
I don’t want to add a lot to what he’s said except that if we were to be asked to give some gratuitous advice to the British government at this time, other than giving you advice that would be entirely beneficial to Australia …
… our advice would be built around a very simple point, which is that Britain now has to, the UK now has to negotiate its schedules, as Geoff was explaining, with the WTO, and also at the same time look at trade agreements that it can make not just with the EU but beyond the EU, and the easiest starting point is to be going to these negotiations as an open and liberal economy. So if you want to renegotiate your schedules with the WTO, or you want to get into negotiations with other countries, and you have a protectionist bent in some area of policy, then that is going to complicate the agenda for you, no doubt, and quite significantly. And equally, and this is a problem we’ve had with the EU, by the way Australia has free trade agreements with all of its major economic partners except the EU and the reason we don’t have a free trade agreement with the EU is partly that the EU has not given priority to negotiating such an agreement with Australia, but they’ve probably done that because they want to carve out substantial sectors which are important to us, not least agriculture … let’s mention that, let’s put that on the table, ‘cause the New Zealand High Commissioner is about to talk as well and it’s much more than Australia at the very heart and soul of New Zealand’s economy. So for us to negotiate a free trade agreement with the EU, which is something we do want to do and we’re doing a scoping study with the EU on that at the moment, it’s not going to be an easy matter, because of the inherent protectionism of the Common Agricultural Policy.
Geoff also alluded to something else which is quite important. The more you want to bolt on to a trade agreement, the more non-trade issues or non-trade let me say trade and investment issues, you want to bolt on to a trade agreement, the less easy it will be to conclude that trade agreement. SO when the EU came to us some years ago, when I was the Foreign Minister, and said it wanted to conclude what was called a framework agreement, which is now concluded but not ratified, with Australia, we said well that’s great. We have common values and identity with the European Union, and that shouldn’t be difficult. And they said, ‘Yes, but it’s not just about various aspects of framework, education, scientific cooperation, all those, political cooperation, all those sorts of things; we want to insert a clause in it which is that if you, Australia, breach certain standards of human rights then we have the option to terminate the agreement.’ And I thought, ‘Well, it’s never going to happen. We are a paragon of human rights! The world’s sixth-oldest continuously operating democracy, Australia.’
A lot of them are not continuous, if you know what I mean!
So I thought I don’t think this should be too much of a problem. I took it to our then Prime Minister, John Howard, and he said, ‘There is no way I’m signing that thing or you’re going off to sign that thing with the European Union, because I’m not going to be lectured to by the European Union on issues of human rights.’ And you know, two world wars and our soldiers sent over here and so on … and so how dare they … and he’s of that generation.
We have finally concluded that agreement but that held up that framework agreement for years, so imposing human rights standards, bolting on, if you like, to trade agreements, human rights standards, various social standards, labour standards, yes, even environmental standards, it’s a complication which makes the negotiations more protracted.
So finally what do we in Australia think about this situation here in the UK? Well, Brexit decision is made by the public so now we need to secure our huge economic interests here in this country, and as our Prime Minister said to Theresa May on the weekend, we’d be willing to negotiate a free trade agreement with the UK but we would want, as Geoff has said, a quality agreement, not just a symbolic one. Australia’s the twelfth biggest economy in the world and it’s a substantial trading economy, so it would be worth your while investing a bit of time in an agreement with Australia, and if you do approach Australia as a free trader, as an open economy, as a country which doesn’t want to bolt on a whole lot of extraneous political issues to a trade agreement, you can conclude a trade agreement with Australia pretty quickly. When I think back over the various trade agreements we’ve negotiated, we had one with New Zealand which goes back to 1983 I think, which is called CER, Closer Economic Relations. I think I would count that as sui generis really, and in a sense easy to do between Australia and New Zealand, for reasons that you can imagine, but we, in my time as the Foreign Minister we negotiated free trade agreements with Singapore, Thailand, and most importantly of all the United States of America.
Were they complicated? The problem is only really the politics. There are technical issues that have to be dealt with, but the difficulties were with politics, but even with the United States of America we negotiated, I’m trying to remember how long that took us but I think only a couple of years, it didn’t take us a huge amount of time, with the free trade agreement with China we began the negotiations in my time, the government changed in Australia, I’m now the High Commissioner so I won’t comment on that … the Australian people had their say … and the new government, the then government wasn’t so keen on some of the parameters of that negotiation actually, so they never concluded it, and when the government changed back again in 2013 that agreement was quickly concluded. Ditto with Japan and Korea.
So I do not see these problems as insurmountable, but I think the last point I’ll pick up of Geoff’s, I think this is a really important point he made, it is that governments around the world are more inclined to want to negotiate free trade agreements with countries which are not only economically advantageous to them, but where they see some geopolitical advantage in doing that. And Geoff has alluded to it I think, a country like Japan would see a very clear geopolitical advantage in negotiating a free trade agreement with a P5 country, a country which is a permanent member of the UN Security Council, fifth biggest economy in the world as you like to point out, and is …
As the pound goes down, it might become the sixth.
But anyway … a huge economy. And likewise for a country like Australia, for all the very obvious historic reasons, we would be delighted to do a free trade agreement with the UK and you’d find it easy to do them with countries like Canada and New Zealand I suspect as well. But geopolitics would certainly come into play here. You’d have a lot of difficulty with a lot of developing countries, you’ll find it quite easy with many of the developed countries with which you’re likeminded.
So, thank you very much.
Alex, thank you. We now throw it open to the floor for questions to be directed to our panellists. As ever, the only rule is no question too outrageous, you just have to give your name and organisation.
Gavin McNicoll, Eden Intelligence
Just touching on the last few points you made about the difference between developed and developing nations, is there some kind of shortcut available through an open architecture rubric agreement that almost any developing country might be able to sign up to in a relatively short period of time? Some shorting of the process of management would seem to be a good idea in this context when there’s so much work to be done. Is there a framework rubric that smaller countries could use?
With the EU you have the ACP agreements of course, so Africa, Caribbean and Pacific agreement. It used to be called the Lomé Convention, it’s now … I’ve forgotten now, it’s [34:29]. But you have these agreements, which by the way a lot of developing countries are really worried about Brexit, because they’re going to lose, potentially lose preferential access to the British market through the ACP, Africa, Caribbean and Pacific arrangements that the EU has with them, and Britain has been a big driver of that because of the traditional trade relationship between particularly Commonwealth countries in Africa, the Caribbean and the Pacific. So something you will need to address right at the beginning is how you’re going to replace those arrangements you currently have through the EU, particularly thinking here of the Commonwealth countries. I think something like a Commonwealth free trade agreement is just fanciful. I can’t even imagine how you’d ever do that because so many of the developing countries in the Commonwealth are incredibly protectionist. This whole notion of import substation is very popular in many parts of the developing world, but they will want, the Commonwealth developing countries, to keep this preferential access into the UK, so I suspect that will be at the top of your list of priorities when it comes to dealing with developing countries.
I think a part of that Africa Caribbean issue you’ve talked about may well be resolved in how the UK deals with some of the extra agreements in the WTO. There is a developing country, [36:09] country agreement now, post Uruguay Round, some of those add-on agreements. They’ll have to deal with that element in and of itself, address some of those.
To the point about a general framework agreement, in a sense countries like New Zealand and Australia have done now quite a number of high-quality FTAs, have that template. The template itself is not so difficult. It’s always what you can [36:33] to put into it, and of course the schedule of tariff and services concessions for the FTA is, much of the negotiation is over. We know the areas that have to be negotiated, we know how to deal with anything, so for example sanitary and phytosanitary agreements, in an FTA we always, as New Zealand does, all of us, just refer back to the WTO and let the WTO agreements deal with that. There are a number of cases where that happens. So it’s not really all that mysterious what has to be done and how to do it. there are some very good examples around, but as they say, it’s an old cliché, I’m sorry for repeating it, but the devil’s always in the detail and that’s what takes a lot of time to work through. And each structure of each economy is so different, that each negotiation at that level is like doing it for the first time.
Polly Jones, Independent Researcher
I’m interested, do you think the UK should negotiate and try and get TTIP and CETA done and part of it in a very short time, before we Brexit? And also I was quite interested in how high you hold the WTO in your estimation when itself has really struggled to get much negotiated recently. So should the UK really be putting lots of time into the WTO when not much has come out of it in recent years?
I think the problem is it’s a technical, legal issue with the WTO, they have to sort some of these things out, they have to sort the schedules out. There are different views, so there is a view around, as I said before, could be delete and replace, and that could be quick and very expeditious, but the other members will have to say yes, and what is it now, 186 members of the WTO. I find it inconceivable to think that they’ll say, ‘Yep, OK, fine, just replace Europe with the UK.’ On the WTO itself, yeah, sure they’ve struggled with a new multilateral round, and effectively the Doha Round is dead. But they have done a standalone services agreement, albeit China’s not a member of that; they’ve done the Information Technology Agreement mark II. Lockwood was involved in mark I very much. There’s an agreement on trade in environmental goods, which was a fully multilateral agreement. They’ve actually done as much as they can without having a full multilateral round, and that’s forward movement, but it provides the framework and structure within which nearly all world trade is conducted, and sure it’s underwhelmed in recent years, more and more members have been taken on board, but it provides stability in the international trading system. As I used to say when I was involved in WTO matters, there hasn’t been a war fought over trade or economic matters since … the WTO system was created. It’s a major contributor to global peace and stability, and the dispute settlement mechanism is very special for that reason. Unlike the Hague Tribunal and its decision on the South China Sea and so on, which is completely unenforceable, and you have to ask yourself why do it, with the WTO it has the mechanism and means to enforce its decision, so even countries like China will be taken to the WTO and they will be found to be in breach and they will have to set about, and do set about, implementing the judgement against it. So it’s extremely part of the global architecture, and I think I would say the WTO is very alive and relevant today, even if it has not done one thing that it set out to do, and that is to have another broad multilateral round. Thank you.
Just on TTIP and CETA, I think we would take the view that well CETA is nearly done, so presumably that is going to be concluded before Brexit occurs, presumably it is. With TTIP, good luck. I very much hope that will be concluded. I’ve made the point, going back to something that both Geoff and I have said before, these trade agreements are not just about economics; they are also about geopolitics and the United States and Europe agreeing to something akin to a free trade agreement is a huge geopolitical statement. Or putting it the other way round, complete failure to reach that agreement would be a significant, in my view a significant weakening of the perception of the Western alliance. So sometimes I’ve taken the view it’s better not to get into a negotiation which might be difficult and might fail because the effect of failure will take you back further than you were at before you attempted the negotiation. And TTIP runs the risk of falling foul to that. But whether TTIP is concluded, and there’s a lot of political resistance of course, including some here, to TTIP, but the political resistance doesn’t seem to be so much in America. With President Trump it might be another story <laughs>, well you know, the world might be a different place. As I say to people, with President Trump, you ever read Nevil Shute’s book On the Beach? That’s what comes to my mind. God knows what the world will be like, but trying to be a bit more diplomatic …
… you just can’t anticipate at all what will happen at that time, but TTIP is getting a lot of resistance within the European Union, so it would be nice to have it concluded by the end of the year, but that may not happen.
Of course Ava Gardener in the mid-fifties came to Australia to film On the Beach and she arrived in Melbourne on a Sunday afternoon in the mid-fifties, and was asked by the journalist, ‘What do you think of Melbourne?’ She said, ‘It’s a great place film the end of the world.’
A couple of questions for any of you gentlemen. One is that I hear a lot about Britain needing free trade agreements very quickly, I don’t hear anybody saying [43:19] free trade agreements very quickly and so the question that arises to my mind is are we in a position to [43:26] free trade agreements? And I take it as read that Australia would never take advantage of her old colonial masters in their current difficulties, but –
I have to wonder about the rest of the world. And the other question is, as you pointed out, in [43:41] there are trade-offs, domestically. Now I don’t understand how, in the limited amount of time we have, the various interest groups in our society will want to weigh in with what they want and what they don’t want, and [43:57 IA] coordinate things with various involved nations, but what about steel workers versus financial workers in the City environment? I don’t really understand who’s directing [44:12 IA] Is he going to make this up as he goes along? [44:24 IA] How is this all going to work is the question I have.
[44:33 IA], I’m sure the High Commissioners are better placed to comment than me, but just to say there’s always, any trade negotiation you do anywhere, you have enormous internal coordination to work through. You have to work through all the domestic agencies, you have to work through the industry groups, the lobbyists and so on. We gave China, as did New Zealand, market economy status, which you haven’t done in Europe, and that’s going to be something you’ll have to deal with at some point with China, either in the WTO or bilaterally or indeed both. To start our FTA negotiations, in Australia we had to change some of the administrative regulations and it became quite contentious and for six or eight months I was up and down the country constantly talking to small groups and business delegations. The government was being attacked by the opposition for giving all of our negotiation coin away upfront, but there was no negotiating coin because if we hadn’t, we couldn’t start a negotiation; it’ll only materialise by [45:33] negotiation. And you eventually can win the argument in some cases, but that’s why these things aren’t quick and are very challenging, but on the first point, I was saying precisely that. I was saying what Britain needs to do, or can do, is set a very high standard for its FTAs, and FTAs should be a high standard, and New Zealand and Australia that would be our ambition. That’s one of the things that held us up for so long with our FTA negotiations with China. In fact we got into a mindset in policy terms in Australia where it became a mantra it had to be fully liberalising, fully comprehensive, WTO plus and a model to the rest of the world, and hey, we’re dealing with China! It was just the new government, Andrew Robb as trade minister took a more pragmatic approach and sat down and said, ‘These are the sorts of things we want’ and the Chinese said, ‘You can have this, you can’t have that,’ and they made requests on us and we did it. So the UK should in my view, in its own interests, needs to start out with a view of achieving very high standards agreements and I think with countries like Australia, New Zealand, Canada, possibly even with South Korea, you’ve got a chance to bring together very interesting … and maybe the US after the election, a very interesting group of significant parts of world trade at a high standard.
And by the way, you must do serious and good trade agreements, not just do dirty trade agreements for the sake of it. This country, knowing it as I do, it’s a pretty open and liberal country in any case, so for example you have no restrictions here on foreign investment whereas we have a foreign investment review board and investments of more than I think $250 million have to be approved by the foreign investment review board. They typically are but they still have to go through that process. With free trade agreements we’ve increased that threshold to $1 billion, but you don’t have any restrictions and as far as we’re concerned, we are a very big … we’re the eighth biggest foreign investor in the UK, so we have huge investments here in this country, and we would be looking to maintain open access to that market. Well that wouldn’t even be an issue with the British government presumably. And you would want to get some reciprocity with Australia but that would be fine. The UK is the second biggest foreign investor in Australia. I think the only question mark in negotiating a free trade agreement with Australia would be agriculture, the extent to which you would allow us to sell beef, sheep meat and probably be more of an issue for New Zealand dairy products, but dairy products … like we did up until 1973 in some fruit, horticulture … it would probably be quite a good market for us. We have big markets already though so I don’t suppose we would flood the British market, but it would be a market for us and then there would be a question mark about the extent to which Britain would be prepared to open those markets. And I honestly don’t think it would be too difficult beyond that, I really don’t. So at the heart of trade agreements, and the complexity of trade agreements and devil in detail stuff, is the extent to which you want to protect domestic industries from foreign competition and if you have a mindset that import substation is a good economic model, you’ll find it perilously difficult to negotiate trade agreements. In Australia’s case we basically think … I’m not sure the public always agree with this, Australian governments over the years have thought that the more we open our economy to the world, the richer we’ll get. And it’s by the way proved to be entirely correct. That’s exactly what has happened to Australia. So it’s quite easy to negotiate trade agreements when you’re offering up for nothing access to your market, because access to your market is to your benefit. It means we buy cheaper goods and we have more choice and more competition in our market than would otherwise be the case.
Alan Bullen, Open Europe
Just thinking about agriculture, the new agriculture minister, Andrea Leadsom, is from the Free Start Group and they’re looking at tearing up and liberalising a lot of the CAP agenda, so thinking about New Zealand or Australia where you’ve got a highly unsubsidised ag sector, particularly New Zealand, is this something you could work on?
My other brief point was I had this scenario where in ten years’ time the British people will say, ‘Damn Geneva WTO bureaucrats, how dare they tell us what to do?’ Do you have that problem in Wellington and Australia?
Alistair Leaky, Open Europe
Just one question as regards the Australian experience of negotiating trade agreements, specifically as regards migration provisions for example for access for skilled labourers, ‘cause I remember reading that actually that was one thing that complicated the EU India talks was Britain’s reluctance to agree to allowing Indian IT workers liberal access to the EU market. So how does that work from an Australian perspective, and does it make it harder to then control immigration, to also have ambitious and high quality FTAs?
The best and most recent example is China. That was a big demand China made on Australia in the negotiations, to have greater labour mobility access to Australian labour market. We have various working visa arrangements, specific for specific circumstances, which are fairly open actually. China needed it domestically in terms of their own bureaucratic politics, to show that there had been some movement there. The government made some concessions on skilled labour for China, particularly in terms of tests for employment, proving that there was a shortage of labour skills test and so on. And to his credit, the trade minister, Andrew Robb, took a pounding, and the government’s credit, the unions really mobilised against it, but they were able to argue that the bigger picture of the benefits of this FTA with China needed to be kept in mind and focussed on, and in the end the agreement’s gone through, it’s been ratified in the parliament, and no one hears anymore about the labour mobility provisions of the FTA with China.
They’re quite a technicality. The Chinese were particularly interested in bringing in Chinese expertise to work on Chinese-funded projects in Australia, that was a big issue for them. And so there’s a question mark about the visa arrangements we make and we have provision in the agreement to allow Chinese workers to work on these projects, and particularly technical workers, subject to not being able to find Australians to do the job. And that is pretty much our overall law in Australia in any case with what we call 457 visas. This is a completely separate point from the EU and mobility of labour in the EU. One of the things that I come up against here when I talk to people about the post-Brexit environment that you’re going to have to live in, is that you can’t have free trade without free movement of labour. We have free trade agreements that you’ve heard about today and we have no provision in any of those agreements for reciprocal free movement of labour, except New Zealand. The New Zealand High Commissioner looked angry!
And we’ve had hundreds of thousands of New Zealanders moving to Australia when New Zealand’s in recession and we’re booming, and when it’s the other way round they all move back again, but it’s not been a controversial issue. New Zealand, of course, is 4 million people so it’s not going to overwhelm Australia.
We don’t have, other than New Zealand, any such provisions in any agreements and we’ve never been put under pressure. We’ve got much better working visa arrangements with the Americans as a result of our free trade agreement with the US, makes it much easier for Australians to go and work in America than had been the case before. It’s very popular, but it has a ceiling on it.
At the heart of our immigration policy, separate from trade, is a simple phrase that was used by one of our prime ministers some years ago: We decide who comes to our country and the circumstances in which they come. That doesn’t mean we don’t bring people in. We bring 200,000 migrants a year into Australia, with a population of 24 million, through migration we add nearly 1% of our population to our population every year. But we decide who those people are, that’s all, and we have our criteria for doing it, and no trade agreement has undermined that in any respect at all.
Somebody once said to me, from the European Commission, I used to work at the Australian Commission to the EU, someone at the Commission said to me sneeringly, ‘Well you Australians could never join the European Union,’ and I wryly smiled and said, ‘Well we probably wouldn’t apply anyway.’
I voted for Remain though. I mean our country supported Remain, so don’t get me wrong, but that’s history, nothing we can do about what happened on the 23rd June. That’s behind us. We have no debate though in Australia, or almost no debate, about the members of the WTO, excepting when there are cases brought against us. For example we restricted the exports of Canadian salmon to Australia, well all salmon but I think it was the Canadians who took us to the WTO. There’s a lot of salmon produced in salmon farms in Tasmania and it happened that the decision of the WTO panel was made the day before a cabinet meeting was held in Hobart, the capital of Tasmania. I was in the cabinet at the time, and the panel ruled against us and we were required to import particularly Canadian canned salmon, and there was a huge demonstration outside of the cabinet meeting in Hobart, thousands of people there denouncing the government and so on. But on the other hand, a government can throw up its hands and say well, there’s nothing we can do about it, which was true, and we don’t just need to think of ways we might be able to look after our salmon farmers, but we need access to international markets. And it’s never been difficult to argue to the Australian public that if we weren’t in the WTO we’d be cut out of a huge number of international markets and what would the effect of that be on our economy? So yes, you come across people who aren’t in favour of us being in the WTO, but it’s a tiny minority of people.
Thank you. Sir Lockwood, some concluding remarks.
Sir Lockwood Smith, High Commissioner of New Zealand
Thank you Mr Chairman. Ladies and gentlemen, you’re probably wonder what on earth a High Commissioner knows about international trade, but I was, as you heard from Geoff, and it’s great to see him, I haven’t seen Geoff for so many years, but I was once former international trade minister for New Zealand, also minister of agriculture for New Zealand. Prior to that I used to market dairy products across southern and eastern Asia and prior to that I was an agricultural scientist. And so I have some background in some of this stuff. I’d like to pick up first on a couple of comments made about the importance, whether or not you have to be a big economy to get into trade deals or what you have to give away, this kind of thing. I’d like to pick up on something that Geoff said in his talk, and the gentleman here reminded me of it, and that is the issue of clarity of purpose in what you’re trying to do. New Zealand, we don’t believe in I’ll show you mine if you’ll show me yours type of approach to trade deals. New Zealand abolished most of our, in fact when I was in the cabinet we legislated to eliminate all tariffs from New Zealand. We basically have a very liberal economy, and so how we may … and New Zealand has led the world in some ways in developing trade agreements. We’re the first country in the world to negotiate a free trade agreement with China, a full free trade agreement, nothing cheap and nasty about it. We’re the only country in the world to have a free trade agreement with Hong Kong, with Chinese Tai Pei, as well as China. The only country in the world. I was the first trade minister in the world to sign China up to the World Trade Organisation, and of course Australia and New Zealand both have a free trade agreement with the whole of the RCI. Actually along with George Yeo, the Singapore trade minister, put together the initial study to develop that, and the whole Trans-Pacific Partnership started in New Zealand. So I can tell you that clarity of purpose really matters.
Then I’d like to pick up on the next point that both Geoff and Alexander and a number of people have raised, and I think you did yourself: trade agreements that do not have clear purpose and are not comprehensive are more negative than positive. Quick and dirty trade agreements will do you more harm than good. In New Zealand’s experience, first problem is that they set back your other agreements, because people think, ‘Oh, I can do a trade agreement with doing no more than that.’ Secondly they don’t become a building block to a wider strategic approach to trade which is so important. And thirdly, most important of all, fiddling around with a few tariffs and reducing a few tariffs does not open the minds of your business community to the opportunities. In our experience the greatest benefits from trade agreements come not from the reduction in tariffs, they matter, but opening the minds of your business community to what can happen. The New Zealand Treasury, when we looked at our free trade agreement with China when we were negotiating, estimated a certain level of benefit would come from it. Admittedly it was a static analysis. What we found when it was signed in 2008, since then the benefits have not exceeded those estimated by our Treasury by 100%, but actually eleven-fold! Now some have quite correctly mentioned that OK, trade developments are tricky because you’ve got to take your communities with you, you’ve got to take your people with you. If anyone in the UK doubts the importance of this work on reaching out with a liberal approach to trade, all I invite them to do is look at New Zealand’s history when you guys joined the EEC in 1973. We went down the wrong track, we thought you had to protect emerging sectors of your economy, we had to diversify our economy. It was a massive failure. And anyone who thinks that you can actually do really well by protecting some of your industries and not opening up to international competition, just look at what happened to New Zealand. A decade after we started protecting our economy, the New Zealand economy almost went down the plughole. And since then we’ve opened the whole economy up. The Legatum Institute in London now rates the New Zealand economy the fourth most prosperous in the world. We’re only a small place a long way from anywhere. And interestingly we’re always in a lot of competition with Australia. Alexander said Australia’s the sixth longest full democracy in the world. Of course New Zealand is the longest democracy in the world.
Having been the first country in the world to give all citizens the vote.
But let me just make a couple of other quick comments because time is running out very fast, and that is Alexander and Geoff both mentioned CER, the trade relationship between New Zealand and Australia. There’s some really interesting lessons from that because it is still one of the most comprehensive trade agreements in the world. Just a couple of quick things from it. What we did when we negotiated that, we had a review of it after a couple of years and brought the whole thing forward, but what we also did at that point was brought services into the thing, and one of the key lessons from the Australia – New Zealand free trade agreement, services are hugely important to the UK, we adopted a negative list approach to dealing with services. That means that all services are included unless they were specified on a list, so it was a hugely important way to go, rather than saying we’ll negotiate these services, everything was included except stuff on a list. Within three or four years stuff was coming off that list and quite a bit under my signature when I was trade minister, and it’s something worth thinking about. Secondly regulations are a challenge in negotiating trade agreements. With like-minded countries, like Australia and New Zealand, we did it through simply trans-Tasman neutral recognition. An item that can be sold legally in New Zealand can be sold legally in Australia and vice versa. Same with professions. Someone who can practice as a registered professional in Australia can practice, can register same in New Zealand. These sort of little … they might sound like little things but actually they add to quality of trade agreements. And so I just share those thoughts.
Finally I’ll come back to where I started, clarity of purpose. In trade thinking, strategy matters. Strategy really matters. Going out there and just thinking we’ll do a quick agreement with someone here or there, to me, especially if it’s a low-quality one, is certainly to be avoided. Think carefully about how you position yourself globally. The UK has an opportunity to do that now and there are several opportunities to do that. The Trans-Pacific Partnership that was signed just towards the end of last year, I started that out with five countries we tried to bring together and it was a geopolitical development. When we couldn’t bring that together, we ran out of time during the dying days of the Clinton administration, I initiated a little trade agreement with Singapore. There were no trade benefits in it. It was all about strategy, all about trade strategy. First Chile and Brunei joined it, and that became P4, and that’s become the platform on which the Trans-Pacific Partnership’s been built, and it is an open platform, to come back through an issue raised by a gentleman over here somewhere, it is open to other members to join it. And so finally, New Zealand of course, like Australia, think of ourselves as a friend, great friend and partner of the UK, and we stand ready to work with you on all these challenges ahead; as you’ve heard, they’re quite big challenges. But all the best as you address them. It’s worth it. There is no other way, I’ve got to be honest. You’ve got to get out there and run the race and win it, and you guys are good enough to do that. Thanks very much.
Thank you to our panellists for their spontaneity, their flexibility, and all of you for coming at such short notice. That’s all folks. Thank you.