The three basic things you should know about trade
To coincide with the World Economic Forum in Davos, earlier this week the International Trade Secretary Liam Fox extolled the benefits of free and fair trade and set out how those principles were informing his department’s trade strategy. In contrast to President Trump, Dr Fox looks at the world as a source of trading opportunities, not threats, and is fond of quoting the IMF forecast that 90 per cent of world growth over the next ten to 15 years will come from outside continental Europe.
But it is worth sounding a few notes of caution about what that world of opportunities means for our trade policy, particularly from an environmental perspective. To do that it’s helpful to understand a few basic facts about the tricky topic of trade:
1. We can’t ignore our biggest markets
The main customers for UK goods and services are in the EU (43 per cent our biggest single market) and the US (18 per cent). Although China and India will be a major source of global growth over the next decade they only represent three per cent and one per cent of our exports respectively and that will not change overnight.
Therefore, the suggestion that the UK should be more concerned about securing trade deals with the rest of the world than with negotiating a trade deal with the EU is dangerous. Of course, the UK should be looking to grow trade with emerging nations, but we should do that alongside maintaining access to our major, existing markets.
2. You can trade without a trade deal
Every country can trade with pretty much every other country if there is a buyer and a seller. The UK sold £16.8 billion worth of goods and services into China which sold £42.3 billion back to us in 2016, all without a trade deal. However, a trade deal does make the process easier, if lower customs duties and taxes (tariff barriers) are agreed than those set with the World Trade Organisation (WTO). A deal can also agree product standards, professional qualifications or any other rules for selling a good or service to another country (non-tariff barriers).
The lower the tariffs and the more closely aligned the regulations and standards of two countries, the easier it is for them to trade. At the moment the EU is effectively the UK’s home market: selling to someone in Umbria is the same as selling it to someone in Cumbria. But being inside the single market or the customs union means that, although UK companies can trade with any country they want, the government can’t strike its own trade deals because the EU negotiates agreements on behalf of all its member states.
3. A good deal with the EU or anyone else will have to consider the environment
Our recent report UK trade in a decarbonising world shows that 39 per cent of the global economy is committed to lowering emissions by 80-95 per cent by 2050, and the biggest markets for new low carbon infrastructure – generation, grid systems, transport and new buildings – are in the emerging economies the UK wants to increase its trade with.
OECD analysis shows that the number of trade deals that include provision for environmental co-operation rose from 22 per cent to 67 per cent in the five years up to 2012. Governments reducing their power and industrial sector emissions at home don’t want to be undercut by companies who don’t comply with the same standards. Increasingly trade deals need to help to achieve environmental aims and level the playing field.
A version of free trade that lets any products into the UK, no matter how they were produced, undermines domestic policy to meet carbon reductions at home. Our manufacturers are rightly concerned about being put at a disadvantage if domestic policy requires them to pay their fair share of environmental costs whilst their foreign competitors don’t have to. A trade policy that ends up with a race to the bottom on standards or offshoring UK industry to places with higher carbon intensity production is not in line with the ambition of the UK’s Industrial Strategy, Clean Growth Strategy, 25 year environment plan or our obligations under the Climate Change Act.
Liam Fox is right to look at markets beyond the EU, but should remember that UK green exports in offshore wind and electric vehicles are currently produced in pan-European supply chains for the EU market, and its regulations and standards have helped us to build up the considerable expertise in low carbon development that the rest of the world now wants to buy.