Garvan Walshe is a former National and International Security Policy Adviser to the Conservative Party, and CEO of Brexit Analytica.
“You can’t win sex…what we’re all looking for is a high scoring draw” said Mark Watson on the radio the other day. Brexit negotiations should take note: trade negotiation isn’t like a football match, where you win by making the other side lose.
Good trade negotiations aren’t a matter of satisfying all your desires at the expense of your partner, but of creating wealth together that you couldn’t make on your own.
And modern trade doesn’t consist only in unloading goods at a port, loading other ones on in exchange, and returning home to sell the proceeds.
The most valuable trade is a lot more intimate. It involves long-term investment across borders; firms owned by shareholders from different countries; commercial relationships that last years, and involve hiring personnel from many different territories.
This can’t prosper without trust: not just trust in your own partner but also that your competitors won’t try and use politics to change the rules of the game or that governments won’t think you’re making too much money and grab a larger slice of the pie. The more governments that are involved, the harder it is to guarantee they won’t interfere.
Deep international trade and democratic control are set up to clash. When Argentina expropriated the Repsol oil company, it said it was following the will of the people. Don’t think it’s just South American countries with a history of defaulting on their government debt. It was a Conservative government that forced housing associations, which are private charities, to offer their houses for sale to tenants at below the market rate. Suppose you were a German bank that had lent to them: do you count it as part of the “political risk” of investing in Britain, a country with weak judicial review that denies property rights to the politically unpopular?
Deep trade needs law to protect contracts, and that’s why NAFTA can be enforced in American domestic courts, the European single market is governed by a single European legal framework, and bilateral trade agreements include “investor state dispute resolution” mechanisms outside the control of the state with which the investor might have beef. They are outside the immediate democratic control of any political system: indeed, that’s what they’re for. If we want to share in the benefits of deep international trade, we have to lose some control — but that’s no different to any relationship. Unless you’re a washing machine salesman called Jim, willing to pay for the privilege, the only way to control everything is to do it by yourself.
Being in the EU has allowed us to do exceptionally deep trade with Europe. That it’s our largest trading partner is no surprise, but the economic links are much deeper than that, because of common immigration, public procurement, investment and services regulation policies. Hundreds of thousands of EU citizens work here, making the City truly international and supplying the construction and agriculture industries with workers. A British firm, G4S, provides security for the European Commission. British-based manufacturers source their components from the best places across the continent. Foreign investors have invested here because we are a gateway to Europe and British companies can open branches across the EU that have to be treated as local companies would.
Put immigration to one side for now. Peter Lilley identified the more fundamental catch on this site: sovereignty. If we agree rules, we have to agree on a body to interpret them. The deeper the trade goes, the more control we have to share.
The Cabinet is divided between the people who want to keep deep trade with the rest of Europe, and those who appear to be using immigration as a wedge to make deep European trade impossible. The first have insufficient ambition and risk getting bogged down by draining negotiations without a vision to motivate them. The second are still so high on their surprise referendum victory that they risk, as normally discreet Japan’s uncharacteristically blunt intervention showed, throwing away our position in the international trading system by imagining they could recreate 19th century Britain’s strategy in the 21st.
They’re both missing a huge opportunity. The real prize is much bigger: as much deep trade as possible not only with the rest of Europe, but also with the other wealthy service based democracies in the world: the US, Canada, Australia, Japan, South Korea. Together we produce more than half of the world’s GDP. It will be a long and complex undertaking: foreign investment, public procurement, services regulation and immigration policies are much more politically controversial than tariffs, but with TTIP and TTP in trouble, it is a chance for Britain to present itself as a solution, not a problem, and infinitely better than a retreat in to a Christian Grey-style fantasy of control.