 Good afternoon everybody, you're welcome to this webinar with David Henig who is in the European Centre for International Political Economy and where he looks after the UK trade policy project in that institute. My name is Dahio Kallig, I'm the Chairman of the UK Group in the Institute for International and European Affairs and it's a pleasure to welcome what I believe is a very large audience at this webinar. David Henig has a very distinguished career. He spent time in private consultancy before joining the UK government where he did a great deal of work on trade but he resigned or retired from the UK government a few years ago and now works for the European Centre for International Political Economy. David, it's a great pleasure to welcome you. The floor is yours for about 20-25 minutes and then we take questions and answers from the audience and everything is on the record. David, you're welcome. Thank you for that welcome. Thank you for inviting those questions. Please note that easy questions are preferred. Thank you for the invite to talk about UK trade policy. I mean I look on with admiration at the quality of the speakers you've had in recent months and I'm very much honoured to join them. Not least as I know many of the audience are from Ireland and the actions of our UK government have caused too many issues in Ireland in recent years and those of us based in London may be viewed with some suspicion. Or as an Irish academic said to me recently in the tone probably reserved for a family member guilty of a heinous crime we're not so much angry as disappointed. It was quite the telling off. Now judging by the comments trade specialists outside the UK make there's confusion about UK trade policy and I guess that's why I've been invited. Typical themes include whether global Britain is really serious, our government understands the nature of trade barriers erected to our nearest markets and why a services economy mostly focuses on free trade agreements reducing already low tariffs for goods. So in brief before we go into this in more detail yes global Britain is serious, no the government doesn't really understand modern trade and our desire for free trade agreements, FTAs is more about the politics of Brexit than the economics of the UK. That said there aren't easy answers for any country in putting together a trade policy given the complexities of modern global trade which I'll start with in fact. But just before that in terms of the UK's approach a quick summary of where we are today arguably somewhere off the coast of Australia fresh from agreements with that country in Japan ready next for New Zealand then the comprehensive and progressive Trans-Pacific partnership and finally the big one the USA. Yep it's the gap year prior to settling down to real work it's the it's the student dream it doesn't really involve Europe except for the odd rude remark about how good it is to be away from home and irritation if dragged into occasional domestic matters. Such cynicism should be tempered somewhat we actually have great trade strengths some that have government approval like aircraft engines, scotch whiskey, the Premier League and some that don't have much government approval and support like the BBC and universities but whatever the government's definition of global trade it's hardly new for the UK to trade globally. That trade landscape is changing though so I'm just going to start with that before then getting to the heart of the matter why is the UK doing what we are doing and what is that? So you wouldn't know it listening to policy makers in Brussels and Washington DC but we've never benefited so much globally from from trade the astonishing response to the Covid crisis with vaccines developed and produced in their billions in a matter of months deserves far more credit the sale of goods and services around the world the availability of a range of goods at competitive prices even during such a crisis something no previous generation had and it might be as good as it gets for us as well. For the West's response to frankly being outgrown by China is barriers to trade since the 2008 financial crash decisions that had major at distributional consequences since and even going back to the technology influence development of trade over the last 30 years what we're seeing we see we've seen fragmented supply chains mostly regionally which people haven't really understood in aggregate our countries have done fine but there's been poor distribution we think there's this popular perception that China has been cheating often it has sometimes it hasn't sometimes we've been cheating just as much people feel otherwise people do not feel that trade is benefiting them coupled with the fact that we are increasingly regulated countries everything that is traded is regulated and it means that we have these non-tariff barriers that are more easily overcome by larger companies and now it looks like we'll get even more rules which are anti-trade and anti-China and the World Trade Organization officially they the ultimate governing body for global trade is roughly being sidelined we've got the low carbon transformation to come which is going to require quite some reinvention of our economies from cars to power generation and then we've got we're going to be doing that while taking the cost of extra trade barriers and but Asia potentially lowering trade barriers so we've got really quite a quite a tough situation going on where we've got misunderstood trade we've got China still going stronger though slowing down because of their population growth and concerns in across the west about the direction of travel that's really the backdrop for UK trade for the UK becoming free to trade it's also the backdrop frankly for the brexit vote the brexit vote is one of discontent as was trump as is some of the protectionist language now coming from the EU there is a no there is logic to this as a whole um so let's look at the UK now in more detail and I'll start actually with the good news because there is some good news with one fairly obvious exception we are going to be more open than the EU and the US to trade there is that consensus across the political spectrum we might also do some industry subsidies and protection from inward investment but we'll probably do less than the EU and the US and given that on balance openness means better economic performance that is a good thing now the obvious exception of the EU is a problem and what passes for thinking among government trade cheerleaders being that the EU is so protectionist that it doesn't count is a reality distortion just too great to be seriously debated um coupled with a government recognizing neither the trade world have been discussing or the usual approach of anchoring trade policy in domestic economic and international relations goals and that's where we get to confusion because we'd normally expect economic policy to drive trade policy supported by foreign policy that is also concerned with international partnerships and security but the UK doesn't have an industrial strategy we don't know what the future of that car industry is looking like or the finance sector or how trade might help that yesterday we had the publication of a brexit benefits document which more or less suggested that the answer to everything was cake then some more cake um and then everything was going to be great and that's obviously not a serious basis for the sort of choices one has to take for a successful economic or trade policy now something about trade that's quite important is increasingly except for a budget this is the most broad-ranging policy instrument that a government actually has trade agreements cover all manner of issues from intellectual property to the services regulations they cover immigration it's not just about tariffs um so there's a huge space to fill there and in the UK it has to be filled in some way because the brexit dividend has really honed in on trade as something we can do we can do our own trade deals has become almost uh uh an object of faith in in in brexit so in a little more detail thinking what that is leading to is we're signing free trade agreements without worrying too much about what's in them um so we see a first deal with Australia um and one up coming with New Zealand uh these are termed ambitious all trade agreements are termed as ambitious for every country so that's nothing new but in truth they're mostly about a little bit of tariff reduction they're not really about uh check removing regulatory barriers or helping UK services companies much and the UK is a services superpower with the world's second largest services exporter although our exports have not been increasing so much recently and there is there are signs that other European countries are catching us up and that includes Ireland when it comes to removal of tariffs where are our tariffs mostly there on agriculture so we're benefiting Australian and New Zealand agricultural exporters at the cost of UK farmers now that might be the right thing to do economically it looks like the Treasury has decided that that's what it is that farming is not worthy of support in the UK but the problem is other departments think that it is so that will have future implications um so it's trade deals to um but some more important than others and the CPTPP and the US are at the top of importance for the UK government and it's not a clear reason but there are a bunch of interrelated reasons which aren't really economic as to why these are the most important for many brexit enthusiasts a US trade deal was really what it was all about that would confirm uncoupling from the EU some of this I think dates back to the neocon era of the 2000s a lot of relationships were were built then between the then conservative opposition and the republicans who are pushing the US then towards assertive global policy for freedom um there's also for some this was about uh deliberately siding with the US over the year on issues such as food regulations such as the infamous chlorinated chicken helped not uh at least a little by some generous US funding for our people who are saying that now so the US was number one but some of the people who are pushing for a US trade deal thought that that might be a one step too far in the first instance so they then thought CPTPP could be a step towards it to sort of um almost make a US trade deal a fader complete oddly then there were some others who thought that the UK outside the EU needed to be anchored in global trade rules and the best way to do that was to join CPTPP and that wasn't just people in the in the UK thinking that that was actually also Japan's view and they have impact given the the iconic nature of our car assembly plant in Sunderland for Nissan so for that combination of reasons CPTPP and US become the number one trade policy priority and we just kind of retrofit our interests to those texts Australia draws heavily on those on those texts in our in our trade deal um and we don't join other trade deals which might be attractive such as uh there's some uh multi-country agreements being led by New Zealand that focus on climate change or unsustainable goods or on the digital economy partnership but we're not joining those um so that's where it seems to have led us but then the US is not currently interested in any trade deals and we see a couple of extraordinary recent begging speeches by UK ministers to try to encourage them otherwise um and this in turn creates an apologies for this the odd logic of the desire we want to diverge from EU food regulations for a US trade deal while denying we want to diverge from EU food regulations um in public discourse but um we can't have a veterinary agreement with the EU which would remove many checks under the Northern Ireland protocol because maybe we do want to change diverge from EU food regulations there is actually literally no logic there you can't make sense of that of that set of um contradictions um and UK ministers often talk of the opportunities of regulatory divergence and rarely note that trade is eased by alignment so those flaws are obvious there's a further very large flaw that neocon republican party of the 2000s is long gone um that's been taken over by uh by by trump and actually without the UK we're actually seeing probably greater US EU cooperation because the US has had to strengthen ties into Brussels um now that London is no longer a pathway in um so that hasn't really worked either we're not a mass producer of products that attract tariffs so that's an odd thing to to base our trade policy around we're implementing free ports which we possibly could have done in the EU but they have limited or frankly no obvious economic benefit so none of this quite adds up it is true that many CPTPP countries the likes of New Zealand or Singapore are probably natural trade allies for the UK they are more likely to be open other countries may join so there are reasons for us to to do that um then again you get out trade deals like with India where negotiations have just started which may well be the latest of many optimistic pronouncements in that direction um there's been so many initiatives between the UK and India while exports have scarcely been growing at all so it's almost like there's a whole world of UK trade which is not being understood in terms of any of these activities so we really could be doing much better and I think one of the ironies of all of this is it is almost like the UK government is putting free trade agreements on a pedestal as the kind of straight jacket which Brexit has continually disparaged in terms of EU countries in the euro so we've we've kind of come out the EU and we claimed it was a straight jacket we're putting ourselves straight into another straight jacket of pursuit of free trade agreements that don't particularly suit us now many I've worked with ministers many of us will have worked with ministers and know that they want to sign pieces of paper particularly to show Brexit a success so you hope that those pieces of paper would be ones that would deliver some benefits neighbors are more important for trade there is a gravity effect in trade which means that it is more important to trade you know you should trade more with your with local countries we all have the west we all have our idea of Indo-Pacific strategies and none of us seemingly have a very good idea of what they might be or how they might fit our economies um and just to finish off this this summary um UK claims of being a free trade leader at the WTO are scarcely any more credible um because really no country has ever increased trade barriers by more than the UK did when we left the EU and put in place a very shallow free trade agreement so that all has implications we've put it's a it's a unique experiment nobody has put up major barriers to trade in the 21st century uh before we before we did nobody's put so many up Trump put a few up to China um we've got more more paperwork diverging regulations all reputable economic forecasting suggest suggested this would lead to a fall in GDP in trade and that that wouldn't be made up for by new trade bills and that's fortunately for economics that's exactly what we've seen global trade recovered last year from covid in in 2020 but in the UK the recovery was was slower um trade flows between the UK and the EU are down despite a lot of covid related trade such as around vaccine production so it seems likely that a 15% fall in trade and a 4% hit on our GDP are reasonable and it isn't just reduced UK EU trade if major manufacturers decide the inclusion of UK companies in cross-European supply chains is not worth the hassle that could also hit our global exports our exporters now face more trade barriers than those in the EU um and quietly that's one of the reasons why the government is not in fact diverging regulations as much as part that the the Brexit parties and would would want um there's already a general loss of competitiveness from reduced competition and reduced inward investment we can't risk too much here the UK economy is not collapsing but it's harder for us to compete uh former manufacturing areas now often known as the red wall they may be the worst affected um now of course there's a chance we address our long-standing productivity problems or we discover some great new way of regulating they're told to believe in a competitive global environment that would stay unique for long um and indeed future growth projections from uh independent office of budget responsibility are at 1.4 percent which is very low by historic standards i already mentioned our services exports haven't really been increasing either so it's not impossible we can survive outside the the EU but there's huge challenges to doing so and that's then we have to think about the international relations as well it may be very nice for the government to think that their closest international partner is Australia um but they put very little effort into maintaining relations with any european country in fact former negotiator uh Lord Frost insulted every EU country as being in effect non-democratic then you find you want allies and friends whether to resolve trade issues or you've got security issues such as Russia obviously there's northern island i'm not going into that in great detail in this uh in this presentation but you've got the continued sense of a government that thinks that can't believe how wrong the EU and the US can be but has yet to find anyone else who thinks they're right um and it's clearly damaging our reputation for upholding treaties casting doubts on our trade understanding and obviously is having an effect on on northern island itself so that is all um really uh really challenging um and it's almost like supporters have become entangled in the idea there's a simple brexit whereas actually it means complex choices and we're not really addressing those so what worries about which direction we're going and yet looking forward um we're not coming back to the EU anytime soon we're discussion on the customs union or the single market um has been rendered toxic by our politics of the last few years and i can't imagine the EU would want us in anything either um the prime minister being brought down by party gate wouldn't threaten brexit it looks instead like we're going to kind of basically ignore the recent past is too difficult and hope for the best in the future the conservatives are likely to remain antagonistic for the to the EU for some time to come um they've no it's not really spreading through the country brexit is not deemed to be going well and so that may mean in years to come we have closer ties can restart but i think that will take some time um the government will have to deal with the EU there are day-to-day problems um and business realities um but they'll do it quietly there won't be much trust uh with the EU and not much strategy from the UK and it probably means we won't get very good deals we haven't got a very good deal um since 2016 for example if we look at the trade incorporation agreement um we also haven't actually invoked article 16 of the northern island protocol because that trade war with the EU that would result is not one that's going to benefit the UK so you see this sort of hostile language coupled with rather with a little bit of pragmatism very quietly under the under the surface and i suspect that will continue for a little bit of time to uh to come and we'll only gradually ease there are some other areas where again we've quietly uh remained within European norms who stayed as members of the european standards framework will probably have to make some kind of accommodation with the EU's carbon border adjustment mechanism although the government continues to uh to deny that that's what will happen similarly we'll probably have to stay aligned with the data adequacy all the while talking about implementing some much more uh wonderful set of regulations we haven't actually yet got round to replacing the CE marking the conformity conformity mark on on products with a UK version again it wouldn't happen in northern Ireland it's a it's a problem for the government as to what to do about that um we're having to be more generous than we planned on the immigration system that's now splitting that's now equal for EU and non EU citizens it doesn't know quite meet the the brexit brochure um and so what you find really is that brexit was always mostly about the politics but in a world of multinational companies dominating trade they have to be attracted to the country and they're not going to be by the pure politics of brexit um the promise of brexit freeing the economy ultimately it's the economy is going to temper brexit um so just quick briefly to to finish where should we be going uh we spend so much time discussing the failings of the UK unless time thinking well what would actually a UK first trade policy look like well you start with 50% of our trade with the EU and 50% isn't so it's going to be a balance where there are benefits to the UK doing things differently take them where it's better to align do that so manufacturing there's little benefit to going our own way on regulations which are global norms whether that's chemicals aircraft cars just align as best we can with the EU have that veterinary agreement it would really help in the in the Northern Ireland protocol we want to be part of european supply chains when it comes to services yeah maybe less so um we don't necessarily want to be automatically following EU rules in financial services we'll want regulatory stability we'll want data adequacy but we're a player in our own right we're possibly as a bigger player than the EU in terms of financial services regulation so we might be able to take take advantage um we certainly need to be rebuilding our business relations and getting more inward investment um we need more deals on regulatory alignment on on on services those parts of modern trade that are so important we need um for example our performers to be able to easily uh tour around Europe that's an issue that's come up uh quite a bit we need a generally friendlier approach to the world in which we seek to be more facilitator than leader um when it comes to global trade we're not going to be a leader but we can help a role we often play that the EU as well facilitating better outcomes and as important as this because it's business that trades not government is recognized and celebrate our strengths and national champions whether that is the the bbc universities aviation defense pharmaceuticals we actually do have um a large number of success stories even if they're not likely to be the mass employers of previous times and we should probably also increase the value we put to those parts of the economy that support global trade such as logistics and infrastructure we should probably embrace the low carbon trans transformation and also try to find a new way a little bit more open than the EU towards the challenges of modern trade such as development or animal welfare where we can and should mix openness with more um with with with uh greater rules um so that trade is fairer trade as well um now nothing is going to guarantee success in the complex world of modern trade and uh this is not the subject of today but i think we're seeing the return of inflation as well this is going to be a tough few years ahead there's going to be no easy answers um and you know we see the cheap lure of um deregulators or protectionists and then we see the 21st century trade and i think that's what a lot of what is going to be about um yeah we are we've got some strengths we've got a lot of weaknesses as well our GDP is not what it should be we're uh we're almost certainly lower than lower than ireland even when you exclude certain accounting transactions but we could be we could be doing a lot better but we need a real much greater focus on those things that we're good at um and in you know of thinking of non-supply chains not of selling biscuits around the world so ultimately it doesn't make sense right now because there's really no UK economic foreign or trade policy um and we can't really be coherent because the government doesn't really have a coherent view view of the world so we're kind of waiting we're in a holding pattern um we're going to be slow to find a lasting approach to to to trade um but at the end of the day we're not going to fail completely because we've got a lot of strengths as well so that's where i'm going to to leave it that covers a lot of ground in a short space of time a lot of it probably not quite satisfactorily so i'll look forward to uh thoughts and questions