3 April 2018
Originally published by Brexit Central.
In an interview last November, Liam Fox observed that “we need to think about how we can make our economy export ready… and how we get more of our companies to think about exporting overseas… I can agree as many trade agreements as I like, but if British business doesn’t want to export, then that doesn’t do us any good.” He has, therefore, clearly recognised that UK export performance throughout the years of the EU’s Single Market has been inadequate, and that new trade agreements alone will not help. What is not so clear is whether his department has yet devised the policies to solve it.
The Department for International Trade (DIT) website shows that it is engaged in familiar trade promotion functions inherited from UKTI, such as providing risk assessments of world markets, funding participation in trade shows and appointing local trade advisors. It is not short of imaginative initiatives, such as tips for exporting via social media, entrepreneurial dealmakers/mentors for start-ups, and the designation of experienced diplomats as the ‘trade commissioners’ for those parts of the world they know best.
It has set itself a daunting research agenda, which will keep its own staff or contractors fully engaged for decades, and also defines the principles that will guide the UK’s post-Brexit “proactive role in the rules-based multilateral trading system”. One of them is a commitment to a trade policy that is “transparent and inclusive” and supported by a “comprehensive stakeholder engagement programme” embracing Parliament, devolved governments, Crown Dependencies and Overseas Territories, local government, business, trade unions, civil society, consumer groups. In the post-Brexit years we can, therefore, expect intensified public argument about chlorinated chicken, GM foods, investor-state disputes, privatised health care and so forth.
However, none of these activities – useful as they may be – focus on the problem Dr Fox identified, or seem likely to reach the tens of thousands of non-exporting SMEs in the UK or persuade them to think about exporting. To do that, the DIT will have to form a new, rather special relationship with one set of business stakeholders who barely rate a mention on their website: trade associations. According to the Trade Association Forum, there are now more than 2,500 of them in the UK – and they are the indispensable intermediaries if the DIT hopes to reach those who make decisions about whether or not to export. No one else can do it.
Unfortunately, it is not certain that many of them are ready, willing or able to share in the tasks of redirecting their members towards export markets, and of helping them to do so. The CBI, which describes itself as “the UK’s premier business organisation”, seems to be preoccupied with postponing Brexit or limiting its impact, rather than preparing its members for it. If the majority of associations had been keen to improve the export performance of their members, many more UK firms would now be certified as authorised economic operators (AEOs).
This certification is a World Customs Organisation (WCO) programme, co-ordinated by the EU, operated by HMRC in the UK, and is intended to simplify and fast-track customs for certified AEOs throughout the world. It is likely to become especially important for UK trade with the EU27 post-Brexit, as well as with China, Japan and the US and other countries with which the EU currently has mutual recognition agreements (MRAs). The UK is a laggard in this programme. Germany currently has ten times more AEOs than the UK, and no UK association seems to have thought it worthwhile to help its SME members with the quite rigorous and time-consuming certification process.
Over the years of EU membership, most trade associations seem to have grown accustomed to performing a rather limited range of functions, transmitting grievances about non-tariff barriers or dumping to the Commission, lobbying for amendments to proposed EU regulations and directives, and explaining the implications of those about to come into force to their members. They plainly have not developed any capabilities to enable them to make substantive contributions to EU trade agreements, or to evaluate their effectiveness, or that of the Single Market itself for that matter. They could not therefore offer any empirical evidence to the Balance of Competences Review in 2013, even though asked to do so, and seemed completely unaware that UK exports of both goods and services to the fellow founder members of the Single Market had grown at a sluggish rate (with a CAGR of 1.0% to the EU12 from 1993 to 2016, and 0.9% to the EU15 from 1995 to 2016). Most of them warmly supported for the Single Market even though they had never bothered to measure its contribution to their members’ export performance.
They did not complain, therefore, as the European Commission negotiated numerous agreements with a host of medium, small and micro-economies covering a tiny proportion of UK extra-European world markets – under 7% in goods and 2% in services – while small independent countries like Singapore, Switzerland, South Korea and Chile, which had little of the EU’s supposed negotiating clout, gave priority to negotiations with large economies and managed to conclude a much higher proportion of service trade agreements. Only one of the more than 50 submissions from UK trade associations even noticed that, over the years of membership, the Commission had sidelined the Commonwealth, so that by 2016 all its trade agreements covered, in total, countries with just 6% of the Commonwealth’s total GDP. Most associations were, nevertheless, content that the Commission should retain exclusive competence for negotiating future agreements.
If the DIT hopes to reach non-export minded SMEs, it will first have to persuade their trade associations to pay less attention to lobbying, PR, and whatever else it is they have been doing in Brussels over the past 40 years, and become research-intensive organisations whose primary goal is to know everything there is to know about the potential global markets for their own members’ products or services. And the best way it may do that is by forming a relationship with them based on shared access to, and command of, the market analysis tools of the International Trade Centre (ITC) in Geneva. These provide international trade data in the form of comparative tables, graphs and maps alongside other key variables that affect trade, such as international demand, GDP, applied and bound tariff rates, non-tariff barriers, trade agreements and rules of origin requirements of partner countries. They thereby provide an array of powerful indicators and measures of export performance.
Unlike the reference sources that DIT recommends to exporters, the ITC trade tools are intended to inform the policy of governments and the decision-making of companies and investors. They can tell exporters or potential exporters, or their trade associations, when they are failing in one market by comparison with their performance in another, and by comparison with their domestic and foreign peers. They can show when seeming growth hides real decline, relative to competitors, or to the overall growth of the sector in the partner market. It can thereby pinpoint when and where companies, and the DIT, might best direct their efforts. It can track, via six-digit harmonized system (HS) codes, monthly, quarterly and yearly trade flows of 5,300 products from the aggregate level down to sectors, sub-sectors and the individual tariff line in 220 markets around the world, and if asked, can give the email addresses, phone numbers and websites of importers and agents in many of them.
Although it is still a work in progress and its data on the services lags some way behind that on goods, it is far superior to anything that the DIT or any trade association could devise or is available elsewhere. Many SMEs are unlikely, of course, to have either the time, or the inclination, or the expertise, to make best use of these market analysis tools, but a trade association, with DIT back up, has a strong incentive to acquire the relevant skills and personnel on behalf of all its members. Once it knows the HS six-digit codes of their products, it will be able to give any member a precise profile of their export performance versus kindred enterprises at home and abroad. The chances are that they will have more candid and regular discussions with their own association than with a government department.
A good working relationship with the DIT will therefore help trade associations to provide a new service for their members. Another incentive for them is that their research will enable them to collect ammunition for the amendment of UK trade agreements and the negotiation of new ones. Pretty soon they will realise that they have a better chance of influencing the DIT in upcoming negotiations, or obtaining its support in trade promotions, or from its locally-based trade advisors, if they demonstrate their command of all the currently available market intelligence needed to support the export efforts of their own members. The European Commission never expected them to demonstrate any such competence. The DIT should make a point of doing so.
UK universities occasionally participated in the formation of EU trade policy, usually as contractors for ex ante EU-wide sustainability impact assessments of proposed agreements. They deserve a wider and more varied role in the UK’s post-Brexit trade policy. Trade associations will probably require their expertise to answer some of the questions raised by ITC analyses about the many variables that affect trade performance and prospects. And since the DIT is committed to a “transparent and inclusive” trade policy, it will not attempt, or be allowed, to conduct trade policy as unaccountable as that of the European Commission. Universities would be obvious candidates to conduct regular ex post studies of the impact of its agreements and of its trade promotion activities.
In sum, besides scoping future trade agreements and waiting for the results of the Brexit negotiations, the DIT should now be setting in motion wholly new, research-based relationships between government, trade associations and their members, as well as universities, with the aim of creating a wholly new environment which encourages and equips UK companies to break with past habits and face the export challenges and opportunities of Brexit.
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