Monday, 3 October 2016

Sinitta's "GTO" performed by Liam Fox and Tim Martin

I really love the Global Trade Organisation.  I think I've loved it ever since Sinitta sang a top 40 smash hit about it back in the 80s.  That was a strange time for pop, wasn't it?


Hang on, what do you say? It's the World Trade Organisation?  WTO, not GTO?  It's about a sports car with a cheeky penis metaphor?  Oh no, I've made a fatal error in my misunderstanding of the body that regulates international trade.  That is most embarrassing. Can I still keep my job negotiating trade deals on behalf of the UK? Thanks!
"We haven't got a trade deal with the US, we haven't got one with China, we haven't got one with India, and particularly the US is an enormous trading partner. It doesn't cause a problem, we can trade under WTO rules." - Tim Martin,  Head of Wetherspoons UK, 
We keep hearing about the WTO as if it is something new but it most definitely is not. The UK already trades with most of the world under WTO rules and has done since its inception in 1995.  When BAE Systems sold 72 Eurotyphoon fighters to Saudi Arabia back in 2006 that deal would have been governed by WTO trading rules.   When UK arms manufacturers sold 600 assault rifles to the government in Sri Lanka back in 2008 that was also conducted under the auspices of WTO regulations.  There are 164 nations in the WTO so pretty much everything the UK sells to non-EU countries is governed by the WTO, be it Mini Coopers or craft beer.   We are already trading with the US and India and China under WTO rules and have managed that for 21 years ever since the inception of the WTO.   Prior to the founding of the WTO we traded with the US and India under the General Agreement on Tariffs and Trade (GATT).  Bloody heck, that was back in 1948.  If we believe we are falling behind in international trade then we can only blame ourselves because we've had a total of 68 years to work it out.  Leaving the EU won't help here.
"The UK is a full and founding member of the WTO, though we have chosen to be represented by the EU in recent years. As we establish our independent position post-Brexit, we will carry the standard of free and open trade as a badge of honour." - Liam Fox, 29th September, 2016.
When Liam Fox says that we are a founder member of the WTO that is a bit of a porky pie because the WTO began with a whopping 123 nations back in 1995.  That's right, there are 123 founder members of the WTO.  Back then the UK was a member of the EU so all negotiations with the WTO were performed through the EU because it acts as a single trading block.  It would really be more accurate to say that the UK has always been represented at the WTO by the EU, not just in recent years.  I'm splitting hairs here but I do have limited renown as a born pedant.  Hey, I know it's annoying but it's my blog and I'll write what I damn well like.  Come back! Come back!  I'm sorry.  It won't happen again.  I promise. Hah, fooled you.


What levers does Liam Fox have at his disposal to make the UK a beacon of free and open trade?  Not that many, it turns out, because membership of the WTO already pushes member nations towards the ideal of free and open trade.   Quotas, for example, are no longer allowed.   Ditto with discriminatory practices at the border - you can't favour one nation over another in a sly or underhand way.  There are only really two levers that he can pull and these are both to do with tariff barriers that can be applied as an import duty.  In essence, each nation lodges a price list with the WTO for different types of goods.  Each price on the list has two rates: a bound rate and an applied rate.  The applied rate is the rate actually applied at the border.  There is freedom to move this up and down over time with the caveat that it can never exceed the bound rate.  In difference to the applied rate, the bound rate is pretty much impossible to change.  You might like to think of the bound rate as kind of long term intention, while the applied rate gives nations a bit of wiggle room in the short term.

A pictorial representation of the UK's post-Brexit economic strategy - stick a Union Jack on it and no one will notice that it's nonsense.
Remember when I said there were two levers: the bound rate and the applied rate?  Well, only one of those can be shifted.  The UK is a long-standing member of the WTO so its bound rate is already established and is set to the be the rate negotiated and collectively agreed by all EU members. It is not at all clear that we can just go back to the WTO and say that we'd like to modify it because, hey,  we changed our minds.   There is talk about being recognised as a new member, free to instantiate a bound rate and set an applied rate.  Hmm, didn't Liam Fox just boast that we were a founding member?  I really don't think that argument will fly.  That leaves just one lever:  the applied rate.

The ability to set the applied rate is indeed a new freedom open to the UK.   Now, I don't know about you but leaving the EU is a huge kerfuffle, and all for access to a single economic lever that was already partially at our disposal.  We need to find out if this single lever is a sticky lever that is hard to control or if it glides freely like a drawer in a Magnet kitchen.  If you start reading about WTO tariff rates you soon come across a measure called The Binding OverhangWho the hell makes up this terminology? It sounds more like something you'd hear on Cowboy Builders on Channel 5.  Anyway, the binding overhang is the difference between the applied rate and the bound rate.  A large difference between these two values is typically associated with economic uncertainty because a low applied rate could be easily changed back to the much larger bound rate.  In fact, it is generally the case that developed countries have a much smaller binding overhang than developing nations.  I would guess this comes down to a question of stability in the long-term economic outlook of a country.  Actually, I don't need to guess it because it explicitly says it on the World Bank's explanation of WTO tariffs.

If the UK is forced to accept its current bound rate then a reduction in the applied rate will lead to a large binding overhang, often associated with the economic turmoil of developing economies.  Let's imagine Liam Fox wants to help the UK's nascent sex robot industry and immediately slashes the applied rate for imported steel.  It's time to put that imagination of yours to good use. I want you to conjure up an image of Jeremy Corbyn standing triumphantly in front of 10 Downing Street in the year 2020.  Are we all there?  His first act as Prime Minister is to reset steel tariffs back to the bound rate. He probably has his eye on crucial Labour votes  protecting jobs in Port Talbot, or maybe he had a bad experience with a sex robot.  Playing wiff-waff with trade tariffs will not be popular with our international partners.  They simply won't trust the lowered rate in the long term because it can easily be reset to the bound rate on a whim.  The UK really needs to trade with an applied rate that is close to its bound rate.   Hmm, that leaves zero levers for Liam Fox.  Somebody please have a whip round to get him a Tonka Toy for Christmas.

Look at all the levers to keep Liam Fox occupied over the festive break. We need one for Liam and one for his good friend Adam Werrity.  Please dig deep, if you'll pardon the pun, the tariffs on this are a killer.
Approximately 50% of UK exports are to the EU, where they experience zero tariff barriers.  That's right, a rate of zero.  You don't get more free and open than that. This is so free and open I'm not even sure they classify as exports at all. This is now under threat so that we can have unfettered access to a single economic lever over which we will exert very little practical control.  We can slap Union Jack stickers all over it to our heart's content but we won't have the ability to actually use it for anything. I can't find any upside here.  Can you?

Over and out,

Terry

PS All of this pre-supposes that the UK would attempt a radically different WTO tariff agreement from the one negotiated by the EU.  Just as it is with the ECHR, I've not seen anyone put any flesh on this idea. What exactly is wrong with the way that the EU negotiaties with the WTO? Are tariffs too high?  Too low? Too tailored to the Germans? Liam Fox obviously has a strong view but despite all of his bluster and verbiage I still can't work out what it is.  Let's investigate this later for the sake of theoretical completeness.  Stay tuned.


2 comments:

  1. Hmmm, where to begin?

    Well, I suppose we should be grateful that the sex robots are back on the agenda again. I was missing them.

    I'm wondering if Liam wouldn't prefer one of them to one of these digger thingummies?

    Of course he has a strong viewpoint, it's just that he probably doesn't know what it is himself till his boss tells him... and I doubt she knows so it's down to you, Mr Werrity.

    TBH, I don't think any of them understand any of this. I mean I don't either, but the taxpayer isn't paying me an English Cabinet Secretary's salary to understand what I'm doing, so what the hell.

    It's convenient for us all that you have enough intellect for all of us and can explain it. (You lost me at the hangovers bit...I do understand them.)

    It's certainly true that if any of them understands what this is all about then they are keeping it well hidden behind the continued racism and xenophobia that has pervaded this weekend's Tory conference.

    They're sending back foreign doctors; they are going to make it an offence to employ foreigners if there's an Englishman who can do the job; they're going to have British schoolchildren picking berries and sweeping chimneys from the age of 3 months. British chimneys for British toddlers, to adapt Mr Brown's rallying cry.

    I'm expecting to hear that they are introducing yellow stars for people who weren't born here.

    Joking aside I've been ashamed to be british before on many occasions, but never this much. Not to mention bloody angry too.

    I keep on pinching myself because I really can't believe what's happening. And I've no bloody blog to scream about it on (so thank you Terry!).

    Back to your subject. Liam doesn't, as you have shown before, have the foggiest idea what he's talking about. He may vaguely remember how to treat dysentery or scarlet fever from his dim and distant youth as a doctor, but his mind never got itself round trade deals.

    In this respect he is far less use than an underwater hair dryer.

    Shocking.

    OK rant over.

    No wait, one last thing... UKIP leader resigns after 9 days or something... you couldn't make it up!

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  2. I'm guessing that civil servants are tearing their hair out every time Liam Fox opens his mouth. The more I read, the more I realise how complex trade is. It is a very complicated balance of interests, and that's before you get to the non-tariff barriers. Wow, that is when the real sneaky stuff starts. The idea of genuinely free trade is a bit of a pipe dream. I come across terms like "managed trade" a lot because there are always reasons (good or bad) to impose barriers at the border.

    This is a very difficult time to be British. Rising levels of xenophobia, racism, permanent war footing, constant rubbishing of human rights. The current crop of leaders don't have anywhere near the levels of competency to solve any of this. In fact, they don't probably even see it as a problem because they deliberately created the current climate. If anyone asks, I always say I am Scottish. I didn't really mind being labelled British back in my 20s but not now. Genuinely ashamed.

    It's like were going back to the ideas of Empire that dominated the pre-war years of my Dad's youth. A few years ago he bought me a kids' comic that he'd bought and read in the early 40s. It was an amazing bit of history - the racism in it was really quite shocking (cartoons of stereotyped Africans etc)and it made us both realise how much society had changed for the better. I get the impression we are sliding back to that kind of mindset - a mindset of cultural and ethnic superiority. As you say, properly terrifying.

    Is Farage coming back? I can't see them surviving without a TV-friendly leader.

    Looking forward to Munguin MkII. Any news on that?





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