If I had the choice of living in a country more like Germany or one more like the US, I know which one I'd choose. I'm obviously way out of step with my fellow UK citizens because they chose the US. The EU Referendum was never presented in those terms but that's exactly what it was: be more like Germany or be more like the US. We're going to learn quite soon what it means to be more like the US. We're going to learn that at the worst time possible because being more like the US means being more like Donald Trump's distorted vision of the US.
I've spent far too much time banging on and on and on about how trade deals are concerned with harmonising standards and resolving investor-state disputes that arise from legal interpretations of those standards. The idea that leaving the EU will grant the UK the freedom to control its own destiny is a fantasy. Membership of any international organisation from the OECD to the G7 to the UN places limits on the power of governments to act independently. Trade deals are no different. Trade deals with the US will be no different, either. A trade deal with the US just means the UK will move away from EU standards and towards US standards. If it doesn't do that voluntarily it will be forced to but only after losing costly investor-state disputes adjudicated by free trade tribunals. Signing a trade deal with the US will make the UK more like that US. There is no getting round this fact.
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One of the biggest advantages of the NHS is that it negotiates prices on pharmaceuticals as a single entity on behalf of the entire health system. A market with a single buyer but multiple sellers is heavily stacked in the buyer's favour. This is great news for the UK because keeping down the cost of life-saving drugs means they are more affordable and more widely available. It's not such great news for those pharmaceutical companies because they're denied the opportunity to maximise their profits. A monolithic NHS is the last thing they want. What do they really want? Well, they want to neuter the buying power of the NHS to level the playing field of buyer and seller. That is the only way they can start selling their products at sky-high US prices.
How might the buying power of the NHS be neutered? That is quite simple and would only involve the implementation of a UK mirror of the 2003 Medicare Modernization Act. This explicitly forbids the federal government from negotiating drug prices and from establishing a list of preferred drugs. Both of these functions are currently carried out in the UK by the NHS. The NHS not only negotiates drug prices for the entire system, which pushes down the price, but also establishes a list of drugs that it believes reflects the best efficacy per unit cost. Drugs companies can be very sneaky and sometimes demand high prices for new products that have much cheaper alternatives. It requires vigilance and unity to keep abreast of their tactics. Breaking up the NHS and legislating to forbid its component parts from acting in unison is a sure-fire way of improving the stock price of Glaxo.
Why would the UK agree to breaking up the NHS and on what basis would the US demand it? It's simply a question of symmetry and fairness. The UK will be able to sell its drugs to the fragmented US market at sky-high prices so it seems only fair that is reciprocated in the UK. It is a perfectly reasonable demand and it would be hard to resist. It will also be a top priority for US negotiators because it is the last bastion of state-controlled spending in the UK. This isn't a detail that merely encourages trade or reduces friction in the supply chain. Make no mistake, this will open up the entire UK health system to the free market for the very first time, instantly creating a health market worth hundreds of billions of dollars to US pharmaceutical companies. This is a huge prize.
The UK is struggling to maintain the NHS in its current form. It's struggling to financially maintain it but it is also struggling politically. Lobbying forces are hard at work to undermine the system because the spoils are so huge. A sudden hike in costs is going to make that struggle even harder. What is the alternative? Well, a US-style insurance system is the obvious alternative. Make the people pay for their own healthcare. This is great news for the US insurance market because they can sell us expensive insurance schemes to pay for all those over-priced drugs we'll be taking. Why would the UK agree to this? Well, it's that reciprocity again. UK insurance companies will have access to the fragmented cash-cow of the US insurance market so it seems only fair that we open up our system in return.
The NHS as we know it will end the day that the UK signs a trade deal with the US. The principle that everyone should have the same health opportunities will be buried that day, too. The very last remnant of the post-war consensus will disappear in a haze of big money.
We don't have to guess what effect a US/UK trade deal would have on the enviromment because we only have to look at Canada to find out what happens. Canada, of course, is the most sued country in the world under free trade tribunals. Most of these investor-state disputes are attempts to overturn environmental legislation so that Canadian resources can be opened up to US firms. Here's a single case out of many: Quebec Province banned fracking but that wasn't enough to deter US investors from suing for the right to frack anywhere they wish.
The NAFTA trade deal was signed long before Donald Trump even became a household name as a star of reality TV. It was signed at a time when environmental protections were an important consideration. As a consequence, NAFTA has side agreements entirely devoted to the environment. These side agreements reference international treaties such as the Stockholm Declaration on the Environment. It is simply not the case that NAFTA cast aside all environmental concerns and left the North American countryside open to any and all exploitation. What about now? What kind of agreement would Donald Trump sign now? This is a man who thinks global warning is a lie that only acts to undermine the profit margin of Western industry. Donald Trump campaigned on a policy of rejecting international agreements on pollution and energy consumption. Donald Trump is someone who thinks money trumps everything, even the air that we breathe. The chances of protecting the UK's most precious resource after signing a US/UK trade deal are as slim as Kate Moss after a heavy cold.
If you think the European Court of Justice is a conspiratorial front for the liberal elite then just wait for the tribunals that will adjudicate on US/UK trade disputes. It is widely rumoured that TTIP collapsed because the EU would not accept secretive courts being appointed to resolve EU/US investor-state disputes. Lacking the transparency of the ECJ, these tribunals would furtively divert taxpayers' money to US corporations and financial institutions. This was unacceptable to the EU, as we'd all hope it would be, who wanted adjudications to be carried out with significantly more transparency. Would it be unacceptable to the UK? After all, a mature democracy doesn't let that happen, right? Think again. The problem with the ECJ was that it was transparent. In fact, it was only that transparency that let the UK press pick over its every judgement and misinterpret its findings year after year. The last thing the UK Government wants is another ECJ on its hands because that would endanger all those trade deals it wants to sign. I would guess they would only be too pleased to have unpopular judgements held in absolute secrecy.
Let's take a quick look at disputes lodged by the US at the WTO because this is a good indication of the kind of policy issue that will be a target for US harmonisation. I've picked out a few choice items from the first quarter of a truly long list.
- China — Subsidies to Producers of Primary Aluminium
- China — Tariff Rate Quotas for Certain Agricultural Products
- China —Domestic Support for Agricultural Producers
- European Communities — Certain Measures Affecting Poultry Meat and Poultry Meat Products from the United States
The US is typically a country that regulates less than we're used to here in Europe. This is bad news for a country that wants to harmonise with the US because it will have to give up its power to legislate for health and safety, quality assurance, controls on pollution, labelling standards etc etc. Donald Trump thinks the US is a regulatory nightmare and intends to slash regulation after regulation. It's all laid out here. I can't recommend this highly enough if you've run out of horror movies to watch. It's a quite terrifying document that manages to count the cost of regulation without accounting for any of its benefits. Here's a list of the kinds of regulations under threat:
- Any regulation that encourages investment in renewables
- Any regulation that limits the production and exploration of coal, gas or oil
- Health and safety at work regulations that are deemed to be non critical
Here's the real problem with a US/UK trade deal. The issue is that Donald Trump campaigned on a clear message of protectionism. He immediately cancelled TPP on taking office and quickly followed that up by throwing a tantrum about NAFTA and demanding its imminent demise. If that wasn't enough he is in the process of humiliating one of America's closest trading partners by threatening punitive tariffs to pay for a huge wall to keep all those unpleasant foreign humans as far away as possible. Donald Trump doesn't want to sign a deal with anyone. He is signalling this as loudly as a boorish oaf ever could by telling the entire world that from now on every US trade deal needs to have a 30 day cancellation policy. For Donald Trump the status quo of no deal at all has a spectacularly high value. His policy statement from last September makes for interesting reading for anyone attempting to coax the US into any kind of trading relationship. The UK, on the other hand, is desperate to sign a trade deal. Moreover, the political survival of the leading Brexiteers is conditional upon them signing trade deals. Any US/UK trade deal whatsoever would be a feather in their cap because the press aren't going to examine it in any detail. Walking away from a trade deal is not an option. The problem is getting Donald Trump to bother picking up his pen.
I don't need to spell out what happens if one person wants to buy but the other doesn't want to sell. For the UK it means giving up the NHS. If we're lucky we'll make it to the third or fourth day of talks with our health system in one piece. Everything else I listed here will be signed away by day three.
Balance of Trade
Here's a fun fact to finish. The UK generally has a terrible balance of trade but its trade with the US is actually a rare win. That's right, the most recently published trade results reveal that the UK exports more to the US than it imports. What are the chances that will be reversed after desperately signing a hasty trade deal? That's a rhetorical question and I leave it to the reader to make up their own mind.
This can all be avoided by voting Yes in a 2nd indyref,
PS Today's post was a bit of a monster. Next time will be nice and short and a bit more frothy. The last few posts have been a bit fact-heavy so maybe it's time for an update on the Brexit emotional rollercoaster.