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A Narrow Focus on EU Trade restricts Global Opportunities by Robert Bates

eu trade restrict
Written by Robert Bates

Robert Bates opposes the Chequers proposals with a detailed argument that modern trade logistics, enhanced infrastructure and a developing taste for high-quality British goods means that global opportunities exist for expanding UK exports. A narrow focus on the EU will restrict opportunities for UK traders.

The prospects of Britain pursuing a global trade policy after Brexit are currently weighed down by a misguided perception that holds sway throughout Whitehall. It is an issue of group-think, and prevents policymakers from noticing real-world developments. Leave’s victory in the 2016 Referendum was a vote for a fundamental change in Britain’s worldview, yet our elected representative continue to cling to the restrictive concept of eurocentrism.

The deep-seated belief that we must spurn trade with global markets, in order to secure the closest possible relationship with Europe, has manifested itself in several high-profile machinations thus far, and will undoubtedly continue to shape the terms of discourse between policy makers. The Treasury’s decision to use a gravity trade model[1] when producing its Brexit ‘forecasts’, the proposed Customs Partnership, and Theresa May’s desire for Britain to stay inside the Single Market for goods, are symptoms of this belief; and show an ill-informed pre-eminence being granted to geographic proximity.

This logic dictates that exploding markets such as India are somehow seen as less valuable to our future prosperity than a stagnating Eurozone. May’s insistence of following EU rules on all goods and agri-foods may very well enable her to keep trade with Europe somewhat “frictionless”[2], but whose objective really is this? Given the invariable side effect would be to limit our capacity to strike free trade deals, it is certainly not the objective of 17.4 million Brexiteers.

Even the most basic of statistics show the current approach is worthy of derision. Our largest export market is not a neighbouring European country, but in fact the United States, to whom we sold $52 billion[3] worth of goods in 2016. An amount which dwarfed our sales to Germany, which stood at $35.5 billion[4]. The trajectory of international commerce is such that location will become an even more redundant determinant of successful trade in the near future.

In this sense, Brexit has come at an opportune time. The current stasis which has shrouded our trade policy has been upturned, and the chance to recast ourselves as a more globally orientated nation will be greatly facilitated by the confluence of innovation taking place. It is imperative that the Government, when negotiating the future relationship with Europe, does not construct a customs arrangement under the false pretence that geography is key, as doing so would see us unable to capitalise on the opportunities which are opening.

Logistics

Starting from the premise that “logistics are the backbone of global trade”[5] – as stated by the World Bank’s Director of Trade, Caroline Freund  – the rapid evolution of worldwide logistics provisions is of huge significance. Improving infrastructure, quicker shipment speeds, and advanced customs capabilities mean markets which have hitherto remained far-off are brought much closer. Geographical hurdles are being overcome at a rate of knots. Exporters in post-Brexit Britain will face fewer impediments to shipping goods over longer distances, and fewer time-delays when they reach the border.

The Trade Secretary, Liam Fox last week reported that 400,000 businesses believe they have the potential to export, but don’t at this moment in time[6]. With the global logistics industry experiencing a meteoric surge, Small and Medium Size Enterprises (SMEs) can start looking further afield in the knowledge that the capabilities are there to support their endeavours.

Supply chains which cover several continents are set to become the norm, and geography will give way to quality as the determining consideration for companies seeking suppliers. This is, in part, due to the revolution going on in the Third-Party Logistics (3PL) sector – third party businesses which manage the supply chain of other companies.

More and more 3PLs are taking their operations from a continental level, to a global one – creating an intricate web of connected facilities under a central command. For British exporters, this is a fantastic trend. It will allow them to focus their energies on improving their products whilst outsourcing their supply chain management to an external company with a global set-up. It will also allow more UK SMEs to partake in international supply-chains.

3PLs provide a readily available network – of warehouses, transportation services, and product-specific requirements – that would otherwise have taken the exporter lots of time, money, and paperwork to complete. A report last year from supply chain consultancy Armstrong & Associates[7] predicts the market is set to continue growing at a strong pace for the foreseeable future. The by-product of this growth is that UK companies are presented with an array of networks to choose from when looking to do business overseas, and will be equipped with the utensils to partake in the supply chains of foreign companies. Chequers would hinder this, however. By continuing to apply the Common External Tariff after Brexit, under a convoluted mechanism of reimbursement, May risks deterring global supply chain operators from using Britain’s world class goods in their final products.

Governments around the world are realising the importance of investing in logistics. India, China, Canada, and Oman are amongst a multitude of nations that have developed strategies focused on expediting the entry of goods into their territory through the logistics sector. “The global logistics landscape displays positive trends” says The World Bank Group’s 2018 “Connecting to Compete” report. “More and more countries…see logistics as a sector of the economy requiring consistent policy making”[8]. They are spurred on by international bodies such as the OECD and the WTO[9] as well as the Logistics Performance Index (LPI), which shows the improvement of logistics in its regular reports. The international impetus is clearly there to eradicate any issues presented by distance and Britain is already ahead of the trend. We regularly appears in the LPI’s top ten countries for logistics. [10]

The growth of this industry could make it much easier for British businesses to trade more globally. In order to truly cash-in on this industry’s expansion, the UK must be able to strike Free Trade Agreements that further lubricate trade, and distance ourselves from the nightmarish CET. A failure to do so would prevent our would-be exporters from being welcomed into global supply chains.

Internet and demography

The World Wide Web is moving in a direction which further negates any perceived impact of geography on determining trade flows. It will allow British companies “to penetrate a number of regions with growing consumer classes”[11] and have their market reach extended to anyone with access to the internet.

According to Maslow’s Hierarchy of Needs[12], once the basic needs of a consumer are met and they advance up the social ladder, their needs change. A greater emphasis is placed on acquiring high quality products and accessing services. This is a process happening worldwide and plays to Britain’s strengths. Striking FTAs with nations that have burgeoning middle classes, and utilising the platform provided by the internet to access these markets could lead to an export surge. For instance, India’s Middle Class is expected to reach 583 million by 2025[13]. This is larger than the entirety of the EU’s population.

Moreover, our exporters are held in exceptionally high regard. They are regularly encouraged by the Government to enact “best practice”[14] when producing goods, and research from Barclays has found that 64% of Indian consumers are prepared to pay more for British products, because they are viewed as higher quality[15]. We have a global brand and our exporters stand out in often crowded markets. E-commerce represents a fantastic opportunity to capitalise on this, but only if the Government has the courage to embark on a wholesale reform of its trading priorities.

Indeed, in December 2017 the World Government Summit issued a paper stating that e-commerce “will likely continue to increase the diversity of actors participating in international trade as SMEs…take advantage of new opportunities”[16]. This is a field which the British retail sector is already excelling in, with over 17% of total sales being done through e-commerce, 50% more than Germany[17]. Our entrepreneurs, and our shop-owners, are more than capable of extending themselves overseas. The government can help them by broadening Whitehall’s horizons and striking free trade deals.

Infrastructure

An expansion in infrastructure further enables a more global future for the UK. Around the world countries are encouraging imports by investing in their points of entry – both sea and air. Having a larger array of ports from which to choose means those selling overseas can get their product much closer to its final destination before it is unloaded from either the ship or the aircraft. These faster modes of transport cover more distance, in a much shorter timeframe than ground modes of transport, and can make British exporters much more effective.

The current surge in investment taking place on the east coast of the United States, our biggest export market, therefore, further serves to show exactly why the Government needs to be looking beyond Europe. The Association of American Port Authorities is currently lobbying the US Government for an investment of $66 billion[18] into eastern seaport infrastructure, and the recent enlargement of the Panama Canal, plus present difficulties facing land imports from Mexico, are heightening the frenzy of development currently being undertaken. America’s nearest coast is becoming even more accessible.

Globally there are more than 350 expansion projects planned until 2023, which will increase the capacity of global container handling by more than 260 million containers[19]. This statistic represents a plethora of openings, of possibilities, and of prospective consumers. Down the east coast of the Americas are emerging more and more portals into markets, from Quebec’s new container terminals, to Brazil’s new seaport investment programme. This is not just a Western phenomenon either, as India’s Ministry of Shipping has also unveiled a new programme of port enhancement. Leaving the European Union, scrapping its rules on state aid, and re-energising British ports through tax-breaks would further strengthen our ability to connect with ports around the world.

Meanwhile, technological advancements are revolutionising the industry, injecting greater efficiency into almost all aspects. Head of Corporate Affairs at Associated British Ports, David Leighton says “new technologies are set to change the nature of global trade” and “this will become increasingly evident in the ports sector”[20]. It is easy to see why as Artificial Intelligence (AI) is increasingly being used to optimise shipping routes, whilst the repetitive nature of the container industry means it is primed to benefit from AI’s pattern recognition.

Likewise, Blockchain is helping with the facilitation of rapid customs clearing by reducing the need for physical checks on land, as inspectors can now access encrypted information about goods whilst they are in transit. It will also provide foreign supply-chain managers with the basis to embrace world-class UK suppliers without having to physically inspect the products themselves.

“There is no doubt that blockchain will soon become part of the customs landscape”[21] says the World Customs Organisation in a report which acknowledges the revolution which is taking place. It is against this backdrop of forward momentum that Britain’s future customs relationship with Europe should be forged, not the cries of indolent corporations who are unprepared to ready themselves for the fourth industrial revolution. May’s analogue suggestion of a ‘customs partnership’ already seems defunct. In the near future it will be a ghastly restriction.

Conclusion

Britain is a nation with a strong pedigree in international commerce. It is a worldview held by an overwhelming majority of the population, yet many in positions of power do not share this ambition. Outward-facing Governmental departments remain beholden to Europe due to the established inertia caused by 45 years of EU membership. The Foreign Office is filled with Civil Servants used to dealing primarily with Brussels, the Department of International Development is currently required to check-in with the Commission and has altered its behaviour accordingly, and the Department for International Trade has thus far been unable to enact its primary purpose of signing trade deals.

Striking beneficial arrangements will allow the United Kingdom to ride the wave of technological advancement, and infrastructure investment. The Brexit vote was a decision for a marked change in policy. Theresa May’s current intention to keep us as close as possible to Europe not only spurns the opportunities that are emerging, but seemingly ignores the country’s demand for a conceptual shift. To Get Britain Out of the EU on terms endorsed by the population, the Prime Minster needs to stiffen her resolve and believe in Global Britain.

Robert Bates is  Senior Research Executive for Get Britain Out

Referenc

  1. Coutts, K., Gudgin, G., Buchanan, J. “How the economics profession got it wrong on Brexit.” LSE Brexit (2018), p. 14
  2. Theresa May’s Mansion House speech: (https://www.bbc.co.uk/news/uk-politics-43256183)
  1. Ibid
  2. The World Bank “From Parts to Products: Why Trade Logistics Matter”, 24 July 2018: (https://www.worldbank.org/en/news/feature/2018/07/24/from-parts-to-products-why-trade-logistics-matter)
  3. UK “Fox launches ambitious new Export Strategy to boost British businesses”, 21 August 2018: (Fox launches ambitious new Export Strategy to boost British businesses)
  1. An example would be the Trade Facilitation Agreement which aims to ease the passage of goods into import territories
  2. The World Bank Logistics Performance Index: (https://lpi.worldbank.org/)
  3. Ellis, T., FitzGerald, A., Terfous, N., Zouaoui, Y., “Navigating the new realities of global trade”, April 2018: (https://www.mckinsey.com/industries/public-sector/our-insights/navigating-the-new-realities-of-global-trade)
  • Maslow, Abraham H. “A theory of human motivation.” Classics in Management Thought-Edward Elgar Publishing1 (2000), p. 450.
  • Beinhocker, Eric D., Diana Farrell, and Adil S. Zainulbhai. “Tracking the growth of India’s middle class.” McKinsey Quarterly3 (2007): 50
  • An example of this can be seen in the recent document “Product safety for manufacturers” released by Gov.UK
  1. Barclays: “Brand Britain: Export opportunities for UK Businesses
  1. Leighton, David. “The future of British ports”, Prospect, August 15 2018 (https://www.prospectmagazine.co.uk/sponsored/embracing-the-future)

[1] Coutts, Ken, Graham Gudgin, and Jordan Buchanan. “How the economics profession got it wrong on Brexit.” LSE Brexit (2018), p. 14.

[2] Theresa May’s Mansion House speech: https://www.bbc.co.uk/news/uk-politics-43256183

[3] The Observatory of Economic Complexity

[4] Ibid

[5] The World Bank, From Parts to Products: Why Trade Logistics Matter

 

[6] Fox launches ambitious new Export Strategy to boost British businesses

[7] For Armstrong & Associates’ report follow this link (https://www.3plogistics.com/global-third-party-logistics-market-reaches-802-billion/), alternatively a summary of findings can be found here: (https://www.logisticsmgmt.com/article/ongoing_global_revenue_growth_is_in_the_cards_for_3pls_says_armstrong_repor)

[8] The World Bank “2018: Connecting to Compete”

[9] An example would be the Trade Facilitation Agreement which aims to ease the passage of goods into import territories

[10] The World Bank Logistics Performance Index 2018 https://lpi.worldbank.org/international/global/2018

[11] World Government Summit Paper” Dec 2017, “Navigating the new realities on global trade”

[12] Maslow, Abraham H. “A theory of human motivation.” Classics in Management Thought-Edward Elgar Publishing 1 (2000), p. 450.

[13] Beinhocker, Eric D., Diana Farrell, and Adil S. Zainulbhai. “Tracking the growth of India’s middle class.” McKinsey Quarterly 3 (2007): 50

[14] An example of this can be seen in the recent document “Product safety for manufacturers” released by Gov.UK

[15] Barclays: “Brand Britain: Export opportunities for UK Businesses

[16] World Government Summit Paper” Dec 2017, “Navigating the new realities on global trade”

[17] E-commerce Set For Global Domination — But At Different Speeds

[18] AAPA Pushes For $66 Billion As Part of President’s $1 Trillion Infrastructure Package

[19]Container Terminal Project Pipeline” DS Research

[20] Leighton, David. “The future of British ports”, Prospect, August 15 2018.

[21] “Unveiling the potential of Blockchain for Customs”, WCO Research Paper No. 45, p. 3.

About the author

Robert Bates