The free-traders in Boris Johnson’s Cabinet appear to have won the day: the Prime Minister has reportedly sided with Trade Secretary Liz Truss, his Brexit advisor Lord Frost and other Cabinet liberals to support a zero-tariff, zero-quota trade deal with Australia.
The protectionists who wanted a watered-down deal – led by Environment Secretary George Eustice – have apparently been rebuffed.
Those of us – and there were a great many – who saw Brexit as an opportunity to open up global opportunities with an undiluted embrace of free trade and open markets, should rejoice.
The proposed Australia deal is not perfect– phasing-in provisions mean that it will be into the 2030s before all tariffs and quotas are finally abolished – but this is an important political victory for the forces of openness and trade, against the forces of nimbysim and producer special-interests.
A core argument of those entrenched special interests was that the Australia deal would set a precedent from which the U.K. could not escape in future trade deals. The same zero-tariff, zero-quota approach would logically need to be offered to India, the U.S., and other large economies. Correct. In fact, this is rather the point.
Setting this precedent should consign these squabbles to the past and ensure we start every FTA negotiation with an open, comprehensive offer to remove tariffs and quotas – meaning that we can focus on, and extract concessions on, the trickier details.
First in line will be India, as signalled by the Prime Minister’s announcement following his virtual meeting with Prime Minister Narendra Modi in April. A provisional deal is planned for next Spring.
Unlike Australia, India is not a natural partner in free trade. Its morass of regulations, barriers, and taxes make market access extremely difficult. The Modi Government’s watering-down of legal safeguards for foreign investors and disregard for legal judgments, adds to the concerns for British businesses. An open offer from the UK is the only way to force Modi’s hand to offer openness in return.
Access for UK financial services and legal services firms to India’s vast market is a must. Similarly, reducing tariffs and barriers on whisky exports, and machinery (including cars). The open precedent set this week on the Australia deal allows UK negotiators to push hard on these items.
But a key element required for any negotiations with India is rule-of-law provisions. These were never an issue with Australia: the country sits comfortably in the world’s top 15 economies for ‘Doing Business’ as calculated by the World Bank.
Investors in Australia can be confident of the security of their money, the fairness of the legal system, and a very low likelihood of corruption. India, however, is well outside the top 50 in the World Bank rankings. On the specific matter of ‘Enforcing Contracts’ India sits 163rd out of 190 nations, a sorry indictment of the Modi Government’s approach to overseas investment.
For a UK-India deal to work, this has to change. What value is there in lowering tariffs or reducing regulatory barriers, if British companies can simply have their assets frozen without warning, their property seized at the whim of the State, or their contracts unilaterally ripped up? Cairn Energy, based in Edinburgh, knows this first-hand: the company’s assets were confiscated by the Indian government as part of a bogus tax claim that has been struck down by international arbitration tribunals. Cairn has been awarded over £1bn in compensation, that the Indian Government continues to appeal.
They are not alone. Indo-American satellite firm Devas Multimedia has also been granted compensation north of £1bn to be paid by the Indian Government, which the Indian government is still appealing. The company’s contract was cancelled arbitrarily, after Devas had invested tens of millions in preparatory work; three separate arbitration rulings confirmed the Indian Government acted illegally.
Devas’ assets in India have now been seized by a government-appointed liquidator who has signalled that forced liquidation of the company is forthcoming. It’s obvious that this excessive tactic was to evade payment.
Any potential British investor looking at these cases will think: ‘that could be me’. Without guarantees of legal protections, the government’s aim to double annual trade to £50bn is unlikely to be achieved.
That is all for the future: but it is a future that will come a step closer once the UK-Australia deal is signed. The opponents of free trade have it entirely backwards. Far from backing the government into an undesirable corner, the offer to Australia has put Global Britain exactly where it should be: offering free trade to partners around the world and able to demand openness in return. Let the negotiating begin.