Liz Truss needs to be open about what is motivating the UK’s trade deal with Australia

Forget Brexiter/Remainer animosity, it is time to confront the practical question of whether the proposed trade deal with Australia will actually produce any real benefit

Vince Cable
Tuesday 25 May 2021 12:08
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<p>Trade Secretary Liz Truss</p>

Trade Secretary Liz Truss

One of the most important turning points in British economic history occurred in the mid-1860s when a Conservative prime minister – Sir Robert Peel – acted against the interests of the party’s traditional landowning supporters and his earlier beliefs to embrace “free trade”. He abolished the “corn laws”, the tariffs on imported food (or, at least, grain). The Tories were acting under pressure from angry and hungry urban workers in what could be called Yellow Wall – Whig or Liberal – seats (as well as, it must be said, the starving Irish).

As a result of this decision, Peel became a working class hero and Britain became the champion of “free trade” and “globalisation” for most of the 150 or more years since. The Tory party split, giving way to 20 years of Liberal dominance. The economic consequences were mixed, as British consumers benefitted from cheaper food but a surge of imports led to an outflow of gold (under the Gold Standard system), a contraction of the money supply and recession.

I don’t know if Liz Truss, our trade secretary, aspires to be the new Peel, but in launching a trade deal with Australia, she has undoubtedly grasped the political popularity of cheaper food, the importance of urban, English, working class voters to the Conservative party and the appeal among her supporters of the ideology of “free trade”. She has presumably judged that farmers – in this case, mostly livestock farmers – are dispensable. As for a split in the Tory party – we can but hope.

There is a tendency to polarise every trade issue in terms of the Brexiter/Remainer divide and already the public debate on the Australia trade deal has split into Good v Bad, depending on where we were on the referendum question. Given my uncompromisingly Remain sympathies I would be expected to be in the Bad camp. I may finish up there but I can see good and bad motives, as well as good and bad potential results, for the deal.

The bad motives are several: to chalk up a deal – even a bad one – simply to demonstrate that there are alternative trade partners to the EU; to pander to those with nostalgia for the good old days of the Empire, even if it is just the White Dominions bit of it; to cement the Conservative International with true believers “down under”.

There are potentially much more constructive motivations. The most substantial is that this is a small step to an opening up of the notoriously protectionist agriculture sector as part of a strengthening of the rather beleaguered multilateral trading system. Even as a committed European I would acknowledge that the EU’s Common Agricultural Policy used to be a disgrace, albeit much improved after later reforms.

It is possible that the opening up of agricultural markets in the UK could go much further than Australia. Under the most-favoured-nation (MFN) principle the UK will be obliged to offer comparable tariffs to other exporters. The world’s biggest beef producers – the US and Brazil – will want the same access in any agreement with the UK.

What would be really valuable would be to go beyond livestock, to open UK markets to a wide range of tropical products ranging from the managed market in sugar to fruit and vegetables where numerous tariffs and other barriers have been inherited from the EU’s external trade policy.

At a time when Britain is shamefully cutting back its aid commitments in the middle of an economically devastating pandemic, for many poor countries we could at the very least remove those trade barriers which exist. One of the few disagreements in my very happy marriage is that my wife looks at the food counters at the supermarket and worries about food-miles, while I seek out Kenyan carnations and peas, Zambian beans and mange-tout, and South African grapes and citrus fruit, thinking that I am helping an African farm worker or smallholder to survive.

A wider perspective still is that by opening our markets Britain is setting itself apart from the protectionist economics of Donald Trump which regrettably President Biden is continuing.  So far, President Biden has won a lot of plaudits (rightly) for his generous spending plans. A more significant legacy would be the reversal of America First tariffs and the restoration of a rule-based system under the World Trade Organisation. Of that there is no sign. Maybe Britain can be the catalyst for a change.

I don’t know whether Liz Truss is motivated by these wider considerations but, if she is, we should encourage her. I suspect not; but let us give her the benefit of the doubt. However, there is then the practical question of whether the proposed deal will actually produce any real benefit.

The government’s own cost benefit calculations suggest that there is some benefit to the UK economy but it is very small: around 0.025 per cent of GDP over 15 years. To put that in perspective, the more modest estimates of the cost of Brexit are a couple of hundred times larger. There might be increased opportunities for the City to export more to Australia but trivially small in relation to the loss of the single market.

For this benefit there is a direct impact on British livestock producers. We do not need to be too sentimental about this. Farming is a competitive business. And there are ways of helping farmers deal with the competition. One is to have a gradual phasing in of tariff reduction; the British government is seeking a 15-year period from the Australians.

A second step is to compensate farmers by paying them directly for the stewardship of the land, especially for environmentally important hill farming. It is more honest in any event to have transparent payments by the taxpayer rather than hiding the cost in tariffs paid by consumers. There is also a move towards rewilding and other ideas for enhancing the countryside for which farmers could and should be properly compensated.

Opponents of the deal are saying that Australian beef farmers (and Americans if they get a similar deal) use growth enhancing hormones which is, allegedly, a threat to health and which is why the EU has barred beef hormones domestically and in imports. Politicians are not best qualified to adjudicate on these matters. Rather, food standards should be based on rigorous and independent regulatory assessment based on scientific evidence.

The evidence, such as it is, suggests that there is no clear evidence of risk and that hormones are used in quantities which are very small in relation to those naturally produced. But it is generally better to be safe than sorry in matters of food safety. And the government has pledged not to dilute EU standards. Furthermore, any divergence will create another problem for Northern Ireland where EU rules will continue to apply.

There is of course a much bigger environmental issue in terms of the methane emissions of livestock. But Australian cattle probably fart no more or less than their British equivalents. The answer to that is for us all to eat less red meat.

Looking at the issue in the round, it isn’t clear how a modern Robert Peel would have approached this problem. If the Australia deal is part of a wider move to breathe life into an open trading system it is worth doing. If it is just a bit of post-Brexit political posturing, it isn’t worth the undoubted costs to farmers and the anxiety to the millions of people who worry about funny things in their food.

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