Monday , June 17 2024

A Fair Trade Brexit

I was at a dinner party a couple of weeks ago, where I was asked how we could ensure Post-Brexit Free Trade Agreements could support developing countries, and not operate as a race to the bottom. I declared that Brexit was a golden opportunity to achieve this. The majority of those at the party were from developing Commonwealth nations, and understandably them this was a major issue for them. I agreed that of course, free trade could not leave anybody behind, but that we could learn from many previous mistakes to ensure they do not happen again. However, I maintained, protectionism does not work in the long run – it is a mere “opiate of the people”.

It was a revealing conversation and one which made me reconsider precisely how we could ensure developing nations benefit from Brexit. The first step was when the government announced that all existing EU agreements with such nations would be grandfathered in to ensure minimum economic damage.

However, I understand many will ask why we are prioritising such nations at this time. Surely we should focus on our own economic issues first, then, when we have removed the mote from our own eyes, we can better see to remove the speck in our brothers’. Yet such an argument follows on from the faulty logic that trade creates winners and losers. This fallacy was often been worn out and was used extensively in the populist elections of 2016. When we purchase oranges from South Africa, the US or Israel do not lose – we gain cheap oranges and have what economists call a “consumer surplus” – we have saved money we will use on other goods and services. The South Africans benefit as the orange groves make profits, expand and hire more workers. This is not to infer that the benefits from trade are automatically shared equally. Yet even when the benefits are shared unequally, they exist and it is then possible to amend the process to ensure the surpluses are shared ‘fairly’.

Yet those at the party, many of whom voted remain in the referendum wanted to know why I was sure Brexit then the opportunity of a lifetime? If we gained free trade deals, wouldn’t that merely mean cheaper goods flooded the market? I insisted that this was the case, but everything was made cheaper already. Let us take the example of bananas. When I can, I buy Fair Trade Bananas. Waitrose’s brand (I must confess to shopping at that chain) of such bananas are grown in the Commonwealth island of St. Lucia. There are cheaper bananas, but these are not fairly traded, and so I typically avoid them. I believe they typically come from Guatemala courtesy of a branch of the United Fruit Company.

If we were to achieve a free trade deal with both Guatemala and St Lucia, it is most true that EU regulations on bananas would not apply, freeing us to purchase irregularly shaped bananas. Let us further suppose that a tariff of 10% exists on importing bananas. Guatemalan bananas would be 10% cheaper, that was true – but St Lucian bananas would also be 10% cheaper. Indeed, it is likely that the fair trade bananas post agreement would be the same price as the noncertified bananas before we signed such a treaty. Fairly Traded bananas would, therefore, be 10% cheaper. It would be impossible for us to make fair trade bananas the same price as the non fairly traded ones, but this is a still the case today. A free trade agreement would more people could afford fair trade products, as they would be cheaper.

Secondly, I argued that the current EU & Common Market system is counterintuitive, and a much better system could easily be achieved outside of the Common Market. Returning to the case of South African Oranges, the EU has increased the tariffs on imported oranges from 3.2% to 16% – a 500% increase from 2009. Protecting Spanish orange farmer from the competition is the reason for such a significant increase. But what is the result of such a decision? Unemployment in South Africa, and again the EU proves its primary aim is to keep wealth inside its Common Market. The rest of the world is not given a consideration – ensuring Fortress Europe remains strong is the overarching policy. Alas, it is not merely Oranges; Sugar, processed coffee beans all fall foul of the EU’s burgeoning tariff system, that has increased from 1,494 to an outrageous 12,691 between 2009 and today.

Coffee beans are another interesting example. Germany has the remarkable achievement of making more money from the processing of coffee beans that the entirety of the African continent has in growing coffee. Similar to the colonial system of raw materials being shipped back to the “mother country” for processing and profiteering; this is hardly Fair Trade. It is not merely a German problem, by any means. The entire European Common Market / Single Market has been set up to protect industries inside the market, and this automatically discriminates against those outside of the ESM (European Single Market).

The next step in creating a Fair Trade Brexit would be to undo this process of resource extraction, but rather to assist developing nations to expand their processing industries. If coffee is the stereotypical European drink, tea would be the British equivalent. While the tea farming system is known for not being equitable, the UK government is investing in Kenya’s tea industry. This is a good example of how the government is already preparing for a Fair Trade Brexit, regardless of how the official negotiations are going.

Current UK government investments in the tea industry are expected to increase exports from the 45 million kilograms imported in 2015 (Cornel, The Star).

As the tea capitals of the world, Kenya and India have a further issue with the Single Market: quotas.

While tariffs are import duties, quotas limit the overall quantity of goods imported. Both India and Kenya are rapidly approaching their quotas. When this is reached, no more imports to the Single Market will be allowed. Although few developing nations are approaching their quota limits, it still represents a stumbling block to fairer world trade.

In conclusion, there are five major steps towards a Fair Trade Brexit.

1. Remove all import tariffs on imports from developing nations

2. Remove all import quotas on imports from developing nations

3. Invest in developing nations’ products & services that we need

4. Maintain all trade agreements with developing nations

5. Actively seek to make new trade agreements with developing nations

Therefore, Brexit can easily be beneficial for developing nations and to ensure all trade in and out of Britain is fairer. We can correct and avoid the mistakes of the European Common Market, and avoid the mistakes the ECM have avoided.

However, it cannot be overemphasised that the most effective way of ensuring free trade remains fair is to personally purchase fairly traded products. It is not Dr Fox’s or Mr Davis’s responsibility to ensure fair free trade: We can all achieve a Fair Trade Brexit.

About Ted Yarbrough

Ted is the co-founder and editor of the Daily Globe. He is a long-time blogger on British politics and has written a thesis on Thatcherism.

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