CEO speech to Birmingham BABC
Good evening everyone, it’s a pleasure to be here. This is the first time I have been with you as BABC CEO since I stepped away from the role of CEO British American Business allowing me to focus more intensively on the work in hand across our network in strengthening the British North American economy, and the business that underpins it.
I want to offer you a picture of where we stand on things ‘transatlantic business’, from our UK vantage point immediately post the Chancellors’s Autumn statement and this morning’s Industrial Strategy relaunch.
Hopefully that can prompt a full and frank discussion.
So I will cover three sets of points if I may, with about 10 minutes worth of thoughts, on:
General post Brexit context and implications for USUK economic relations – the world in which our members do what they do in transatlantic marketplace, specifically North America;
Prospects for a USUK trade deal and how well prepared we are for a ‘Global Britain’ approach to the North American market more broadly;
Future role and challenges for our BABC network, particularly here in the UK
Background – Brexit base case
So as our context where do we stand as we enter a key stage in EU UK divorce negotiations, the determination of whether we can advance to discussing future trading relationship?
That’s a question of whether there is an outline deal on money, people and Ireland, and we will see where we get in the next few weeks.
At this moment it looks as though the ‘Hard Brexit’ risk growing. We shouldn’t rule out more palatable options – an orderly Brexit is still plausible delivering an exit in approximately eighteen months time plus two years or so of transition. That would create trade competence for 2022. With ‘Hard Brexit’ that could come as early as April 2019.
Amidst the uncertainty, so far the economy is showing passable performance and resilience:
We can see declining but real growth at 1.5% and 1.5% forecast into the medium term, pretty full employment masking nb some pretty hefty real wage declines. This is adding up to - net - no shift in public opinion on BREXIT and no landslide Corbyn victory out there either as far as we can calculate.
Overall my mental ready reckoner computes this all as:
Brexit 70% likelihood;
Withdrawal of Article 50 notice-10% likelihood;
Risk of UK political crisis steady but quite strong 40%;
Likelihood of British Election 2018 - 40%;
Likelihood of electorally indecisive election result 60%.
So what about a USUK Bilateral Trade deal?
We have had two rounds of trade dialogue in DC and London – most recently following Secretary Commerce Ross’s visit to London.
There was progress made on defining a path to a deal
There was progress made on themes like IP and Reg cooperation
Separately we can see progress with things like the UKUS science MOU
But there is a gap in my perception between rhetoric and reality on this USUK bilateral trade deal, most notably on timing, but also on feasibility and desirability.
USUK trade deal certainly fits the post Brexit ‘Global Britain’ mantra, and of course the North America UK economic relationship is worth approaching 25% of our exports. As a network and for the record I am sure we would be very positive about a balanced, ambitious and comprehensive agreement.
The first thing to note is that Brexit mitigation is 'sapping the oxygen from the room ' leaving little time for thinking about trade policy opportunities beyond well-endowed trade associations and think tanks. So it’s not that high on the agenda really.
Then there is the issue of USUK economic asymmetry and the realities of US trade policy as a one way street, which make us question whether there are huge market access and tariff gains really likely to be on offer.
There’s a UK political feasibility problem there too in my view. And all of this might make sustained UK follow through on bilateral trade policy less likely and less energetic than currently posed.
So my take for what it’s worth is that these realities and further structural problems on UK trade policy will encourage officials towards ‘slower and better’ rather than ‘fast and furious’ notwithstanding political need for speed. I’m in the five years plus camp.
UK business will stay a bit lukewarm on a USUK bilateral trade deal given assymetry (as translated into negotiating strength) and scepticism as to market access upsides. And counterintuitively UK business would probably be more comfortable at an analytical level ‘riding’ a TTIP horse.
There are in my view some major structural issues affecting both future trade and investment promotion growth and future trade policy, and it’s worth having them out in front of us.
First, the UK structural problems on the trade and investment promotion proposition are based on declining productivity. Productivity is a key tool for export competitiveness. Alongside that the existing fdi base is being weakened by loss of EU Single Market access with loss of opportunity for incremental add on investments. Most worryingly, if we do the maths – if the fdi sector has higher productivity than the non fdi sector, which we know it does, and productivity is declining, which it is, [J1] then the attractiveness of non fdi sector to potential investors must decline and absolute levels of fdi must fall since investors generally don’t buy unproductive assets.
This will put pressure on exports, force greater reliance on currency devaluation and make the investment promotion proposition more reliant on sweetheart promises and marketing.
The UK structural problems on trade policy are that we lack negotiating capacity, we don’t have a clear view of an industrial policy/gameplan for what Britain actually wants on trade, and trade negotiations are proportionately much more difficult as a tool where the UK is strong eg in Services. The underlying structural economic weaknesses in UK output model – things like productivity - and generally low investment is a blocker for a productivity driven ‘brave new world’ economic miracle. And there are insufficient politics for 'big bang' neo liberalism, so its not realistic to imagine a Singapore model or consensus in the UK.
Future overall potential trade gains from future trade deals are potentially illusory because of trade partner negotiating positions and negotiating strengths and our underlying lack of competitiveness. You could also envisage a built in cost of differentiation implicit in the trade policy rhetoric to date.
Every gain we might make with a third country vis a vis EU trading terms by definition moves us away from a day 1 EU UK notional equivalence, which will ensure that the loss of equivalence with EU markets will ‘ratchet down’ on EU market access, without a guarantee of economic performance in new trade deal markets. Unless the EU allow us to do better by leaving as they would see it, or if we can build multiple agile production lines, but that feels like more cost, not more efficiency.
This leads me to conclude on this point that non trade deal opportunities should certainly be the core focus up to medium term, and by that I mean we should boost export promotion with a boots on the ground, qualitative approach. What’s more, we know what this looks like, so we don’t need to call in the Management Consultants.
Yes we should deepen regulatory/standards/sectoral bilateral dialogues across the Atlantic. Yes, we should encourage/agree ad hoc acts of economic collaboration like the USUK science MOU and specific ad hoc projects like cyber defence resilience in defence civil procurement.
Mostly though we need to work for the medium to long term on a productivity based trade policy instead of a spin driven and illusory negotiating differentiation.
If we have well managed companies across the economy with happy, right skilled workforces making well designed products and services and then marketing them well and selling them at competitive prices - that is the economic equivalent of heaven on earth.
A country that can do that is a true master of destiny, even taking into account market distortions like protectionism, and give or take a BREXIT or two. When we think about the unstoppable cross border force economic force which is the Apple I phone, Apple may worry about some things but it’s not tariffs.
Externally we need to find a productivity based trade identity that triangulates with the EU and institutionalises an 'equivalence ratchet' as a proactive principle rather than a safeguard mechanism on a mutually agreed scale and use it as an active tool while potentially joining in EU trade deals as an EU third party. This also implies giving EU countries access to benefits of any UK bilateral gains. Why not? I am in favour of a TTIP model as structure still to play for.
So where does this leave us across our world of the British American Business Council? We are a network of 22 chapters, predominantly in many of our great US cities, but also as we know here in the UK in Glasgow/Edinburgh, London, Manchester and Birmingham.
But in 2002 in the UK we were also in Cardiff, Leeds and Newcastle, so what is going wrong?
You would have thought that there should be demand for a well judged business support proposition if we talking 25% exports.
If we look at the CBBC comparator it’s not really so different but you can see a tighter relationship with BCC; against a similar reality of geography covered in the UK, notionally based on 10 formal geographies covered alongside 13 offices in China. Also CBBC has an offer which seems more centrally defined, based on Membership, offering live export opportunities – real business leads, Business services, intros and bespoke market research; Resources and info; Business support services – consultancy service; Launchpad – in country support.
I will end by saying that we need to be ambitious, not with high blown rhetoric, but with nuts and bolts progress, with productivity as a nation, and with a boots on the ground BABC and a boots on the ground trade and investment promotion proposition, and that’s the only way of dealing with what politics throws at us.