by Bernardine Adkins

1. IInntteerreessttiinngg ttiimmeess
Trading freely in a new world order
by BBeerrnnaarrddiinnee AAddkkiinnss*
The popular discontent with the world economic status quo –
demonstrated in the UK’s Brexit vote, the election of Donald
Trump as 45th US president and the defenestration of Matteo
Renzi as Italian PM, with possibly more to come with the
French and German presidential elections – is most sharply
expressed in the view that “good jobs” are being denied to the
local electorates taking part in those votes. In Europe, it is felt
to be immigration – “foreigners” taking local jobs – which is
most to blame, whereas, in the US, the focus appears as much
on the idea that “unfair” trade is causing jobs to shift abroad.
The UK government’s position on this appears somewhat
schizophrenic. On the one hand, it wants to restrict net
migration to the UK to less than 100,000 a year (currently well
over three times that amount); yet on the other, the
government also appears to be strongly in favour of free trade.
As PM Theresa May said at the Lord Mayor of London’s
annual banquet in November 2016, the UK wants “[to] show
the world that we can be the strongest global advocate for free
markets and free trade because we believe they are the best
way to lift people out of poverty but that we can also do much
more to ensure the prosperity they provide is shared by all”.
TThhee UUKK,, aa bbeeaaccoonn ooff ffrreeee ttrraaddee
At a basic level, the UK’s emphasis on free trade is
unavoidable. For example, the UK only produces about 60%
of the food we eat: the rest must be imported and payment
must be made for these imports. It is probably fair to say that
our export performance is not currently adequate to support
the rising standard of living which the UK population expects.
The balance in total trade between the UK and the rest of the
world shows the largest deficit (over 5% of GDP in 2015) of
the major industrialised countries. Our current account
balance (all payments going out set against all those coming in)
has been in continuous deficit for the last 20 years.
But with the “closed for business” signs being put up by
importing countries across the developed world due to the same
political pressures confronting Theresa May’s government, how
can Britain improve its foreign trade and financial performance?
In an era when trade competition from “foreigners” is seen not
as an incentive to improve home performance but a threat to be
excluded, what options are open to the UK to increase its trade
with the outside world?
The two main levers available to the UK government are:
• “free trade” deals with third countries to allow preferential
access to their markets for UK goods and services; and
• improving UK productivity (languishing mid-table in
improvement per worker over the last few years). One of
the main methods of doing this, in the medium term, is by
ensuring that all sectors are competitive and that private
barriers to free trade in the UK are removed. Competition
law enforcement is key to this.
In his speech in Manchester at the end of September, Liam
Fox – the foreign trade secretary – extolled the virtues of free
trade by reminding his listeners that the repeal (by a
Conservative government) of the protectionist Corn Laws in
the mid-19th century had opened up an era of prosperity for
all in the rapidly industrialising UK.
And in more recent times, the establishment of global trade
agreements – notably, the GATT in the post-war period and
then its successor, the World Trade Organisation in the 1990s
– have increased prosperity across the world. But they have
done this mainly through liberalising trade in goods. Even
many parts of the WTO agreements which appear service-
oriented – for example, TRIPs on intellectual property
protection – apply as much to trade in goods (for example,
pharmaceuticals) as to services.
GGlloobbaall ttrraaddee iinn sseerrvviicceess
The UK economy is now heavily service dependent (well over
75% of output by value) but international free trade in services
is much less well-developed than global free trade in goods –
and was barely mentioned in Dr Fox’s speech. Although the
WTO agreements include a General Agreement on Trade in
Services, GATS is simply a framework which provides for
WTO members to offer services commitments for defined
sectors – and the commitments offered are usually heavily
hedged with conditions and exceptions.
GATS identifies four methods of supplying services
internationally: cross-border supply of services; consumption of
services abroad (for example by students travelling to be educated);
establishing a commercial presence (branch, subsidiary); and
(temporary) presence of individuals to perform services.
Clearly, all but the first of the four GATS methods of trading
services internationally requires the movement of persons –
but the free movement of persons is said to be a red line for
Theresa May’s government in the UK’s future trade
negotiations with the EU.
It is not only in the trade negotiations with the EU that
migration will be a factor. During Theresa May’s trade visit to
India in November, the Indian PM Narendra Modi pushed for
greater openness for Indian students to come to the UK,
suggesting that this might be a vital part of any trade pact. As
freer access to India’s potentially vast services sector surely
must be a central jewel in the crown of any post-Brexit
international UK trade policy, the government’s red line may
have to turn a shade of pink.
UUKK--UUSS ttrraaddee rreellaattiioonnss:: tthhee TTrruummpp eeffffeecctt
How does the election of Mr Trump affect the international trade
and competition system? The short answer is that it is too soon to
tell. The Republican campaign rhetoric focused on protecting
US workers from “unfair” competition from (particularly
* Bernardine Adkins is head of EU, trade and competition at Gowling WLG
8 17 January 2017 • Competition Law Insight

2. Interesting times
Chinese) imports, and Mr Trump has already announced that the
US will not participate in the recently negotiated Trans-Pacific
Trade agreement – which puts its future in some doubt. But again
the focus has been on the manufacturing sector: Mr Trump has
said relatively little about free trade in services.
Back in the UK, the omens for the UK-US relationship may
be brighter. Although a comprehensive UK-US free trade
agreement is probably politically out of reach in the near term,
sector UK-US trade deals may well be possible. The future US
commerce secretary, Wilbur Ross, and the treasury secretary,
Steve Mnucin, both have financial services backgrounds, and
freer trans-Atlantic trade in financial services would seem to be
an area where both the US and UK could see benefits.
PPrreessiiddeenntt--eelleecctt
Not that this should in any way influence US policy but
Donald Trump himself currently has leisure service industry
investments in the UK – type 3 (also known as international
service provision), to borrow the GATS categories.
However, Donald Trump’s campaign pledges to tear up
NAFTA and withdraw the US from the WTO – if carried
through – would fundamentally change the world trade system.
In practice, it is more likely that NAFTA will be revised rather
than torn up. In particular, it is unlikely to include requirements
on Mexico to improve conditions for Mexican workers so that
the cost base of employing them (healthcare etc) becomes more
comparable to costs in the US and Canada. The possibility that
these changes may include antidumping measures where
Mexican industry is found still to enjoy an “unfair” cost
advantage is, nevertheless, probably fairly high. On this basis,
though, US-Canada trade arrangements are likely to be largely
unaffected, given the similarity in their respective economies.
US demands to withdraw from the WTO could have more
impact on UK and world trade. Even assuming that US
intentions are to rewrite some of its WTO tariff commitments
(particularly in goods trade) rather than withdraw entirely from
WTO structures, the risk of retaliatory changes by other trading
nations is high and could seriously destabilise the current free
trade system. A likely change in emphasis in Washington towards
bilateral deals with “friends” may benefit the UK in the short
term, but long-term damage to the infrastructure of world
trading relations would be a serious blow to UK competitiveness.
FFrreeee ttrraaddee iiss ggoooodd –– iiff yyoouu aarree ccoommppeettiittiivvee
The main reason for mid-19th century Britain’s success in a
free trade world was not free trade in itself, but Britain’s
embrace of modern technology in transport (railways,
steamships) and goods (textiles, ceramics, arms manufacture).
Britain’s world lead in these areas led to great prosperity – and
profound social change.
Britain does not enjoy the same prime position in today’s
world but, as Mark Carney – governor of the Bank of England
– noted in a recent speech in Liverpool, current technological
change, mainly in computing, is likely to lead to more social
change in the near future, this time in services.
The fundamental challenge is that, alongside its great benefits,
every technological revolution mercilessly destroys jobs and
livelihoods – and therefore identities – well before the new ones
emerge. This was true of the eclipse of agriculture and cottage
industry by the industrial revolution, the displacement of
manufacturing by the service economy and now the hollowing
out of many of those middle-class services jobs through machine
learning and global sourcing. The combination of open markets
and technology means that returns in a globalised world amplifies
the rewards of the superstar and the lucky.
And the Bank of England’s chief economist has forecast that
technological change could lead to the loss of 15 million
current jobs in the UK “over time”. How will those jobs –
and that GDP – be replaced and how will UK trade and
competition policy need to adapt to support this?
First, international trade in services is likely both to expand
radically and to change in method of delivery. As more high
quality services can be delivered remotely over the internet,
the type 1 GATS method of international trade in services will
become more common. So, for example, instead of students
leaving their countries to study, remote teaching technologies
will allow interactive virtual-reality classes to be delivered to
them by holographic lecturers from abroad.
Second, this will increase competition in services markets of
all kinds everywhere. And – as we have already seen with
telephone call centres, document review and translation
services – this is likely to mean service sector jobs being
offshored to cheaper locations – whether that is within the UK
(Belfast) or abroad (Bangalore).
Third, remaining service jobs will be characterised by skills
which cannot be automated – creativity. Here the UK does
have a strong reputation in everything from the motor
industry to education, fashion and luxury alcoholic drinks.
And the essential legal component of profits on creative effort
is the intellectual property right. These will become even
more important in the coming decades.
So, fourth and finally, UK (and international) trade and
competition policy will need to focus on making sure that market
failures in trade in services and in creativity innovation are
addressed promptly. The European Commission’s investigation
into Google’s search and advertising practices – and whether they
amount to an unlawful abuse of a position of market dominance –
is surely a harbinger of many more similar things to come.
WWeellccoommiinngg ccrreeaattiivviittyy –– wwiitthh ccoonnttrroollss
An interconnected world may, of course, reduce the need for
migration. Again, however, this is unlikely to happen in the
short-term timeframe that characterises the political horizon of
an average government. So in the immediate future, the
protectionist politics of the last year will still be a powerful force.
UK trade and competition policy will need to recognise both
that the protection of the UK manufacturing base is not likely to
be fully achievable in many industries – the travails of Tata Steel
are a clear illustration of this – and that intellectual input into
Britain’s GDP needs to be encouraged and increased (and
measured properly). Of course, paradoxically, state intervention
to encourage creativity often has the opposite effect. It is no
accident that the most creative economies are open democracies
where free expression is highly valued.
Getting the balance right between openness to outside ideas
– and therefore individuals – and controlling migration is then
perhaps the UK’s biggest trade and competition challenge over
the next decade or more.
Competition Law Insight • 17 January 2017 9