Shaping global rules: the UK in the 21st century global economy
The 21st century world economy looks rather than different than the previous century. The fast growing areas of services and digital trade are less well governed than trade in goods. For the UK, which is the world’s second largest exporter of services and one of the top 10 countries in terms of ICT as a share of its economy, this provides an opportunity to help shape the global rules in these areas.
Services trade is covered by GATS in the World Trade Organization (WTO) but it has less teeth than the provisions for goods trade. As a result, a group of countries launched a round in 2013, the Trade in Services Agreement (TiSA), to liberalise and open up global markets in services. Services comprise 70% of world and EU GDP but only 25% of world and EU trade. Some services are non-tradeable, such as consuming a meal locally, so it is different than goods. But there is still significant scope to increase trade in services which would benefit many and particularly advanced economies since they are mostly services-based economies.
TiSA has stalled with the change in U.S. administration. But this offers an opportunity for the UK. As the world’s second biggest services exporter, the UK has considerable expertise with which to push to restart TiSA. Trade in services is unlike trade in goods in that tariffs are not a major consideration. Services trade is known as the “invisible balance” because it deals in the intangible economy which is governed by standards, regulations, rules and norms. As a leading international financial and business hub, Britain has long-standing experience in working with global companies as well as regulating them.
It is similar for trade in the digital arena. This area has grown so rapidly that a new round of talks has been launched in January centred on agreeing rules to open up and regulate e-commerce, data localisation rules, as well as combat spam, among others. This pluralistic approach bears many similar to TiSA in that rather than waiting for unanimous agreement, a group initiates the process.
There are also numerous global bodies in which rules around ICT and technology, such as 5G, are set. They are the new battlegrounds between the economic superpowers, the United States and China, who are vying to set the standards that will govern globally.
Their impasse opens up an opportunity for the UK. In areas like FinTech as well as a number of other tech arenas, the UK ranks highly alongside the US and China. Thus, it has the expertise to help shape global rules and with less of the political tensions.
Shaping global rules, particularly in the ICT area, is not solely the preserve of governments. Leading companies who have the know-how are significant contributors to global rule-setting bodies. This is also where the UK with a comparatively large ICT sector has an advantage. By working with leading British firms, the UK is in a strong position to introduce the private-sector perspective as well as bring considerable regulatory experience to the negotiating table. That combination would be highly effective and necessary in becoming an influential voice in setting global rules and standards.
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Not operating alone would also be important. As discussed earlier with TiSA and digital trade initiatives, working with a group of similarly situated countries is important in trying to push for change in the current system. Working with the European Union after Brexit would provide a partnership with the largest economic bloc that is not the United States or China who are at loggerheads with each other. A partnership with Japan, Canada, Australia, South Korea and other advanced economies would be similarly beneficial as it would be a group of countries who were joining together to set global rules.
And there is the bigger picture. The global rules-based order is under strain. Supra-national organisations such as the WTO and others are in need of reform to adjust to the 21st century global economy that will be increasingly characterised by services and digital trade and investment. By working to set global rules together with partners, the UK would be improving and therefore helping to secure the viability of the rules-based international system. Having globally recognised rules that are adopted by major economies would go a long way toward creating a new version of the international rules-based system.
Such a system where countries such as the UK takes the lead along with the EU and others might even offer a way for the U.S. and China to be enticed to the table. Any global rules that the U.S. and China do not sign up to would be problematic. Having only one of them risks polarisation of the world economy.
This might just be the time for the UK and others to take the lead and build a consensual approach to global rule-setting and bolster the international rules-based system.
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