Thirty-five years ago I was a trainee reporter on a specialist publication focused on trade with China. The world’s most populous nation was just beginning to open up. My job was to interview export managers after their trips to Beijing, Shanghai and Guangzhou.
While they all enthused about the fabulous potential of the People’s Republic, they usually returned to Britain without the merest sniff of a sale. After a couple of drinks, they might mention the incomprehensible, maddeningly slow bureaucracy. After a couple more drinks — the rampant corruption.
I thought of those times when, in her Lancaster House speech in January, Theresa May laid out her vision of “a truly global Britain” after Brexit. Exporters, she said, had to wean themselves off their reliance on old European trading partners and forge new links in Asia, the Middle East and Latin America.
The same thoughts came up the other day when the Financial Conduct Authority proposed new rules that would pave the way for Saudi Aramco, the world’s most valuable company by some estimates, to float in London. The FCA in essence wants to change the rules to allow the Saudi-owned company to be given the prestige of a premium listing without conforming to the normal rules that go with it.
Mrs May, who personally intervened with the Saudis to push the merits of London, sees landing the biggest ever capital-raising by the world’s largest company as just the kind of coup to burnish Britain’s “truly global” credentials. There is no shortage of other state-controlled companies, from Kazakhstan to Egypt, that could turn up in London if the rule change goes ahead.
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Shifting the focus to non-EU nations sounds marvellous in theory. They have vast populations. They are growing faster than the West. They have burgeoning middle classes eager to try our brands and services. And they have the material riches on which the world depends. The gigantic Aramco pumps one in every nine barrels of crude.
The reasons, however, why 52 per cent of Britain’s exports are to the EU are just as persuasive. It’s close, with a common time zone. It’s rich. It conforms to the rule of law, so contracts are easy to enforce. It’s relatively uncorrupt (Italy excepted). Everyone speaks English (France excepted). It has common technical standards. It has a highly liquid, easily tradeable currency. And, crucially, the systems and supply chain infrastructure and standards are already in place and they work.
It’s blindingly obvious why British business prefers to trade with Europe. Breaking into new markets with alien cultures is difficult. The “truly global” brigade make the mistake of harking back to the era when Britain’s buccaneering merchant adventurers ruled the world. They forget that in the glory days of, say, the British East India Company or the opium-trading Jardine Matheson, there was always a British gunboat in the background to ensure they got favourable terms.
Those times aren’t returning. The power balance has shifted. Nowadays trading partners have to be wooed and can extract a heavy price for their business. Hence Riyadh’s demand that its jewel Aramco should be labelled “premium” by the London Stock Exchange rather than suffer the ignominy of being classified as merely “standard”. The FCA’s rule tweak is seen as an elegant and pragmatic compromise by some. By others, however, it is a dangerous, short-sighted fudge. Lowering standards can win business in the short term, but eventually it backfires. New York has become the biggest securities centre partly because of the high standards and sharp teeth of its regulators, not in spite of them. It’s one of the reasons why companies listed there command higher valuations.
It’s important not to get over-squeamish. There’s no danger of Aramco joining the FTSE 100 and so becoming an automatic component in everyone’s pension pot. There are some good reputational reasons why the company should behave itself and not abuse or mislead its minority shareholders.
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It’s hard to read how the Aramco row will play out. It’s interesting that so far only Standard Life and Royal London have put their heads above the parapet to attack the rule change. No doubt some institutions regard Saudi Arabia as too wealthy a prospective client to risk upsetting.
If Britain really takes the catastrophic step of leaving the single market and the customs union, then we had better get used to more of this kind of thing. The price of doing more business with dictatorships, theocracies and banana republics is sometimes having to accommodate their wishes. The same also applies to more familiar non-EU trading partners, such as the United States and Japan, with whom Mrs May is keen to clinch bilateral trade deals. Those nations will demand concessions, too. If we want to sell haggis to the Americans, it’s a fair bet they will demand the right to sell us their banned chlorine-washed chickens and hormone-fed beef.
Mrs May’s “truly global Britain��� may end up being a country where rules are watered down and standards lowered, whether in consumer protection, environmental safeguards or investor protection. The hard Brexiteers are in danger of merely swapping one set of interfering foreigners, Brussels bureaucrats, for another.
Patrick Hosking is Financial Editor of The Times