Wednesday, 25 April 2018

Is the EU protectionist?

In response to the Tony Barber piece in the FT "The EU is no protectionist racket"

- The EU’s FTAs are quite narrow and include Rules Of Origin constraints on manufactured goods.

- These are primarily goods trade deals which suit France and Germany but would not suit the UK. They also seek to impose EU product standards (more on this later).

- Public procurement is an area of French and German strength. It is why public procurement is one of the very few services that has been included in recent trade deals the EU have signed. However public procurement falls under State-Owned Enterprises (SOEs) or is classified as national security concerns. So though on the face of it it looks like the EU isn’t being protectionist via the trade agreement when it comes to actually awarding the contracts practice, these concessions are never awarded to foreigners. They impose local regulatory standards or clauses to make sure this is the case. The inclusion of the public procurement clause is a concession that will never result in anything for the counterpart.

- The US is not an innocent party, but it does have a legitimate argument that China, Korea and Germany have taken unfair advantage on trade by following mercantilist policies that restrict domestic market access via regulatory measures. The US is seeking to use its leverage to adjust this relationship.

- The US has already stated it would like to have a trade deal with the UK. There would be cheaper food in the UK as a result. the argument over such things as chlorinated chicken can be defused by clearly labelling produce and letting the consumer choose (c.f. free range eggs).

- Of course, the UK should depart from EU regulatory alignment where it is in the national interest. That is the point of taking back control. A significant trade deal that opens up markets in services and food is eminently in our better interests.

- The Irish border issue is not legally solvable. A fudge is required and will be found. The UK will not police it even if the EU wants to. The EU is being overly legalistic on this front, and technology will ultimately provide the solution. Lawyers have too static a view of a dynamic world, especially in this respect. The tendency for Eurocrats to regulate for the now, or the past, rather than the future is also why the EU is not going to end up with thousands of City bankers. Banking functions, including trading, are going to be dominated by AI and we should expect to see the supra-national FANG model become the norm in banking. The computer may sit where the regulator tells it to sit but those programming it won’t.

- They are protectionist by insisting other standards that might not conform to Rules of Origin requirements (in themselves protectionist). Erecting blanket trade barriers with the UK, even with products that do match their standards, because the UK won't enforce all of their standards domestically is pretty close to the definition of punishment beatings and protectionism.

- Setting EU standards is a form and force of protectionism that tries to export the cost of European social models on the non-EU supplier countries. It requires these countries to completely change the way they produce goods etc and instantly puts them at a disadvantage with French/German firms. This is why Dyson moved his production to Malaysia: they stitched the rules up to the UK's disadvantage. As a result, he pays the EU external tariff to export Dysons to the UK.

- The most liberal of FTAs is the Australia /New Zealand agreement, which involves Mutual Recognition Agreements. These accept that both countries' regulators are competent enough to be accepted by the other without the need for harmonisation. Harmony in this sense, though sounding peaceful, is the forced infliction upon other countries by the EU of the EU’s way of doing things (do it the way we want you to do it, not the way you do it) to their protectionist advantage. If you don't submit to being 'harmonised' with EU standards then you cannot have market access. A more sensible view would be that developed countries, by and large, have high enough product standards and service regulation that they should have Mutual Recognition Agreements instead of harmonisation.

-THIS IS NOT ABOUT TARIFFS, it's about Non-Tariff Barriers - which the EU excels at imposing. It's a French national pastime - remember the Battle of Poitiers with VHS recorders coming in from Japan? Why do they want to stop the UK from keeping the City? Because they want the business. True free-traders would allow it to continue with regulatory cooperation and Mutual Recognition. The BoE/FCA/PRA are amongst the best financial regulators in the world from a financial stability standpoint. The ECB et al, in appealing to financial stability risks as a reason for on-shoring, are applying the same logic as warning that building a bridge across the Thames will decimate the boat building business. It's protectionist.

- If the EU have always been such a liberal free trade loving union then why has it taken them decades to come up with these FTAs? Could it be that they feel threatened by the UK leaving? The UK had been pushing for such agreements years ago to no avail. If they had progressed with these earlier it may have defused some of the arguments for Brexit.

- Finally, let’s not forget that the EU’s very existence is based on a bilateral protectionist agreement to protect French agriculture and German steel and coal.


Al said...

Totally agree. I can't believe how people believe that leaving the EU is coming away from a 'free trade zone' i.e. anti trade.

One of the agreements we had to agree to on joining was that state companies had to be treated exactly like private companies. That meant 1. they could not be discriminated against in public and private procurement contracts where they could go in with a loss leading bid using state backing and then sit pretty as the incumbent 2. they could take over other companies without being taken over themselves. This means that all the painful privatisations we went through have simply on the whole passed UK state ownership to foreign power ownership to milk the various monopolies and oligopolies.

I think one of the greatest tragedies is the EU locking Africa largely out of its markets and even worse, dumping surpluses on theirs, then buying up their 'fishing rods' and providing so called 'charity' to look like we're doing something positive rather doing what it needs most, access to our markets.

I could go on. Personally I just think government as close to people as sensible is the right way to go. Switzerland is a pretty good model. I'm pretty sure a number of countries (notably former EFTA members) would welcome the backing of a Britain on their side in fighting the edicts of the EU.

I find it interesting this whole 'thing' is characterised between populist 'narrow minded nationalist Little Englanders and protectionists' on the one side, versus the 'younger, more educated, liberal, global free traders' on the other. Personally, I think this fight is actually between some degree of 'socialism' versus 'neoliberalism' where people sink or swim in the currents of international labour demand. Unfortunately, it has become clear that 'socialism' demands some sort of social cohesion and willingness to help one's fellow man. I'm not entirely sure that global trade and capital and mass movement of peoples and cultures fosters much greater motivation than just get your head down and look after you and your family. The so called 'liberal' path literally spells the end of a functioning welfare state and the descent back to a Victorian dystopia that worked for the very few with the rest living short, brutish lives.

Al said...

And another thing....

I'm not entirely certain you are quite as old as I, but when I went to school one learnt about that seminal part of British free trading history, "The Corn Laws". We were programmed to realise that the imposition of tariffs by the landowners of the time was a "bad thing" and that the abolition of said tariffs was a victory for free trade that brought down the price of foodstuffs for ordinary people leaving them more money to spend on the new manufactures stimulating the industrial revolution to Britain's advantage.

Wind forward to the 1970's, the Tories were still the pre Thatcher Party, primarily representing the interests of the Land and under Heath we seemingly reimposed said Corn Laws but under a shiny new brand, the EEC. Some years ago I recall watching a documentary by the Snows called "Whose Britain is it Anyway?". It was quite an eye opener as it was clear the Lords still owned c. 40% of the land in this country if my memory serves me correctly; they could trace a 1,000 years of unbroken ownership since the Viking thugs invaded from Normandy. Anyway, when one of the Lords was interviewed; he stated that after the war, high taxes and high inheritance taxes meant that many of the gilded families were going to the wall until two things happened: they found a way to pass their assets down seamlessly from generation to generation without paying ruinous taxes and the payments coming out of the EU on joining, massively increased their income, saving their collective bacon.

I don't actually believe in coincidences. Where there is human action, there is usually a vested interest at play somewhere.

Anonymous said...

This post seemingly by someone with actual trade negotiation background seems to reach a different conclusion