Thursday 23 August 2018

Reducing standards won't work

On Tuesday, the international trade secretary told us that he wants the UK to be a "21st Century exporting superpower", and the story was inevitably linked to the ‘freedom’ that Brexit will give the UK to negotiate trade deals around the world.  Personally, I have more than a few doubts about whether exporting is the inherently good thing as which it’s usually painted; in environmental terms, it seems to me that there’s a lot to be said for more local production and consumption.  But, for the sake of argument, let’s accept the assumption that exporting is always a good thing, and that the UK economy should aim to do as much of it as possible.
Currently, exports make up 30% of the UK’s GDP, and he wants to get that up to 35%.  That sounds like a lot, but it leaves the UK lagging behind a country such as Germany, which really is an exporting superpower, with exports accounting for 41% of national output.  It’s worth considering how and why Germany manages to export so much more than the UK.  Firstly, of course, it can export freely to the other 27 member states of the EU and take advantage of the relatively easy trade offered by the 50+ agreements which the EU has signed with other countries.  These are all advantages which the UK also currently enjoys (although the same trade secretary actually wants us to walk away from all of those in order to negotiate less comprehensive agreements).
The question which needs to be asked is why, if the UK enjoys all the same benefits of trade agreements as Germany, it is unable to leverage those in the same way and achieve the same level of export success?  Clearly, it is not membership of the EU per se which prevents that (and if EU membership isn’t the problem, it follows as surely as night follows day that leaving the EU won’t solve the problem).  The underlying problem must be simply that goods and services produced in the UK are not competitive; and the question is why that should be.
Brexiteers such as Fox might well argue that one of the reasons for the lack of competitiveness is the extent to which EU rules constrain British manufacturers to produce to a particular set of standards following a particular set of rules.  Freed from those constraints, UK suppliers would be able to be much more competitive on price.  It’s a simple analysis, and one with which I can readily agree.  The problem is, though, that the analysis is not just simple, it’s too simple.  There is a major flaw in assuming that goods produced to a different set of standards will automatically lead to higher sales simply because they are more competitive on price.  That flaw is that any market which adopts a particular set of rules to maintain standards – and we’re talking here not just about standards governing the quality of the goods themselves, but also those governing environmental factors and the health, safety and conditions of the employees – is not simply going to allow goods produced to a less exacting set of rules to flood into that market.  For sure, the UK post-Brexit can abolish all sorts of rules currently enforced by the EU and produce goods more cheaply as a result – but who’s going to buy them?
This is the issue at the very heart of the impasse in negotiations between the EU and the UK over borders and trade: the EU wants to maintain the integrity of its market, whilst the UK is demanding, in effect, that it should be allowed to compete on price by not complying with the EU’s standards.  The Brexiteers don’t often put it in such terms, but Rees-Mogg was pretty explicit when he argued that standards which were “good enough for India” could also be good enough for the UK.  It’s a world view which starts from the assumption that business regulation should be driven by the lowest common denominator.  The corollary is that any improvement in standards over time can only come about by global agreement rather than by agreement within individual trade blocs such as the EU. 
Effectively, the Brexiteers are demanding that the EU reduce its standards to whatever the UK decides they should be.  They want the whole EU to become a ‘rule-taker’, with Britannia setting the rules.  There is only one way in which a disagreement couched in those terms can end, but Fox’s optimism on the post-Brexit future for UK exporting is based on the wholly unrealistic assumption that another outcome is certain.  Despite his desire to improve export performance, there’s only one possible result of a blind determination to exempt the UK from the rules and standards applying in the markets to which it exports.  And that result isn’t an increase in exports.

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