Wednesday, 21 February 2018

Two speeches and a confession

There are two types of obstacles to ‘frictionless trade’, which is the stated goal of the UK Government in the negotiations with the EU.  The first type is tariffs, and although it can take months and years of negotiations, abolishing or reducing tariffs is the easy part.  If by ‘free trade’ the government actually means ‘tariff-free trade’ (which is the way things look at times), then an agreement ought to be perfectly possible, even if the desired timescale is more than a little optimistic.  The second type of barrier is about rules, regulations and standards.  Ensuring that goods and services from one jurisdiction are being produced on a ‘level playing field’ before allowing them to be freely sold in another jurisdiction is one of the issues which leads to the creation of a so-called ‘hard’ border.  And it isn’t just about things like quality of the finished goods, it also includes things like whether different countries have different standards for environmental protection or health and safety – lower standards can reduce costs and therefore provide a potentially unfair advantage.  Regulatory alignment is much harder than tariff alignment, and takes longer to achieve - the best way of avoiding such problems is to adopt a common set of rules and regulations, arrived at by agreement.  (We could, perhaps, call it something like a ‘single market’.)
But given two different sets of regulations, does it necessarily follow that there need to be controls and checks on goods and services crossing from one to the other?  The UK Government’s position appears to be that it does not, and that if the EU imposes such checks it is the EU erecting new barriers to trade.  This seems to be the general gist of Liam Fox’s speech this week.  He explicitly referred to the possibility of ‘Europe’ “erecting barriers to trade where none yet exists”.  It chimes with one of the regular themes of the Brexiteers that we don’t need border checks and controls, and if we end up having them, it’s not the UK’s fault, it’s all the faulty of those nasty vindictive Europeans.  There is a sense in which the core message there – leaving out the name-calling – has an element of truth about it.  If you have two countries or groups of countries with different regulatory regimes covering goods and services, and if one of those regimes sets high standards whilst the other sets out to abolish as many standards as it can, which of the two is the one that it going to want to impose controls over goods entering its territory?  Not the one with low standards, naturally – if someone else wants to send them goods produced to higher standards, why wouldn’t they let them in?  But seen from the other perspective, why on earth would the more highly regulated country want to allow in goods produced to lower standards which can undercut the prices of its own manufacturers?  So there’s a sense in which it’s true that it could be the EU that will end up insisting on border controls.
And that brings us to David Davis’s little contribution yesterday.  Despite all the hype from the outset about ‘freeing UK businesses from unnecessary EU rules and regulations’, he seemed to be saying, in effect, that far from reducing standards, the UK will in fact set higher standards.  There will be no race to the bottom in terms of regulations and standards.  It’s a U-turn that, if he’s really serious about it (and I have my doubts), many consumers will surely welcome.  And if UK standards really are better and higher than the EU equivalents, there should be a lot less difficulty in allowing UK goods and services into the EU, which was the thrust of his argument as I understand it.  Hold on a minute, though.  If in this wonderful new world that he now seems to envisage, UK companies are committed to more regulation and higher standards than their competitors in the EU, doesn’t that give those EU companies an unfair advantage, allowing them to undercut UK prices?  In those circumstances, isn’t it the UK which needs hard borders to protect itself from unfair competition?  
Two speeches, but not really a lot more clarity or honesty.  And the confession?  That came from David Davis when he referred to an ‘Anglo-Saxon’ race to the bottom.  What is that, if not an admission that Brexit is really all about England?

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