Friday, 9 March 2018

Different rules inevitably incur costs

There was one sentence in the statement by EU Council President, Donald Tusk, this week which seemed to me to sum up the essence of the fantasy world in which the UK government is living.  He said that “This will be the first FTA [Free Trade Agreement] in history that loosens economic ties instead of strengthening them”.  There are two key aspects to current agreements stemming from EU membership, one of which is the removal of all tariffs, and the other is the harmonisation of rules and regulations.  Either of those types of barriers can lead to a requirement for borders and checks; only the removal of both types of barriers can secure ‘frictionless’ trade.  The UK’s position, repeatedly spelt out by the Prime Minister and her colleagues, is that there will not be a common set of rules and regulations (unless, presumably, the EU agrees to copy UK rules, a possibility which I think we can discount).  In those circumstances, there is no way to avoid Tusk’s conclusion that the negotiation is about securing a new agreement which loosens rather than strengthens current ties.
It’s easy to see how, in principle, it will be possible to reach an agreement which does not require the re-imposition of tariffs between the EU and the UK, but the UK’s aspiration to be able to change its regulations at will necessarily requires more border controls than currently exist.  There is potentially a not insignificant problem relating to the term ‘most-favoured nation status’ which is found in many trade agreements, under which if the EU offers the UK a ‘no-tariff’ agreement, it could be obliged to offer the same to a number of other countries with which it has existing trade agreements, and which would also condition any agreements which the UK subsequently reached with other parties.  But with time (if we had it), I suspect that such an agreement could be reached, and Donald Tusk has himself indicated that the EU27 are ready and willing to work towards that.
It is a lot harder to see how the problem of non-tariff barriers can be overcome, as long as the UK continues to insist on its right to set different rules and regulations, unique to its own markets.  In her latest speech, the Prime Minister seemed to be tacitly acknowledging this, whilst still clinging to the meaningless rhetoric about creating the absolute bestest free trade agreement ever in the whole history of mankind, in an attempt to paper over the inevitable.  As long as the term ‘free trade’ refers only to the issue of tariffs, she might even get something close to that; but pretending that it can in any way be other than worse than the current agreement is delusional.  And the only way that it can obviate the need for a hard border is if we redefine the term ‘no hard border’ to mean a border controlled by armed police through which smart technology is used to minimise delays, just like the one between the US and Canada to which the PM herself referred.  Getting the Irish government to agree to that redefinition strikes me as falling, at the very least, into the category labelled ‘challenging’.
Of course, not being bound by rules and regulations which have to be painstakingly negotiated with 27 other countries and then applied uniformly is something which has a value of sorts in its own right.  It’s not a financial value, though; in financial terms it carries a cost, not just in terms of restricting trade and travel between neighbouring countries, but also in terms of duplicating the standards and enforcement mechanisms.  I think that at least some of the Brexiteers understand that, and have decided that it’s a price worth paying.  It would be more honest, though, for them to say that and explain why, rather than to continue to try and argue that there is no cost at all involved.

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