Monday, 9 January 2017

Barking up the wrong tree

Another month rolls by and we get another torrent of dribble from Civitas. "Mitigating the impact of tariffs on UK-EU trade" - despite previous reassurances that there wouldn't be any tariffs.

The problem with all of these Brexiteers is that they all live under two basic delusions. Firstly that leaving the EU means a free hand in regulatory affairs and secondly that tariffs are the primary obstacle to trade. From these two flawed assumptions flow volumes of naive solutions to complex problems. In this case the bogus assumption that we will have a free hand outside of EU state aid rules.

Assuming we wish to keep our existing trade partners then it follows that we cannot show favour to any of our export industries lest we be opening up subsidy wars and creating new market distortions - which would invite a number of a WTO complaints against us. Civitas argues that their proposals fall within the WTO rules but that ignores the nature of whatever post Brexit agreement we have and the multitude of other agreements we will enter.

In or out of the EU we are still bound by a number of international and bilateral agreements which could be invalidated by unilateral action. Secondly tariffs are largely a fixed cost which present no real obstacle to trade. Reducing tariffs can increase competition but that is redundant in the face of disparate regulatory regimes whereby non tariff barriers are the real obstacle. By diverging from the EU in terms of regulations and standards we would add costs to trade that dwarf any tariff measures and increase the red tape.

Free trader morons seem to think the essence of free trade is agreements on tariffs. Free trade is the facilitation of free movement of goods without inspections, delays or spoilage. The means to achieve that is mutual recognition of standards or regulatory harmonisation. The removal of regulatory barriers to trade has a far more profound impact on trade yet these idiots continue to obsess about tariffs not realising that regulation and trade go hand in hand and that regulation is pivotal to the entire edifice of modern trade. The focus on tariffs is bicycle shed syndrome.

To spell that out, I could very well achieve a zero tariff agreement with County X. So I then send my consignment of goods in a container. If I do not conform to their standards then my goods must go through customs inspections. That in itself is a cost. And a delay. Inspections then may also discover that I am using the wrong shape warning labels so I can either pay to have them relabelled in the port - or I can run two production lines back home. One to meet each set of standards. Those costs are so prohibitive that export to Country X is simply not a viable proposition. So what value is a "free trade agreement" without a mutual recognition agreement on standards or regulatory harmonisation?

Then ask yourself how easy that is to achieve. Since we maintain our own standards and they maintain theirs, they either have to completely rewrite their standards or we do - or we can seek a global standard. Either that or we can work toward harmonisation where mutual recognition is possible. That is the real business of international trade, not bickering over tariffs. Brexiteers think that by leaving the EU we can dump rules on straight bananas and business is then free of pettifoging regulations. It doesn't work like that. If you want to export you need regulatory compliance.

The very last thing we want to do is open up an international free for all in subsidised goods because nobody wins from trade wars. That necessarily requires that a base level of state aid regulation stays in place. We do not have a free hand by leaving the EU.

Further to this, Civitas clings on to the delusion that Article 50 is the process of negotiating a trade deal. It isn't. We are negotiating a framework for continued cooperation with the EU and the processes for repatriating deeply intertwined areas of policy - in which there is very little room for unilateralism nor is there any chance these things can happen soon.

They talk about tariffs as though they were central to the entire talks when in reality they are only a bit part of the whole package. In truth, because of legacy issues there won't be much room for tariff reductions because they are linked with subsidy quotas and it will be some years before we can fully renegotiate the basis on which those are allocated. It won't get done in the first round of Brexit talks. If they think the answers are to be found by tinkering with marginal tariffs then they are barking up the wrong tree. If you're not talking about regulations then you're simply not addressing the issue at hand.

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