The EU does not care about free trade

by Lee Rotherham

The process of post-Brexit readjustments continues. In particular, the trade distortion debate arising from the Northern Ireland Protocol continues to sizzle, with increasing calls by Unionists for the UK to trigger Article 16. Meanwhile the Macron Government is très unhappy with its diminished share of fishing licences in English and Channel Islands Waters.

Such developments were predicted. Less so is a spot of ideological revisionism. It turns out that some Europhiles are now taking umbrage at suggestions being made by unnamed (presumably British) diplomats that the EU is not properly speaking a “free trade area”.

It is an entertaining harrumph to observe, but also a useful intellectual exercise to explore.

True, membership of the EU facilitates trade by removing barriers and tariffs. But then, so did being annexed by Stalin. The fact of trade interruption being reduced does not of itself tell the whole story of what is going on, the mechanisms behind it, and possible hidden economic or other costs. It is a very selective interpretation of what a trade arrangement delivers, and far more significantly of how it is delivered.

The argument might have been made more convincingly three decades ago. Indeed, it was. The Single European Act was meant to generate a free trade arrangement by removing a number of significant obstacles within the EEC. But that line of argument is now known to have been a case of targeted salesmanship and spin from within official circles, soon exposed both by the progression of ECJ case law and by the swift push towards the Maastricht Treaty. There is neither any excuse nor need for any such pretence now.

EU model groupies are quite correct to flag NTBs (Non-Tariff Barriers) as an issue in contemporary trade. That is not a revelation though. The WTO itself for the last two decades has been warning of a shift away from use of tariffs as a protectionist barrier towards alternative methods of trade obstruction. It’s also as it happens a trend still observed within and by the EU itself. The EU exemptions listings in the leaked 103-page TTIP Services and Investment text included a dazzling range of niche sectors and professions ranging from Greek schoolteachers via Croatian national parks staff to Bulgarian aerial photographers and Italian limousine drivers where foreign employees or investors would still face hurdles.

There are two approaches to delivering unrestricted trade. One is to standardise and form universal conformity, which is the Commission’s approach. But a genuine free trade system operates on equivalence and mutual recognition rather than applying a common straitjacket. It means a jurisdiction accepts that the tests and controls on goods in another country are good enough for protecting consumers in their own country too. Commonality is the core basis for FTA set ups. Institutionally, it’s a mechanism that works well enough with UNECE, the United Nations Economic Commission for Europe, covering vehicles from North America, Europe, and Japan. Fans of car safety glass can look up the end results for themselves here. As an aside, I find it reassuring that a recent UK ambassador to the UN and WTO working on precisely these sorts of arrangements has been promoted to become our current ambassador at Washington: this hints at a reappraisal of this former career backwater’s place in the Whitehall hierarchy.

The downside to accepting mutual recognition of course is that if you are the regulatory overseer, in the EU’s case the Commission, and you happen to be in a permanent power struggle with national capitals, then you are weakening your own power base with this model. There is a vested interest for the Commission not agreeing to this approach since it loses its hard-won monopoly on setting all standards within its own market. Think of all those lovely Eurocrat jobs that could be lost. This is a dynamic that fans of the Commission constantly fail to acknowledge. It also helps explain the stubborn and surly refusal by the Commission to fix the fractures in the Northern Ireland Protocol through a mutual enforcement approach, which would address the concerns raised by both sides.

The Europhile reinterpretation of what makes up a free trade system also absurdly ignores the extra baggage that comes with a regulatory union. The corporate EU opens markets between its members predominantly only by first demanding uniformity, over which it then acts as judge and jury. By enforcing identical rather than mutually-recognised standards it generates compliance costs on introduction and any subsequent adjustment. The REACH chemicals arrangement is but one example. The nature of the EU system also tends away from levelling down towards an appropriate minimum, and instead towards setting a standard convenient for the dominant negotiator(s). Even assuming that’s a national industry or trade interest group rather than a political lobby, that might suit the winning lobby, but not their EU27 competitors.

On top of that, there is all the additional mass of superfluous bolt-ons that have little to do with free trade. Some are zero-sum, like about grabbing another country’s resources under the Common Fisheries Policy; others ideological, such as with the Social Chapter or the Precautionary Principle; others are geostrategic, such as requiring EU members to sign up to Economic and Monetary Union rather than following the Soft ECU option. Looking at these various obligations from a strategic perspective, there is precious little of the ‘free trade’ scent around them. Whatever your views on their individual merits as ethical policy, they are constrictive, politically-driven, and often about removing competitive edge from any EU competitors that are applying better judgement. Use of the term “being communautaire” used to be a good indicator here about a policy that was known to be bad for jobs and where some national capitals were being forced into a corner to share the pain.

Perhaps the greatest nonsense in seeing the EU as a free trade area is that the Commission itself, and most of its member states, have historically shied away from using the term because it was seen as misleading over their ambitions. It is called the “Single Market” precisely because it was not to be quite so “free”, not just because of the harmonisation but also importantly because there are a range of other “unions” folded into the arrangement – a Social Union merely being now one of many.

Sure, the EU ‘does’ trade. It was set up as the ECSC and EEC in the 1950s with that in mind. It removes barriers, in some fields (particularly Manufacturing) more than others (Services). But the clue is in the shift in its name.

If the EU really is a ‘free trade area’, then so too was COMECON, and so too has been, say, post-1867 Canada. There is a lot more going on, and a lot of costs that go with the EU approach, and that’s exactly how it was always intended. Notwithstanding the sedentary chunterings of Europhiles, those unnamed diplomats are quite right: the EU is not some sort of free trade zone, and the UK’s preferred trading model absolutely is. It’s sophistry to pretend otherwise.

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