I try to be very careful not claim expertise I do not have. I am not a trade expert. However, I have read a lot, and this is not a complex or difficult subject to understand: if you read anything by anyone who actually is involved in this world, it becomes very clear, very quickly.
So first things first, 'red-tape' is not a bad thing. There is a received wisdom that regulations stifle business and therefore are bad things that need to be cut. This can be true but the broad brush statement is nonsensical (and actually dangerous). Last year, we saw the most dramatic and horrific example of what happens without proper regulation: Grenfell Tower. The inquiry continues, but this much is in the public domain already: - the cladding on the building was incredibly flammable and the reason that a small fire that should have killed no-one killed 72. This is why we have building regulations. I will not speculate here on where exactly things went wrong (were the regulations inadequate or not followed?), but the need for regulation was demonstrated in a totally tragic way.
I want to talk about cars. Motor manufacturing is a really good archetype to focus on because it illustrates the need for regulation in a way that is accessible to all of us and motor manufacturing in Europe is multinational and hence cross-border cooperation is central to how the industry works.
There are those who argue against regulation: in essence, the argument goes that you do not need regulation as the 'market' will drive up standards. Whilst the extreme view, that no regulation is needed, is rare, most arguments against regulation follow this form. Free-market economics is a really powerful idea. Each of us is an economic agent. Each of us makes purchasing choices based on lots of things; primarily quality and cost, of any given product. If product A is clearly better than product B, then the competition will mean that product B sales fall. The manufacturers of B then need to innovate to keep up. This process clearly works. There are literally countless examples: no one owns a mangle these days as everyone has a washing machine; CD players replaced tape cassettes; flat-screen televisions are ubiquitous; the pen is so much easier to use than the quill... etc. etc. etc. The key point here is that there is no 'central planning' this is simply the democracy of the market at work. Each of us individually making choices that drive innovation and change.
Whilst choosing to use a pen rather than a quill is an easy choice, many others are much less so. In the context of cars, there are a number of safety-critical systems. Brakes are an obvious example. I think it is accurate to say that all of us, when we are driving and apply the brake pedal, we expect there to be some effect on the motion of the vehicle: we expect the brakes to work! When I buy a car, the effectiveness of the brakes is not something I particularly think about. There are various systems around that make brakes better but we all know there's a minimum level of effectiveness that we have come to expect. This is because there are regulations governing braking systems that stipulate they must meet a minimum standard. There are two good reasons why this is not simply left to 'the market.' Whilst it makes sense that consumers only want cars with central locking such that twenty years ago it was a premium item on a car and now they all have it, the same does not apply to brakes. The simple reason for this is that I am (and the vast majority of consumers are) not in a position to be able to tell if a braking system is good or not. Furthermore, it is important not to leave it to the market because the quality of the brakes on your car affect my safety as well as yours.
One might say, but what if I chose a car that has ABS? is that not consumer choice driving improved safety. Yes it is. However, how do you know that with ABS you're getting something different to a standard system? Have you checked? If not, you are relying on the Trades Description Act: A set of regulations.
For these very good reasons, all developed countries have product regulation. In the case of cars, there are various standards that a vehicle must meet in order to be sold in any particular country. If you are a motor-manufacturer, you really want to sell your car in as many countries as possible. Thus you need to make your vehicles to the standards that apply in those countries. Meeting the standards, and more importantly, the checks/inspections needed to demonstrate that the standards are being met impose significant costs on the manufacturers. The Common Market principal of the European Union is very simply a cooperation between 28 nations whereby they agree to use the same standards. This means that a car made for sale in any one of those nations can also be sold in all the others. Hence a massive cost saving for the manufacturers. There is also a significant cost saving to the nation states, whereby the costs of developing standards, necessary inspections and quality control, and enforcement are shared between the nations.
If - as part of leaving the EU - the UK leaves the Common Market and the Customs Union, then the question would be, what standards would the UK motoring industry adopt? Well, there are two choices essentially - its own bespoke standards or to simply mimic the EU ones. If the UK goes it alone in this sense then it will impose a significant cost to the government in establishing and enforcing this and industry would then have to make cars to different standards than for the EU. This extra cost would make UK manufacturing much less appealing to the foreign-owned car industry. The UK is a major producer of cars. One of the biggest. But not so good that manufacturing could not be moved elsewhere.
This is where the EU Customs Union is important. Cars are made of lots of components. The modern supply chain is often multinational. A company in France might make fuel tanks for cars assembled in Spain and Germany and the UK which are then sold to Italy. Because all members of the Customs Union use the same standards, there is no need for border checks either for the components moving from the parts manufacturer to the assembly line or for the completed vehicle going to the dealership.
Car manufacturing is a high-tech process. They use what's referred to as a 'just-in-time' system. The parts needed for today's manufacture of x number of cars arrived in the factory at 7 o'clock this morning. This system saves big money because in means that the assembly plants do not need big warehouses to store parts (and all the systems necessary to check and secure them) and because anything stockpiled by a company is a financial cost of paying for something before you need it. And with car components, we are talking about millions of pounds' worth. If the UK opts to just copy the EU rules then we would be following regulations that we would have no part in writing.
If the UK is not part of the Customs Union (in some form) then all of this falls apart. By definition, this necessitates checks at the borders to ensure standards are being met. Suddenly 'just-in-time' delivery falls apart (for any component that crosses a border) and the costs of manufacturing in the UK significantly increase.
What is true for cars, is true for every sector of the economy with any cross-border component. Aerospace production will be particularly badly hit.
The reason why people talk so much about trade deals (and we should be clear, there are good ones and bad ones) is not because of tariffs. Tariffs are easy, you just sit down with your opposite number and agree not to have them. Trade harmonisation is the difficult part. In order to grow trade between nations, you all have to be working from the same page; a computer built in your country will work fine in my country. I want to sell you toys that we make so we agree to use the same standards for toy safety so that no child chokes on some poorly-made part or gets ill from the lead paint. Essentially, as I far as I can see, there are two approaches to a trade deal 1) You agree to use the lowest common denominator - i.e. you bring standards down to the lowest of participating countries or 2) You agree complex and detailed standards that apply to all.
It is an oversimplification to state that the EU is basically an institution dedicated to the second type of trade deals. (It is also a distributor of farm subsidies). This is an over-simplification but not by much. And this approach is important because, for all its faults (and the EU does have a few), it has been incredibly successful at this, producing trade deals to both increase trade and maintain a high level of consumer protection. The UK has been instrumental in this process. In many cases the EU regulations have been based on UK ones. The notion that Europe imposes regulation on the UK is simply not true. It is also highly pervasive because it is convenient for politicians to say that this unpopular thing is being done to us by Europe.
The UK is a sovereign nation. This hasn't changed. It is entirely possible for the UK to leave the EU. The point it, it is not possible to do so without consequences. There are certain inevitable choices - either we cease to be part of the single market with a not inconsiderable impact on trade or we maintain our membership but give up our right to shape the rules in cooperation with the other members. Similarly, it is entirely possible for the UK for forge new trade deals with other nations but that does not make us more sovereign: all trade deals dilute sovereignty as they involve nations agreeing to use rules mutually agreed upon.
In the modern world, regulations are vital. The UK leaving a huge trading bloc like the EU is an option that a sovereign nation is free to do. What our sovereignty does not give us is the right to demand that the remaining 27 members give us what we want. The politico-economic reality is simple. The UK can leave the EU but only with significant costs. The UK, from a practical point of view, across all sectors, will most-likely end up following very closely to EU rules and regulations - ones that until now, we've had a huge part in writing.
It's almost as though Brexit makes no sense.
AFZ
No comments:
Post a Comment