Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 11 December 2020

If the UK government fails to do a deal over unfair competition it is not because of UK sovereignty. It’s because of crazy stupidity.


Why do people keep saying the impasse over a trade deal with the EU has to do with UK sovereignty? I know the government says this, but the government says a lot of things that are just untrue. They are standard lines the go down well in focus groups. For those who are not paid to follow the government line, to repeat the government's line seems odd. The current impasse seems to me to be about EU sovereignty, not UK sovereignty.

As present (see date of post) the main stumbling block in agreeing a deal is the EU’s insistence that it should be able to increase tariffs if it feels that UK goods have a competitive advantage because of future UK government subsidies or rule divergence. Avoiding these retaliatory tariffs requires keeping a level playing field for EU firms, or LPF for short. Understandably the UK does not like that idea. But the sovereignty here is the EU’s right to raise tariffs. UK sovereignty is not involved.

The mistake I think comes from the idea that to avoid this outcome, the UK would have to follow EU standards (using standards in a wide sense to include any government action that influences competition). But to say that is about UK sovereignty seems to me to be a perversion of the concept. National sovereignty is about a nation being able to make decisions itself. The EU is not stopping us making decisions, it is just saying there will be consequences. If you want to avoid those consequences, you need to avoid making those decisions.

I am sure that if the EU were likely to cut employment or environmental standards in such a way as to disadvantage UK firms, any government interested in the health of UK firms would wish to keep the option of responding in the most obvious way, which is to raise tariffs on the relevant EU goods. If the EU tried to prevent the UK doing that in some way the UK would be absolutely right to say its sovereign right to raise tariffs was threatened. So the reverse must also be true.

But this is only half the reason that not doing a deal because of the LPF is crazy. What happens if there is no deal? The EU raises tariffs on all UK goods for sure, as if we are a third country. What happens if the UK breaches the LPF after a deal? The EU raises tariffs on some goods. The first is a certainty and wide ranging, the second is a possibility and limited. If we don’t do a deal because of the possibility of limited action, we get for certain the same result for a wide range of UK firms.

In other words the outcome of no deal is far worse than the outcome of a deal where the UK accepts the LPF, just in the very limited sense of EU tariffs imposed on the UK. You might say what is new and that it is all about UK sovereignty, but as I explained above it is not. By not agreeing to a deal, the UK would literally be subjecting everyone in the UK to EU third country tariffs for the sake of not being able to limit EU sovereignty. That is crazily stupid.

If the government does end up doing a deal this is why.

But no deal would be no surprise for this government. We have a government that didn’t follow expert advice on the second wave for the sake of the economy, only to have to impose a subsequent lockdown that did more damage to the economy. I expect this government to make crazy stupid decisions. Maybe Johnson wants no deal for some reason. But in this case the craziness should be obvious, and it is being excused by too many people (not all[1]) erroneously thinking this has something to do with UK sovereignty.

[1] Examples of people who get it that I have seen include trade experts of course (like @samuelMarcLowe for some time), and @faisalislam in this excellent piece, and @stephenkb here.

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