Yes to free trade with the US – no to all the other EU guff
No wonder the British economy is struggling. Aggregated figures released yesterday by the European Commission show that even the mighty German economy contracted by more than ours in the final quarter of last year, with the eurozone as a whole down 0.6 per cent on the previous quarter.
Desperate for initiatives that might provide growth and jobs, European politicians are prepared to clutch at anything. The prospect of a “game-changing” trade pact with the US is one such straw. Anyone would think they’d found the Holy Grail, to judge by the squeals of delight emanating from the EU’s high command. “Together we will form the largest trade zone in the world,” trumpeted José Manuel Barroso, president of the European Commission. “It is a boost to our economies that doesn’t cost a cent of taxpayer money.” That there might actually be opportunities for growth that don’t involve hosing the economy down with vast amounts of public money seems to have come as a revelation to Mr Barroso, but let’s not be churlish.
Free trade with the US is a goal Britain has long championed, and with the breakdown of more global, multilateral trade liberalisation talks, this seems a very welcome second best. To see the EU finally back the cause with such enthusiasm is indeed a breakthrough. From an inward-looking, defensive approach to the challenges of globalisation, Europe seems finally ready to embrace the 21st century.
Yet even assuming the talks are successful, don’t expect anything transformational. The European Commission estimates that agreement “could” bring an overall increase in EU GDP of 0.5 per cent a year by 2027. This is plainly not to be sneezed at, but it is hardly going to revolutionise Europe’s prospects, still less is it going to lift either continent out of the present economic funk.
As it happens, the sort of full-frontal trade barriers immortalised by the notorious Smoot-Hawley tariffs of the inter-war years don’t exist any more – at least between Europe and the US. Today’s protectionism takes subtler forms; it’s mainly in discriminatory regulation and state subsidy. To get genuine free trade, you need common regulation and either an end to subsidies for agriculture and industry or at least a shared framework for them. Understandably this has proved hard to achieve – or as Simon Evenett, Professor of International Trade at the University of St Gallen in Switzerland, puts it: “There has never been much appetite from business for bearing the costs of switching to a rival set of rules.”
What gives some reason to suppose the talks might succeed this time is that both sides have broadly agreed to park the more sensitive issues. Agriculture, traditionally one of the big sticking points, will essentially be ignored, and the two have agreed to learn to live with each other’s regulatory regimes, so that they become interchangeable. The benefits from such a limited degree of trade liberalisation are probably pretty marginal in the short term, but if the two jurisdictions can find ways of harmonising future business regulation, which is the intention, then in the long run there is plainly a bigger prize to be had.
In any case, a free-trade pact with the US seems at last to be within Europe’s reach, and two cheers for that. This in turn raises some interesting questions about the European Union. If it is possible to have free trade with the US without the paraphernalia of common government, or even completely harmonised rules and regulations, why do we need all this guff in order to have a functioning internal market in Europe? Or is it the case that without the clout that Europe gains from negotiating collectively on behalf of its 27 member states, it wouldn’t be possible to reach a mutually beneficial agreement with the US? You can read it either way.
Whatever the answers, this seems to be a case of putting the cart before the horse, for the EU is still struggling to achieve a functioning single market across key service and utility sectors – energy, finance and so on – even within its borders, let alone with the US. Part of the problem Britain has with Europe is that the rules seem to conspire to exploit UK weaknesses in traded goods, where the internal market reigns supreme, while denying it the opportunity to play to its strengths in services, where the single market still doesn’t really exist.
By far the largest part of Britain’s seemingly permanent current account deficit is with Europe. In fact, we enjoy a very substantial current account surplus with the US, so on the face of it, it would suit Britain better to cosy up to the US than to Europe, despite the latter’s proximity.
The more you look at what Britain actually gets out of Europe, the harder it is to justify continued participation. It’s more fear of European retribution that keeps us from pulling out than any measurable economic dividend.
Mr Cameron will have to make substantial progress over the next couple of years in genuinely opening up Europe to British business if he is to convince us of the merits of staying in. None the less, it would be the ultimate irony if, through Europe, we achieved trade liberalisation with America only to go sailing off in the other direction as far as the EU is concerned.
Free trade is an end in itself, and a highly desirable one that mutually benefits everyone who honestly engages in it. It’s only a shame that Europe seems determined to make it into so much more.
Jeremy Warner, Telegraph online here
Last Updated (Wednesday, 20 February 2013 10:03)