Editor's Note: The use of the expression, "TCA" in this series of posts refers to the "Trade and Cooperation Agreement" signed between the UK and the EU on December 24th 2020.
In this part I am looking at how the Brexit “Trade and Cooperation Agreement” (“TCA”) affects trade in both goods and services between the UK and the EU.
Trade in goods
In 2019 the UK had a deficit of around £97 billion in trade in goods with the EU. The EU wants to keep it that way, and the agreement provides for just that. The UK negotiators let the EU have its cake and eat it. It gave us the dubious privilege of remaining the dumping ground for surplus EU products, made possible by a gross undervaluation of the Euro. And we’ve paid for this liability by agreeing to obey all EU rules on trade in goods. That includes any changes to those rules, in which we have no say, in perpetuity. So much for regaining our national sovereignty. The EU thereby managed to protect the integrity of their precious Single Market. What did our negotiators secure for us in return?
Very little, it seems. We should not be surprised here, because the UK’s negotiators, like all mainstream politicians of any Western country, believe in the fundamental goodness of free trade. They believe that all forms of protection of the home market – tariffs, preferences, and so on, are bad. Unregulated competition from foreign countries, however, is good. Even though that may mean the decimation of home industries, the closure of factories and mines and the throwing of good working men and women onto the unemployment scrapheap.
In order for us to grasp what the TCA does for trade relations between the two parties, we have to understand what exactly free trade means, both to its proponents and to everyone who has to live with it. In the absence of clear thinking, it means different things to different people.
Any free trade agreement involves an infringement of national sovereignty. It has superficial attractions to naive career politicians, but beyond that it is just a chimera.
An unworkable system
Anti Free Trade Postcard From 1910. See foot of post for attributions.
The popular conception of free trade is of goods and services freely moving from one country to another without hindrance in accordance with the laws of supply and demand. Everyone is happy. Consumers because they can purchase goods cheaply from the source with the lowest price, and manufacturers and suppliers because they have a much larger market to sell in. That’s how ignorant politicians, economists and broadcasters see it.
But in reality it’s nowhere like as rosy as that. It’s an unworkable system. Quite aside from the depressive effect on wages, which ultimately keeps most people as poor as the poorest in the free trade area, there are restraints on natural development and progress.
If one party to a free trade agreement is more inventive than the other parties, or becomes more efficient, or less prone to wasteful practices, they thereby acquire an advantage over the others. They become more productive and therefore more prosperous and they are rewarded with a higher standard of living.
But this is at the expense of all the others who are a party to the agreement, whose standards of living, on average, will tend to fall, whose balance of payments will suffer, whose industries will wither and factories close. It causes an imbalance, and this imbalance will increase with time until the cost to the other countries is too high and the whole agreement becomes unworkable. Those other countries, if they wish to survive, will have no choice but to raise tariffs and destroy the agreement.
Further restrictions on our freedoms
But if there are bankers and financiers profiting handsomely from the free trade agreement, as they are bound to do, then there will be pressure to keep the system going artificially by destroying the ability of the successful party to be successful. Everything depends on absolute equality, including equality of poverty and equality of inefficient working practices. This leads to the stifling of any form of inventiveness or enterprise on the part of a more successful signatory to the agreement, and acts as a break on human progress.
This artificial equality is built into modern free trade agreements, and it is right there in the TCA. If a situation such as I’ve just described arises then what’s called “the level playing field” concept kicks in.
This artificial concept provides that no party should have any advantage over any of the other parties, even though such advantage has been obtained honestly and fairly by prudent investment (e.g. government subsidies), technical ability or other such property that any other party could have utilised if they had had the ability and foresight.
Under the rules of free trade, the cry will go up, just like the children in a playground where one of the participants in the game is perceived as having an unfair advantage. “That’s not fair! The playing field isn’t level!”
So it can be no surprise that there are countless restrictions on our freedom to conduct our national affairs in the TCA.
The “level playing field”
For example, any sovereign nation has the right to extend financial support to any section of its economy that is in difficulties. But if we want to do that in the future, for any section of our economy that is involved in trade with the EU, we have to abide by EU rules so as to ensure a “level playing field” and eliminate so-called “unfair competition” (TITLE XI: LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT). The sole beneficiary of this arrangement is the EU and its “Single Market”.
The Single Market is the EU’s own incarnation of a free trade area and the preservation of this artificial construct was one of the issues at the forefront of the EU’s considerations during the negotiations. They were desperate to preserve the status quo, so that in the event of the UK becoming more competitive than EU member-states in any area of productive industry, it would be easy for them to use the TCA to reverse the process and make it difficult to impossible for British companies to sell competitively inside the EU.
All kinds of rules, regulations, and mechanisms were therefore embodied in the Agreement to cover such an eventuality (see, for example, Title XI, Chapter two: Competition Policy). Especially in a situation where one side (the EU) is seeking to punish the other side (the UK).
Looking at the Agreement itself, you can see where various “member-states” of the EU have successfully lobbied for the protection of their own important industries during the long-drawn-out negotiations. Hence we have special Annexes dealing with motor vehicles (Germany, France), wine (France), and chemicals (Germany, Italy).
The UK negotiators have agreed on our behalf that neither side can create for itself an advantage over the other. This is the “level playing field”. Moreover, there will be a dispute settlement mechanism on state aid, with both sides able to impose tariffs unilaterally, if the “level playing field” is upset, ostensibly to protect against “unfair competition”.
If there’s one thing the EU is famous for, other than corruption and bureaucracy, it’s secrecy. So under the TCA decisions will be the subject of often-confidential discussions, while dispute resolution and arbitration will be subject to absolute and discretionary rules of confidentiality (See, for example, Article INST.29: Arbitration tribunal decisions and rulings, and Article INST.30: Suspension and termination of the arbitration proceedings).
That’s not part of the British tradition, which places great importance on openness and transparency in all court trials and hearings, and other decisions that impact on our citizenry. Secrecy and “confidentiality” are part and parcel of the doings of the EU. They evidently don’t want the workers and management of British companies put out of business by the decisions of the Partnership Council to know the identity of the individuals responsible for it.
The “level playing field” concept illustrates the hypocrisy of the EU perfectly. It’s all for free market competition when it benefits thereby, but when it has to face the reality of not being able to compete successfully, it resorts to the “level playing field” to keep in the game. This neatly brings us to the next item to consider, which is trade in services.
Trade in services
When it comes to trade in services, in 2019 the UK had a surplus of around £18 billion with the EU. In stark contrast to goods, the EU negotiators refused to come to any agreement on services. Any future agreement would have to be sanctioned by the EU Commission, which is not known for giving consent on these matters easily.
The TCA generally makes trade in services between the UK and the EU much more problematic than it need be. For example, service agreements can no longer be between the UK and the EU. They have to be signed by the UK and each individual “member-state” affected by such trade, i.e. be on a “country-by-country” basis. This adversely affects service companies in the UK more than it does their EU counterparts.
Yes, the EU Commission don’t mind returning a little national sovereignty to each of its members if, thereby, it can gain a little revenge against the UK for its blatant defiance in going through with the result of the 2016 Brexit referendum.
There’s still plenty of scope for contrariness on the part of the EU going into the future. Under the TCA, although the EU cannot impose tariffs it can impose “non-tariff measures” to trade in services. These can be, for example, additional proposed regulations that will have to be followed if a particular service trade is to be allowed to continue. Again, it has to be said – this isn’t what we voted for in 2016.
EU threatens UK services sector
There’s more (you didn’t think that was it, did you?). If the UK government wants to make subsidies to any of its service industries, such as finance, then it will have to follow the rules of Part Two, Title II of the TCA. As we’ve observed earlier, there must be a “level playing field”. So if the EU is behind us, for example, in the field of expert advice on some aspect of concern to the construction industry, and companies and authorities in the EU wish to purchase such expert advice from a UK company, then all parties, including the UK company, will have to follow as yet unwritten rules that will be dreamed up by Eurocrats in Brussels.
The EU is being so obstructive in the matter of service industries that UK service industry chiefs are now talking openly of the need to withdraw from the EU market and seek new markets elsewhere. The resulting loss of foreign earnings will doubtless be put down to “Brexit” by Remainers, using their usual simplistic logic and ever determined to find no fault at all with the EU.
A good example of how the EU have outflanked the UK’s negotiators is in the sphere of share trading. London has long been the largest stock exchange in the world. Before this TCA was signed, anyone wanting to trade in European equities would most likely have traded on the London Stock Exchange, regardless of which country they operated from.
Post TCA, a UK investor can choose to trade in either London or one of the EU stock exchanges, but an EU investor can only trade on an EU stock exchange. This gives EU stock exchanges a vital advantage, and investors based in the UK will invariably choose to trade in the EU, where all their portfolios can be managed from the one platform.
Our negotiators were assuming that the EU would grant the UK what is called “equivalence”, i.e. the practice and procedure would be the same as it was when the UK was still a “member state” of the EU. But the EU have refused to grant equivalence. This should have come as no surprise. Switzerland had a disagreement with the European Commission in 2019. Equivalence was withdrawn by the EU and Switzerland, having done their best to compromise, are still waiting for it to be reinstated. Woe betide any independent nation that crosses the European Union.
Next is another good example of how the EU works. I’m referring to the Mutual Recognition of Professional Qualifications (MRPQs). It is the mechanism that allows professional people such as doctors, lawyers, engineers and architects to have their qualifications recognized all across the EU.
Such an arrangement shouldn’t be necessary if the EU was run on the basis of common sense. But it can’t allow anything like that to go unhindered by rules and regulations.
So the MRPQ came into existence. It was, surprisingly, an arrangement that worked tolerably well for many years, helping to facilitate trade, mainly in the services sector. In the negotiations this arrangement should have been little more than a formality to agree on. But the EU negotiators refused to agree.
As a result, our services trade with the EU is suffering due to uncertainty over whether professionals who become involved will have their professional qualifications recognized (and therefore their services paid for) in the EU. All the TPA does (in Part Two, Heading One, Title II, Chapter 5, Section 2, Article SERVIN.5.13: Professional qualifications) is to refer the whole matter to the Partnership Council, which can then “within a reasonable time [undefined]…. develop and adopt an arrangement on the conditions for the recognition of professional qualifications” which can then be shoved in as another Annex to the TCA itself.
In the meantime most UK service industries are in limbo as far as supplying services to any country that is a “member-state” of the EU is concerned. It would probably be easier negotiating a trade deal with the Mafia.
In Part 4 I will be looking at how the TCA affects our much maligned fishing industry.
The Anti Free Trade Postcard From 1910 is published by virtue of the Creative Commons Licence. The original creator is unknown but this copy has been uploaded by "Corbis via Getty Images" to https://upload.wikimedia.org