Monday, 5 September 2016

Standing in the way of control

The UK has been talking about all sorts of international trade deals that will be signed after the door is finally slammed on the European Union.   Hey, watch it, my finger was in there!  In my previous post I looked at how all trade deals inherently result in a loss of "sovereignty" and diminish what the Leave campaign like to call "control".  To save you the trouble of reading it, a summary might be that trade deals are just contracts specifying rights and responsibilities on both sides.  For the agreement to function at all these rights and reponsibilities need to take precedence over the desires of local policy-makers. The EU is really no different in that respect.  Today, I want to look at whether these proposed deals could ever replace the all-in-one package that we had with the EU.  Now, this is a painfully boring topic so I promise role-playing amateur dramatics and pop videos with semi-appropriate song titles. That's right, role-playing amateur dramatics.  You don't get that at The Guardian. If that isn't enough there is some weak political satire right at the end in the style of Ben Elton. While you absorb these bombshells, here's a pop video with a semi-appropriate song title right now to get your toes tapping.  Enjoy.



Let's imagine you grow cucumbers in Kent.  I know, amazing, isn't it?  Such a fantastical notion will take all the powers of your imagination but stay focused because I know you can do it.  I usually try to get in to character for this type of stuff so if I start writing in the style of a 53-year old English farmer called Clive you'll know what is going on. Ok, you grow cucumbers in Kent and you are able to export a lot of cucumbers to France.  You can do this because you are a very efficient person and are able to compete with French cucumber purveyors, despite the extra costs you incur shipping your tasty veg across the English Channel.  Uh oh, there's a problem.  That bloody David Davis just closed the door on the EU and now you have to pay a hefty import tariff.  All those years battling down costs to make your cucumbers competitive have come to nothing.  Nobody will buy your cucumbers now because every cucumber grower in Breton and Bordeaux can sell them cheaper than you.  In fact, life just got a lot worse because the migrant workforce have buggered off to the EU to work in rival cucumber nurseries.  Don't worry, though, the UK government just signed a trade deal with Vietnam.  Does anyone know the costs of refrigerated shipping to Vietnam?  Wie viel?  Merde. More importantly,  have you ever tried relaxation techniques like yoga or tai chi?  They might come in handy when your house gets repossessed.

Tasty cucumber reduced in price due to superficial damage in transit.
This role-playing is great fun so let's dive back in the dressing-up box.  This time you sell billing software and have all sorts of customers all over the European Union.  I know this is even more fantastical but maybe try employing the Stanislavski method this time.  Two major costs in your business are support and on-site installation.  Wow, this is dramatic.  You've been battling for years trying to make your business ever more efficient to stay competitive with the Spanish and the Germans. Just to add to the reality of the scene, your friends might even think of you as plucky and spirited but only ever mention it behind your back.  You know that they think this and they know that you know, yet it is never mentioned in your presence.  Isn't life complex?  Uh oh, there's a problem. That bloody David Davis just closed the door on the EU and now you have to pay a hefty import tariff.  Nobody wants to buy your billing software because it costs more than similar solutions from other vendors in the EU.  What's more, your wages bill is going up because the remaining UK workforce realises there is a widening skills shortage and are snapping at your heels for a wage increase like a boisterous game of, erm, snap.   Don't worry, though, the UK government just signed a trade deal with Vietnam.   Anyone know the cost of flights to Hanoi?  What about hotels there?  Scheisse. More bad news: you need to introduce shift work for the support calls from Vietnam. Nobody will come and do that in your Stevenage HQ unless you pay them a premium, making you even less competitive.   You're lucky this time, though, because you can offshore the whole enterprise before the bailiffs come knocking.  How are you with wok cooking?

There's a problem with these distant trade deals, isn't there?  Despite what we might think about our connected world, there is still a significant cost to delivering goods and services.  My weak gag about refrigerated shipping makes almost no sense when you remember that everybody prefers fresh cucumbers to old ones.  Offshoring the billing support rings more true, though.  You might as well take advantage of lower Vietnamese labour costs where you can if you are doing a lot of business there.  This has been a constant criticism of NAFTA.  Is this really what Leave campaigners wanted?

On the back it reads, ".. and sign trade deals that will offshore all ensuing job vacancies". 
The advantage of distant trade deals with India or Malaysia is really quite limited because they often do no more than make uncompetitive propositions slightly less uncompetitive.  That is going to help no one.  A better idea is to take a proposition that is only slightly uncompetitive and do what you can to make it competitive.  Clive selling his cucumbers in Bourges is almost competitive but just not quite there.  Slash the import tariffs and he's over the hump to clean up all over France. Likewise with that billing software.  It is almost competitive to sell billing software to Bernd in Bochum (great guy, say hi if you're ever in Bochum) because German and UK workers are shifted by just 1 hour and have roughly equivalent salaries.  The trade agreements brought about by the EU gave the boost needed to turn around the conditions of all sorts of business propositions that were just on the wrong side of efficient.  I don't think a trade deal with Vietnam or Malaysia or Australia is going to have the same kind of effect, no matter how many David Davis signs on our behalf.

In my last post, I looked at the NAFTA and CUSTFA trade deals.  Despite their many critics, these agreements do make a kind of sense because they involve immediate geographic neighbours occupying the same range of time zones.   Remember, slashing tariffs in such circumstances might just be enough to push a business proposition over the efficiency hump.  The US is currently trying to negotiate a wider partnership called the Trans Pacific Partnership that will supersede NAFTA.  Nobody is talking about ripping up the agreement between US/Canada/Mexico because they will also be involved in TPP.   The really significant gains are always with your nearest neighbours but maybe there are extra possibilities out at the margins with countries further afield.  There is an undeniable logic to this, despite the understandable concerns many have for international trade deals. Would it be logical for the US to tear up its agreement with its immediate neighbours and try to hook up with Brunei instead?  Such an exercise would be pure folly, yet that is exactly what David Davis and his colleagues are doing right now.  Many aspects of our EU trade relations are under threat and all we hear is that everything will be hunky-dory because India are champing at the bit to sign an unspecified trade deal with the UK.  This is a complete mess.  I honestly don't think our current set of leaders understand anything about how the world works, yet they seem perfectly able to understand the House of Commons expenses procedure (hurrah, this is the weak political satire in the style of Ben Elton that I promised at the start).

That's the end of role-play for today.  You can be yourself again now.  Just shake it all out and relax. Don't worry about Clive.  He joined a commune, grew a huge beard and now tends to his bees down in Dorset. 

Over and out,

Terry

PS I'm not done with these trade deals.  I know that's not what you want to hear but that's the way it is.  What exactly are the arguments for the freedom of movement of labour?  Stay tuned and you might find out.

PPS If anyone has contacts to Downing Street can you please suggest a quick afternoon of role-play?  I really think it might help. No, I don't mean "vikings and villagers".  Cheeky! You know exactly what I mean.









8 comments:

  1. Ok, có vẻ như một ý tưởng thực sự tốt để mang lại kinh doanh dưa chuột của bạn đến Việt Nam.

    Oh sorry... I was that into the old role playing, I completely forgot to stop being an excited Vietnamese blokey.

    It seems to me that no one thought any of this through at all. When we talked about independence for Scotland, the parties in favour of it had plans and projections. Sure they depended on membership of the EU and other international bodies, but despite what the UK government said, it was highly unlikely that anyone was going to refuse membership to a country which had democratically removed itself from the UK.

    No one though, in the LEAVE campaign appears to have considered that leaving Europe is a rather different prospect. I know parallels have been drawn, but they aren't really appropriate. The EU is basically a trade organisation with frills. The UK was, and still is, a unitary sovereign government setting taxes, benefits including grants to Celtic nations, and dealing with foreign affairs and, most expensively, war.

    It seems to me that no one considered the practicalities of the aftermath. Of course Britain can sign trade deals with countries father away. After all we import massive amounts from China and export a bit there too (whisky and smoked salmon, for example), and yes it can be done, but I why would a country on the other side of the world buy everyday foods/goods, which can be produced there, from the UK?

    And in these "green" days does it make any sense to establish trade that will, as well as costing more in terms of $, will cost more in terms of pollution?

    Clearly old Clive there doesn't have to give up though. He can learn to speak Vietnamese or Lao, or Korean, and set up business just outside Hanoi. Right, sorted!

    I got Munguin to mention the role playing idea to a contact of his in Downing Street. Unfortunately in his excitement he did mention Vikings and Villagers and Mrs May said yes, as long as she can be a Viking... whatever that means.

    Bonne journée!

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    1. PS. I bet you thought I was going to make a lewd comment about the concombre, didn't you?

      Well, I'm better than that!

      So there!

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  2. Yes, I can't see the UK exporting commodity goods to China any time soon. I also can't see us competing with China on goods imported from China. Steel, for example, will never be as cheap as Chinese steel unless we also subsidise it. Leaving the EU gives us the flexibility to do that but I can't see any political will for it. Sure, we can export differential goods such as salmon and whisky and medical technology. My argument would be that differential goods benefit less from tariff support because they don't really compete on price. Actually, I would argue freedom of movement of labour is what helps differential goods have better differentiation. Advanced medical technology doesn't make itself, after all. It needs creative and skilled people to do that.

    Somebody, for god's sake, make a cucumber gag. Let's get it over with and then we can move on.



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  3. I understand that the EU wanted to subsidise European (including British) steel, and that the UK vetoed it (despite the fact that they told us it was the other way around).

    I can't imagine them subsidising steel in the future. It depends, I suppose, on whether the tariffs between China and UK make home grown stuff cheaper.

    Even then, we don't make much steel and we don't make the kind that can be used in building bridges, for example.

    That industry was closed down by the Tories under the sainted Thatcher. Presumably she thought that we would never need to build anything again. Who knows?

    I told you I was better than cucumber jokes. You can wait all night, I won't make one. So there. Stick that... oh... erm...

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    1. Wow, I didn't know that about EU subsidies of British steel. Interesting.

      I believe that $1 of Chinese steel is being sold at $0.28. It will require a huge subsidy to compete with that because I very doubt if the import tariff is 300%.

      Thanks for the cucumber joke. That's my tatziki in the bin.













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  4. https://www.theguardian.com/business/2016/feb/10/david-cameron-accused-failing-uk-steel-industry-blocking-eu-lesser-duty-proposal

    That was NOT a cucumber joke. You inferred stuff from my mere mention. And I'll thank you to keep what you do with your Tatziki to yourself. Some of us are young and innocent you know

    PS: Who bought you a Jamie Oliver book for Christmas?

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  5. Cheers for the link. Astonishing behaviour from Sajid Javid. It's almost like the government couldn't hold a consistent position on a simple policy.

    Jamie Oliver said he would leave the country if Boris Johnson became Prime Minister. Awfully similar to the moment Phil Collins said he would leave if Labour got into power. Conundrums, conundrums.





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