EU trade talks chart crime

Consternation today on the internet about a chart crime committed by the EU Commission.

The EU is peturbed that the UK appears ready to renege on a commitment to negotiate a ‘level playing field’ [for example to restrict state aid] as part of a Free Trade Agreement.  To explain why it continues to want this [and hasn’t, as No 10 disingenuously suggested in a tweet using almost Russian Embassy style tactics, ‘moved the goalposts’] it dug out a slide showing data on countries with which it has reached trade deals.

Here is an image of the slide and an enumeration of other crimes by Stefan Loesch, who writes under the handle OscarDTorson.

The chart crime people are focusing on is the the fact that the size of the trade contributions to total EU trade is matched to the diameter of the circles, not the area of the circles, which is implied.  So the chart overstates the difference between trading partners.

The message the EU want to convey with the chart is this.

Given how close the UK is to the EU, and how large, we know from trade across the world and history that the likelihood that trade with the UK could supplant domestic EU activity is quite high.

For this reason, a relatively small shift in the terms of trade induced by unfair state subsidies, or a loosening of regulations [say governing health and safety at work] could be enough to change some activity from non-traded to traded.  For this reason, we want level playing field rules to rule out or at least constrain this kind of trade-predation by the UK.

For trade blocs a long way away, or that are small, it would take a much larger shift in state subsidies or regulations to tilt many activities from non traded to traded, and these either won’t be politically feasible in the 3rd country, or they can be constrained by much looser provisions in an FTA.

A slight complication is that the trade patterns are the product of current and past agreements establishing administrative trade frictions between the blocs.  The UK trades so much, currently, with the EU, because of its past membership of the single market.

Once rules of origin checks are required, or if there is regulatory divergence in the UK that forces firms in either bloc to produce to multiple standards, trade would shrink.  The effort required at that point for one jurisdiction to predate on the other using subsidies or regulatory undercutting would be larger.

By how much?  Not enough to make the UK look as unimportant as Canada, which is the most relevant comparison:  the UK have been trying to claim that a ‘Canada’ style deal, which absents from the same stringent level playing field provisions, has been ‘taken off the table’.

The EU threat is, without those level playing field provisions, to offer nothing more than a minimal trading relationship provided for by WTO rules.  Beyond the threat to cut off your own nose to spite your face, there is some logic to it.  With such a minimalist deal it would take much more aggressive, and therefore less likely, state trade-predation to tilt new activities in the EU from non-traded to being traded with the UK, a kind of crude [and expensive] security to prevent it from happening.

 

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3 Responses to EU trade talks chart crime

  1. Dipper says:

    if it is true that importing immigrants to work for low wages is a policy that has no adverse consequences at all, ie creates wealth for all, is net tax positive then why are economists like yourself not simply demanding an end to all immigration controls and allowing anyone from anywhere to legally work and live here? surely unlimited immigration would make us the richest country in the planet? And in fact, given everyone could live her, would generate colossal wealth on a planetary scale?

    • Tony Yates says:

      1) At some point, small geographical areas can ‘fill up’ raising the price of land and housing significantly, and inducing congestion externalities. We are nowhere near that yet. 2) The largest effects at present are a) just scaling the economy up [not making the rest of us richer] and b) correcting for the dependency bulge due to demographcis mostly. In the longer term, those effects would probably die off, but they matter a lot while we all try to get through the pensions/disability/health implications in the mean time. 3) The EA was never going to accept open borders, so this policy was not on the agenda. What was on the agenda was our membership of the single market. 4) There are no doubt some adjustment costs as immigration flows in, aggravated by the UK government not allocating funds where migrants wind up. 5) There are mooted productivity benefits to the infusion of new ideas and ways of doing things that comes with openness, parallelling those measured for product markets. How large these are is hard to say. I’m less convinced than others that these are very large.

      • Dipper is stuck in traffic says:

        “can ‘fill up’ raising the price of land and housing significantly, and inducing congestion externalities. We are nowhere near that yet.”

        Locals here in my corner of Essex would beg to differ. Roadworks, building sites, traffic jams everywhere. We haven’t even started on the new towns yet.

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