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OPINION

Unenlightened self-interest

Unenlightened self-interest
February 15, 2018
Unenlightened self-interest

It’s nearly 10 years since perhaps the most egregious example of privatised profits giving way to socialised losses, but the lessons of history have obviously been lost on Carillion’s board, which wrote to the government less than 48 hours before its liquidation requesting a £160m bailout. The supplicants were always facing an uphill task given that the pending implosion was never likely to be deemed systemic, but ultimately taxpayers are still on the hook for any of its public service contracts that are considered vital to the public interest.

Curiously, the firm’s former finance chief, Zafar Khan, blamed the EU referendum result and last year’s snap election for holding back Carillion from winning major contracts. The view will doubtless chime with CBI director-general Carolyn Fairbairn, who has argued that the UK should remain in a customs union (or an approximation of one) with the EU until there is proof that new trade deals brokered with non-EU states would outweigh a potential loss of business from within the EU. That presents something of challenge for advocates of bilateral trade agreements given that the EU’s position paper for 'Transitional Arrangements in the Withdrawal Agreement' explicitly states that: “During the transition period, the United Kingdom may not become bound by international agreements entered into in its own capacity in the areas of exclusive competence of the Union, unless authorised to do so by the Union.” In other words, the UK can’t court anyone outside the EU27 unless Jean-Claude Juncker acts as chaperone.

Whether you agree with the CBI’s take on the Customs Union could have as much to do with your political perspective as it does with your view on its impact on business, although given the business lobby’s past backing of British membership of the euro, a little scepticism is warranted. The point is, however, that the EU Customs Union, or any customs union for that matter, restricts free trade, supports inefficient and uncompetitive businesses, reduces the incentive to innovate, while distorting or eliminating comparative advantage. It’s perhaps telling that UK professional services, one of our most successful export strands of recent times, are unencumbered by an external tariff system. The monetary costs of tariff mechanisms are loaded on consumers, but it’s worth noting that while most of the EU’s common external tariffs are low under World Trade Organization rules, the UK runs large trade deficits with the EU in those areas where tariffs are relatively high, such as agricultural and automotive products.

The impulse to shelter industries within artificial market constructs certainly isn’t novel. You could argue that the progenitor of the modern Customs Union was the European medieval guilds system. But while the UK government dithers on the shape of our future trade arrangements with the EU, the risks to global trade flows are intensifying. Some have dismissed Washington’s tub-thumping on the issue as mere rhetoric, but we have already seen a sharp rise in the number of anti-dumping cases under the Trump administration.

Mark Robinson is companies editor