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EU trade talks chart crime

Summary:
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

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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.

Tony Yates
Economist. Consulting, lecturing, a book. Ex Prof at Bham, Ex BoE staffer. Macro, policy, monetary econ, occasional nonsense.

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