February 22, 2017

Aid won’t solve Britain’s trade woes

It is difficult to see how offering to send money to Eastern European countries would help to coerce them into giving the UK a better trade deal, says John Redwood.

I was surprised to read in last Sunday’s press that some people think it a good idea to divert overseas aid to Eastern European members of the EU to “buy” a better deal with that organisation.

As I have explained before, there is no Treaty power to require a UK leaving payment above and beyond completing our annual payments to their budget for the period of our continuing membership. Nor is it legal under WTO rules to pay for more favoured trade with a given country or group of countries than the rest. Payment for trade under WTO rules takes the form of accepting tariffs, and these must be limited to the current Most Favoured Nation (MFN) schedules the EU has agreed.

The trade choice is for the rest of the EU to make.  The UK would be quite happy to carry on tariff free. That will help the rest of the EU more than us. It would mean registering our current trade arrangements as a Free Trade Agreement at the WTO. Or we can trade under MFN arrangements under the WTO. Most UK trade will be tariff free, while EU sales of agricultural products would suffer heavy tariffs into the UK. The UK could agree lower or no tariffs with other cheaper suppliers of food around the world through the WTO process. I have said it is in the EU’s interest to accept the tariff free offer, and they may  do so after much huffing and puffing.  I have also always said that they might decide to harm themselves by accepting WTO terms instead. Under the general WTO arrangements the UK will be fine.

The overseas aid idea also falls well foul of the overseas aid rules. The Eastern countries in the EU do not qualify for overseas aid under the international definition, as they are too well off. By law, UK Ministers must hit the 0.7 per cent Aid target under international definitions, so they could not switch this aid money to Eastern Europe unless they repealed the 0.7 per cent requirement. It would not be easy to achieve repeal, given the likely fact that all the opposition parties would oppose repeal other than perhaps the one UKIP MP. The government might be able to persuade enough Conservative MPs to get it through the Commons, but the Lords would be likely to have a big majority the other way. As it would not be a Manifesto pledge, and does not stem directly from a referendum, the Lords might become very difficult.

In circumstances where, for political reasons, the European Commission and one or two large countries did not wish to enter into a free trade agreement with the UK, despite their interests in having one, it is difficult to see how offering to send money to Eastern countries would buy a change of heart.

5.00 avg. rating (98% score) - 11 votes
John Redwood MP
John Redwood MP
John Redwood is the Member of Parliament for Wokingham in Berkshire. He was formerly Secretary of State for Wales in Prime Minister John Major's Cabinet. He is currently Co-Chairman of the Conservative Party's Policy Review Group on Economic Competitiveness.
  • Contact Rvtech

    The post was great.

  • SteadyOn

    Quite aside from the stupidity of crediting the EU with general peace in Europe (there’s probably a similar correlation with the rise of the frozen pizza) which makes the rather obvious error of discounting nuclear weapons, suggesting that we should join a club in order to prevent others from attacking us is tantamount to victim blaming.

  • Fragrant Hedgehog

    Words from a cat who may or may not be writing them. Quantum mechanics Is a wonderous thing ?

  • Cheeky, Friend Cat! 😉

  • Possibly a first for Comment Central…

  • franknowzad

    How ’bout joining up with the US drug regulators. Why remain in a regulatory system of a continent that doesnt invent new drugs?

  • franknowzad

    The Brexit trade negotiations should be simple. 44 years of over-regulation have removed difference in standards, which are the usual sticking point. The huge trade imbalance and utter reliance of French and German manufacturing on “Treasure Island” will help, but the biggest lever we possess is our present funding of the EU. As best we can tell in an un-audited EU budget, we provide about 25% of EU funding. The EU should be gently reminded that we can stop these monies overnight, if pushed.

  • A real liberal

    Interesting observation. One of the modern cliches that most annoys me is ‘there is no military solution to this, only a political solution’. The BBC loves it. In fact its hardly a cliche any more. It’s more like a creed or an article of faith. And, in my view, it’s led to much avoidable chronic misery; and to the oppression and murder of peaceful, gentle people by utter barbarians. Sometimes there is ONLY a military solution; and thanks goodness that, at critical moments in our recent past, we recognised the fact and got on with the hateful task.

  • A very neat piece of analysis there. Thank you.

  • This certainly applies to Labour, the Tories and the Lib-Dems, probably the SNP as well, but I think it’s a bit unfair to extend it past that. The writer correctly notes that the current fault line in British politics is between the entrenched establishment and outsiders seeking to overthrow it. One could well argue that having done so, they will simply replace it and nothing will change, as Orwell described in Nineteen Eighty Four, but that is not a historical inevitability, only one possible outcome. It greatly depends who the “they” in question turn out to be.

    The Tory party will, of course, never be the vehicle of that change because it is the party of the establishment, and Labour has never had the right answers to anything. In the post-Brexit landscape, aided by the uselessness of Corbyn and the self-destruction of UKIP, the Tory party has ascended to a position of apparently unchallengeable power. The reason the party is doing so well where others are faltering is because of its adaptability to new realities. Our remain-leaning Prime Minister and her cabinet of remainers understand that the tide has turned and wanting to stay in the EU is now the fringe position. As long as they act accordingly, they are the most in tune with the mood of the nation, the vast majority of which either voted for Brexit or accept it as settled.

    The hard left are heading for annihilation at the next election and the hard right is working out where it goes next following the Brexit victory. Things are quiet for the time being, but I wouldn’t count on it staying that way.

  • blingmun

    “a whole continent’s peace, stability and prosperity as one of the European project’s remarkable successes”

    Apart from a brief flirtation with democracy during the Weimar Republic, until 1945 Germany was aggressive, militaristic and undemocratic. The behaviour of German troops in Belgium in WW1 was little different to the behaviour of Nazis in WW2.

    The German problem was resolved by beating the crap out of it, demanding unconditional surrender, splitting it in two and — in the West at least — by imposing liberal democracy upon it through extraordinary (ill-deserved) magnanimity on the part of the victors. Liberal democracies don’t go to war. Thank you Britain and America for European peace.

  • Andrew Musson

    What an incredibly stupid suggestion. There is speculation as to whether the government can cope with what it has on its plate already over the next 2 years, let alone sifting through 40 odd years of legislation and picking out the necessary bits. the author has no real understanding of what he is talking about. File under cloud cuckoo land.

  • Debs

    Giving aid or subsidies doesn’t encourage countries to pull up their socks and get on with making their country better. Eastern Europeans need to stop emigrating and elect competent governments who can improve their economies and introduce a viable welfare system.

    I for one am fed up being taxed on my small income ,to subsidise the rest of the world then have to support them when their citizens leave said country and flock to Britain to claim in work benefits child benefit and ” free ” health care.

    And they wonder why Leave won . Cheesh !

  • Jonathan Munday

    WTO rules do not cover services. The entire trick of the Brexit negotiations is going to be “selling” free manufactured and agricultural trade, which is in the EU interest to “buy” free services trade, which is in ours. We also want to remain in the Erasmus programme and to rebadge the European Medicines Agency as a European regulator and retain it in the UK, continue police and security sharing and one or two other common sense agreements amongst supposedly friendly countries.
    Against us, we have the hatred of the Commissioners who have seen defeat snatched from the grasp of a USE. In our favour, we have the threat of a manufacturing trade war, currently £70B a year to the EU’s benefit and Germany’s discomfort at the thought of covering our lost funding beyond 2019.
    We could offer as part of the divorce settlement to pay into the Social and Cohesion fund a defined sum for a defined number of years. This not just bribes the Eastern countries but Germany too. Of course we could fund it out of DfID. We are about the only country to meet the 0.7% and no one apart from the despised Cameron thought it was a good idea to enact it. It would take a very small clause in the Great Repeal Act to amend the DfID Act to include the words, “or to the EU Social and Cohesion Fund”. Problems would indeed come from the Lords, if it is still there after the next GE but sentiment in the country, apart from the usual suspects, would be indifferent.
    It is coming to something when even John Redwood fails to grasp the opportunity afforded by Brexit to comprehensively change the zeitgeist and end the Liberal/Whig hegemony of Britain. It only requires the political imagination and the will. In these days of referenda, what do we need representatives for, if we have to do that kind of thinking for ourselves too.

  • MrVeryAngry

    Yup.

  • Flatdog

    Presently “Aid” buys votes at the UN, because Britain only has one vote, and so does Bongo Bongo Land.

  • Nockian

    Any salesman worth his salt knows that business has costs and profits. It seems like a good deal to take prospective customers out for a lunch, or treat them to a few rounds of golf and drinks, but it rarely results in an order. When an order is forthcoming it is usually a single grudge purchase on which the profit margin is so low it hardly covers the tips for the lunch bought for the prospect. The best option is to get the order, then reward with a lunch whilst keeping in mind the margin on the sales fully covering the cost of the freebee.

    In foreign trade the talk is of trade deals and tarrifs. The threat of a tarrif is nothing more than one country deciding it will tax its own people for purchases abroad in order to benefit some vested interest of a producer. This is a crazy situation. Goods bought overseas that are at less cost/better quality than can be bought in the customers own country are a net benefit to consumers. The saved cost can then be spent on other items which is a net plus for the customer-their standard of living just improved without the need of benefit payments, or minimum wage laws.

    A free trade agreement will benefit the consumer, tough luck for the vested interest who is trying to gain something through government influence that was unearned. If the other country slaps on import tarrifs then they are effectively committing violence against the consumer by penalising them for being savvy shoppers and improving their living standards. The Government should ignore the whining and complaining of UK vested interests that claim they require parity arrangements, or special protections for their workforce. In the end, everybody is a consumer, not everybody is a worker, nor a business owner, the lowest common denominator which has a direct effect on people’s wealth is the cost of goods. As such, we should open free trade deals regardless of the threats of tarrifs against our exports. If we want to compete, then no tarrif will stop us doing so, whether by innovation, higher efficiencies, or USP we must learn not to fall into the kind of protectionism that Bright and Cobden campaigned to end in order to give the consumer their daily bread at the lowest cost.

  • Leo Savantt

    Of course it is difficult to see how sending “aid” to Eastern Europe would help trade, partly because it would in fact not be aid, but in effect an attempt at bribery. Additionally simply handing out UK money could act as a disincentive to trade, why bother with commerce when you can profit without effort? Finally there is the not so small matter that HMG would have to either borrow the money, increasing the cost of servicing the UK’s debt, and/or raise taxes, both of which would negatively impact on the British consumers ability to purchase Eastern European products. This is a hair brained ill thought out proposal and if supported by UKIP’s sole MP would simply illustrate that he is in the wrong party and perhaps even in the wrong parliament, Strasbourg/Brussels might be a better home.

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