State aid: how the Lexiteers were taken for a ride
By Pete North - August 2, 2020
In more than a few ways the lexiteers (left wing brexiters) have played useful idiot to the Tory right. From an ideological perspective the Tories are not fans of state aid, but they knew they had had to say something brexity that would appeal to the Labour leavers. Thus the “EU won’t let us nationalise our trains” shtick was born.
As it happens there is nothing in particular that outlaws state owned enterprises in EU law. The rules merely set out a process by which it must be done and a series of parameters to prevent state subsidies impacting competitors unfairly.
They are in fact an entirely sensible set of rules that creates a stable state aid regime, the absence of which would serve as a deterrent to foreign investment. You would not risk setting up a business in a country if its populist government was going to make fair competition impossible by favouring the national player.
This, incidentally, is why grown ups were afraid of a Corbyn government. It was perhaps an exaggeration to say that Corbyn would go about a Venezuelan style asset confiscation programme, but there was every reason to believe a left wing labour government would up-end the rules and start subsiding directly with no regard to its effect on investment or the various WTO conventions governing state aid and government procurement.
In or out of the EU the UK needs a functioning and predictable state aid governance regime. Not only will the EU demand transparency, anyone we might seek an FTA with would seek similar assurances lest any deal be asymmetric in practice.
If there’s one reason why the UK should adopt the EU system is that it’s intellectually sound and is already compatible with countries holding FTAs with the EU with whom we will also wish to deal.
Being though that the lexiteers have made state aid an article of faith, latterly adopted by the regular grassroots Brexiteers as a post-facto rationalisation (being that the economic prospectus for Brexit is so thin), the Tories can use it as a sticking point in negotiations as a smokescreen for their true intentions. ie. No deal.
More recently, though, the UK takes the view that WTO rules on state aid alone are sufficient. Firstly as a point of fact, the WTO rules don’t go far enough, but secondly, FTAs (particular EU FTAs) adopt WTO provisions while setting up bilateral committees and frameworks for dispute resolution so that issues can be resolved directly without having to involve the WTO which is a long, slow and expensive process – and often unsatisfactory.
The purpose of a deep and comprehensive FTA is to provide the basis of an ongoing relationship where the substance of the agreement evolves to ensure that it continues to be mutually beneficial, problems are rapidly resolved, and to give both sides recourse to correction while cutting out the WTO middleman. Brexiteers assume the rules will only apply to the UK.
The bias, they assume, comes from the ECJ, which in this instance, only provides rulings on the meaning of EU law. It cannot direct or dictate the conclusions of dispute panels.
But none of this matters. The excuses only need to be semi-plausible. They only need to serve as a pretext. Dismantle these excuses and they’ll invent new ones. The state aid excuse just serves as a universal excuse that keeps the likes of Fox and Hoey bleating in approval.
The problem with Brexiteers, and people more generally, is they don’t really have a concrete idea of what a free trade deal is. Most assume they are simply fire and forget instruments where you sign one and move on to the next until you have a full house – and that we should want “free trade” with everyone come what may. They don’t see why it must come with conditions and rules.
But then this is the world we live in. Global trade wouldn’t function without a system of rules and though the WTO inspired system may be suboptimal trade is better with rules than without.
The problem for the UK is that our politicians even at the very highest level have only a limited grasp of how the system works, how it came into being, why certain things exist the way the do and why Brexit is no real solution to the sovereignty dilemma. It is only a partial fix to a dilemma that will haunt us down the ages. We’re going to learn this first hand at a heavy price.
Five years ago I thought I knew about trade. I didn’t. I wasn’t even close. Now though, with five years of reading under my belt I realise there is no such thing as a trade expert. The tariff people don’t know how the customs systems work and vice versa, and neither particularly get regulation as a trade instrument.
Then, tariffs people don’t know how investment works, and expertise in one field does not transpose well into the next. Then there are the trade lawyers who operate on an entirely different level. The discipline is more akin with software engineering than law. Then there are economists – who know nothing about any of it.
Put simply, nobody can claim expertise in such a multispectral domain. At best you can find good generalists who can direct to specialists. For the UK to have a working independent trade policy we need an appreciation of all the subdomains and how they interrelate. We are nowhere close to this though. Our politicians aren’t up to the job and I’m not convinced the civil service are either. Anyone with any sense has vacated the field so we’re left with cronies and yes men.
Collectively we have a wholly simplistic idea of trade, and the Tories are the worst because they believe the inherently complicated is complicated for its own sake and can easily be simplified and liberated from the clutches of the bureaucrat.
I wish that were true but it isn’t. When trade touches on every issue from intellectual property through to climate, aid and development, conservation, forced labour, energy, digital rights, digital services and data protection, bilateral and multilateral systems are only ever going to be complex and will not yield to the naive little nostrums of libertarian ideologues.
In respect of that, the lexiteers have been taken for a ride by the Tory right. Brexit does not make technocracy go away, nor is Brexit a freedom ticket to subsidise and nationalise on a whim. Sovereignty was always a chimera and the best we ever could hope for was to repatriate the supreme authority and the decision making. And that doesn’t mean more local decisions will necessarily be good decisions.
Howsoever, the lexiteers have served their purpose and are now to be rewarded with seats in the Lords despite having being ejected from their seats. Stuart, Hoey and Claire Fox were only ever window dressing for Vote Leave. It makes sense to hand out the gongs now before they realise they’ve been had.
We have long argued that Vote Leave was never about a Brexit revolution. It was about preventing one. The eurosceptic insurgency was a threat to Tory incumbency. Vote Leave was set up to take over from Ukip, deliver Brexit then put the insurgency back in its place.
It worked too. The movement that was until very recently calling the shots is now completely neutered and Farage is left bleating on the sidelines and of interest to nobody. With Brexit out of the way the Tories now have a free run at their “free trade” experiment while Brexit’s useful left wing idiots are promoted out of harm’s way. One might even admire its cunning. The Brexiteers are even celebrating it!
Whether there is now a deal or not is something of a moot point as far as business is concerned. A zero tariff agreement is only a partial solution. A deal at least creates a foundation so that we can gradually rebuild an integrated trade relationship, which is better for the longer term, but in the interim exporters will suffer either way – and no amount of state aid is unlikely to undo the harm done by a botched Brexit. The worker’s paradise Brexit was even less credible than Rees-mogg’s “fwee twade” ideas. The lexiteers have some nasty surprises come January.