Barnier argues that the PM's Chequers plan, which would keep the UK in the single market for goods but not services, will not work because goods and services are now intermingled. EU and British officials put this argument in a frustratingly imprecise way. (thread)
There are two very different things going on here. One is that many goods - and I mean proper, tangible, hold-them-in-your-hands or sit-in-them goods - now get much of their *value* from services that have gone into making them. 2/
You are willing to pay that much for an iPhone because of design and engineering services in its production process, not to mention financial/professional services used in its development, and transport services that allowed parts to be assembled from different countries. 3/
I wrote a bit about that kind of "servicification" (sorry) in this column. 4/
thetimes.co.uk/article/brusse…
thetimes.co.uk/article/brusse…
The Barnier argument is: because the Brits are asking for goods access but not promising services alignment, and goods get value from services, that effectively lets British services firms serve the single market without adhering to its rules. 5/
To take this to its logical conclusion, the scenario the EU wants to avoid is:
- Britain deregulates its services sectors
- British services firms have lower costs
- British goods firms can buy services at a lower price
- British goods firms can sell into Europe at lower price
6/
- Britain deregulates its services sectors
- British services firms have lower costs
- British goods firms can buy services at a lower price
- British goods firms can sell into Europe at lower price
6/
The Brits argue: the single market rulebook is sketchy on the services with the big value-add, anyway - things like design and engineering. So the EU doesn't need to be afraid of us ripping up red tape on services. There is not much to rip. 7/
Two areas where this is not that true: transport and finance. I think it's probably the latter that ultimately worries the EU, building on decades of suspicion of the City. UK loosens prudential standards, British carmaker can raise capital more cheaply, gets more competitive. 8/
The EU also argues: even if the single market in services is sketchy now, it will develop over time. So even if Chequers doesn't give the Brits a competitive advantage now, it could in a decade. 9/
Then, there is a second kind of goods-services mixing that gets talked about. This is when goods, and services relating to those goods, are sold as part of a package product. 10/
So when you buy something like a lift, you also tend to buy installation, maintenance, repair and technical support services, often delivered by the same firm, bundled into one product. 11/
Here I really do not see why the EU should be worried. Under Chequers, these products would simply have to be broken down such that the goods component was provided by a firm in the UK and the services component by a firm or subsidiary established in the single market proper. 12/
Well, that's exactly how the single market is meant to work. It naturally pulls businesses inside its perimeter because that way they can serve more customers. This isn't the system breaking down - it's the system working!
13/
13/
Also worth noting that if goods-only liberalisation is, by its nature, unfair in the modern economy, this implies that lowering tariffs (e.g., for Canada, or Japan, or Ukraine) is unfair too. Which is not a popular view, in the EU or elsewhere. 14/
In sum, "goods and services are too closely linked for Chequers to work" is really two different arguments. Imo one has limited force while the other has v little. None of this means Chequers is a great idea, but we shouldn't accept this goods-services point uncritically. /ends
