Wednesday 6 July 2011

What kind of Free Trade do the Tories believe in?

The news that a government contract for the Thameslink project worth £1.4 billion has been awarded to Siemens rather than Bombardier. It's become a big news story because Bombardier has announced plans to cut over 1,400 of its UK-based jobs. The EU has been singled out for some of the blame:

"The government has said that the Siemens bid represents the best value for money, and that it was following EU procurement rules, which do not allow where companies are based to be taken into account."

The deal with Siemens will reportedly create 2,000 jobs, though:

"...Siemens will build the trains in Germany and only 300 of the UK jobs it creates will be directly employed manufacturing posts, at a factory in Hebburn, South Tyneside."

The article shows that manufacturing jobs are seen as the goal for the UK economy. With services far outpacing manufacturing in the UK economy, job cuts in this area are seen as a further sign of failure. Interestingly, the BBC just produced a good 3-part documentary called "Made in Britain", the premise of which was that manufacturing jobs will leave the UK anyway and that the UK should (and is) moving into higher value economic activities. It's very strange that there is little debate on how Germany actually retains its manufacturing sector and whether the social and economic policies they use would work in the UK or if they are desirable.

[It seems that the loss due to the failure to win the contract is 200 jobs (as Bombardier wrote to the government stating that it would lay off 1,200 workers anyway). Talking about jobs in terms of "net gains" is not to dismiss the tough time these 1,400 workers are facing at the moment, but it does seem that making the deal with Siemens has the effect of creating more jobs than would have been saved had Bombardier won the contract (2,000 versus 200).]

Anyway, the fact that EU law on procurement (you can read the PDF of the legislation here if you have a spare week) prevented the government for picking Bombardier has been flagged as one of the (if not the) main reason for the loss. Under these rules, Siemens won the contract because they represented the best value for money under the criteria set out for procurement. Where the company was based was not allowed to be a factor in determining which company got the contract.

This raises some questions about how the internal market is really viewed, because the anger seems to be directed at the rules in different ways. The impression from the news is that either (a) it's Labour's fault for drawing up the contract criteria; (b) the rules are good in principle but other Member States don't apply them as well as Britain does; or (c) it's the evil EU, goddamnit!

(a) & (b) are linked - how contract competitions are run (what the criteria are) would depend on the sector/work. There have been suggestion from within the government that the rules should be changed. Via Conservative Home:

"[Transport Secretary Philip Hammond] did tell the BBC's Evan Davis that he wanted to look at whether similar contract processes could be rewritten in future so that successful bidders were, in some way, committed to the "domestic supply chain". Noting that French building contracts tend to be awarded to French manufacturers and German contracts to German manufacturers he promised to explore how British industry could be supported in future tender processes without compromising EU procurement laws."

So some Tories would like commitment to the "domestic supply chain" to be a factor. It's hard to see how this can be interpretated in any other way than that government should be able to value national over European companies purely on the basis of nationality or the level of establishment within the Member State. After all, the contract is awarded to those who can provide goods or services to the government's criteria and requirements. It's not like the companies create their own system and then, if they aren't rehired in a new contract, the system breaks down and needs to be rebuilt by another company to its different standards.

There are 2 options:

1. Weaker rules that permit more protectionism.
2. Keeping the rules and ensuring better implementation in other Member States IF that is a problem.

So what kind of internal market do some of these Tories want? What is their vision of free trade? Are they really going to pick a political fight over this?

Am I the only one bemused that Tories are complaining that the "socialist and bureaucratic EU" has prevented government from watering down market competition to engage in soft protectionism?

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