Keeping an eye on Brexit while assessing 'COVID-19 pandemic and international trade' -- written evidence

The UK House of Commons’ International Trade Committee has an open inquiry into ‘The COVID-19 pandemic and international trade’, to which I submitted written evidence (available in HMTL and in PDF). In short, the document stresses that the extremely likely negative impact of the COVID-19 pandemic for UK businesses trading internationally and for the parts of the UK’s public sector that rely on trading with international suppliers and contractors in the medium- and long-term can only be compounded by the uncertainty surrounding the on-going negotiations of a future UK-EU trade relationship. The single most effective intervention at this stage would be for the Department for International Trade to lead on the negotiations with the EU for a two-year extension of the transition period in conformity with Article 132 of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community.

The executive summary of my submission is as follows:

1. Publicly available UK economic forecasts and surveys are clearly indicating both a very sharp negative economic impact of the COVID-19 crisis during 2020 and longer-term unemployment challenges, as well as a very substantial decline in trade between the UK and third countries.

2. Most medium- and long-term impacts will be dependent on the severity of the economic crisis to follow the pandemic, both in the UK and abroad. However, there should be little doubt that supply chains will be severely disrupted, at least in the medium-term, and in particular if any relevant trading country needs to enter a second or ulterior period of lockdown.

3. Given its close trade ties, the UK is particularly exposed to the continuity of its trade with the European Union (EU), which has last been estimated to represent 45% of all UK exports and 53% of all UK imports. The intensity of these trade ties is likely to mean that, given a breakdown of existing supply chains, alternative arrangements available to UK businesses are likely to remain significantly concentrated in the EU and, likewise, UK businesses could take the position of bankrupt or temporarily unavailable suppliers in EU businesses’ supply chains.

4. Under the current circumstances, the added uncertainty surrounding the on-going negotiations of a future UK-EU trade relationship can only compound the likely negative impact of the COVID-19 pandemic for UK businesses trading internationally and for the UK’s public sector in the medium- and long-term. The uncertainty surrounding the continuity of existing and new supply chain arrangements between the UK and the EU once the transition period ends can have severe chilling effects on UK businesses trading internationally and EU businesses supplying the UK.

5. Any material change to the trading terms between the UK and the EU is bound to have a very large negative impact for the UK economy. Before Brexit, the UK Government had assessed it at a loss of between 6.7 and 9.3% in GDP level in 15 years compared to staying in the EU. Under the current circumstances, the negative economic impact could be even larger.

6. The single most effective intervention at this stage would be for the Department for International Trade to lead on the negotiations with the EU for a two-year extension of the transition period under Article 132 of the Agreement on the withdrawal of the United Kingdom from the European Union and the European Atomic Energy Community. Concerns about the UK’s contribution to the EU budget as a result of an extension of the transition period are unwarranted.

7. Postponing the end of the transition period to 31 December 2022 would create the necessary space not only for the future UK-EU trade relationship to be properly negotiated, but also to avoid adding the pressure of no-deal contingency planning to the already extreme circumstances under which UK businesses trading internationally and the parts of the UK public sector that rely on trading with international suppliers and contractors, are expected to operate post COVID-19.

As mentioned above, my full submission is available in HMTL and in PDF from the Select Committee website.

New SSRN paper on State aid enforcement after the crisis

I have uploaded a new paper on the University of Leicester School of Law Research Paper SSRN Series. It is entitled "Digging Itself Out of the Hole? A Critical Assessment of the European Commission's Attempt to Revitalise State Aid Enforcement after the Crisis" and has the following abstract:

This paper aims to assess the likelihood that State aid enforcement can be revitalised in the post-crisis period as a result of the 2012-2014 State aid modernisation process (SAM). The paper takes the view that State aid enforcement was left in a difficult impasse as a result of the extraordinary measures the Commission implemented during and immediately after the 2008 economic breakdown, which left the Commission in a difficult position due to the unavoidable concessions and lowering of standards that dealing with the soaring volume of State aid required. The paper builds on this premise to critically assess whether a scenario of stronger enforcement can be foreseen under the modernised, post-2014 procedural framework of SAM. It pays particular attention to the need for the European Commission to (re)engage in a more substantive assessment of aid measures and to promote judicial (or private) enforcement of State aid rules in an effective manner. It concludes that revitalisation of State aid enforcement under SAM is highly unlikely.

I have attempted some statistical analysis to support my view that State aid enforcement is not being efficient. As a taster (full details in the paper), I argue that 'it seems conservative to estimate at around 100 billion Euros the amount of (non-investigated) illegally-granted State aid in the EU28 between 2008 and 2013' and that the Commission is accumulating a significant backlog of State aid cases (of around 500 in the same period), despite having expanded its State aid workforce by 53% between 2007 and 2011.

I also argue that the Commission's push for more transparency of the awards of State aid will not result in an actual involvement of private parties and society at large as stewards of EU State aid rules, in particular due to the restriction of the locus standi to submit (admissible) complaints to the Commission (following Sarc v Commission and the rules under the revised art 11a of reg 794/2004) and the compounded effect of the mandatory use of a standard form that requires significant information.

I will present a reworked version of this paper at the Antitrust Enforcement Symposium held by the Centre for Competition Law and Policy of the University of Oxford in June, where I am honoured to share a session on Competition and the State with such distinguished scholars and practitioners as Conor Quigley QC, Damien Geradin, James Cooper, David Szafram, Isabel Taylor, Angus Johnston and Ioannis Lianos. As you see, not the easiest audience. So all comments that can help me improve the paper are most welcome! I already thank my colleague Dr Paolo Vargiu for his first reactions.

The full citation for the paper is: A Sanchez Graells, "Digging Itself Out of the Hole? A Critical Assessment of the European Commission's Attempt to Revitalise State Aid Enforcement after the Crisis" (May 5, 2015) University of Leicester School of Law Research Paper No. 15-15. Available at SSRN: http://ssrn.com/abstract=2602798.

#Decency in #publicprocurement could take us out of the #crisis: or how #corruption is making us bleed out

Stories about corruption in public procurement are so common that they have become part of the daily news (and, sadly, a part that tends to receive less and less attention due to routine and tiredness from repetition). However, when one looks at the aggregate data, an immediate need for reaction becomes evident.

As the EU Commissioner for Home Affairs has just emphasised "The Commission's best estimate is that 120 billion euros are lost each year to corruption in the 27 Member States of the EU. That is the equivalent of the whole EU-budget. In public procurement, studies suggest that up to 20- 25% of the public contracts’ value may be lost to corruption." 

Given that  public procurement represents around 20% of the GDP in the European Union, a loss of 20% of its value due to corrupt practices of all sorts means that corruption in public procurement costs around 4% of the EU GDP. 

If we add the fact that, sometimes, corruption is coupled with collusion (or bid rigging), which can generate an increase in prices of approximately 20% (with instances of around 40%), the numbers may be easily brought up to losses due to illegal and indecent behavior representing 40% to 50% of its value--i.e. around 8-10% of GDP.

The power of these facts seems unbeatable and we should all have it now clear in our minds that only decency can save us from the economic crisis.

However we want to run the numbers or reduce them to be conservative in our claims, even a reduction of 50% of the perceived level of corruption would not only avoid most of the cuts being imposed on the budgets for the provision of public services, but it would also allow for a relaxation of tax pressure on individuals and companies, and to provide effective economic incentives to entrepreneurship and innovation. 

Even in clearer terms: addressing the issue of corruption and collusion in procurement would single-handedly bring the EU from recession/depression into economic growth. In this regard, the initiative of the European Commission to move from rhetoric to results in the fight against corruption (in public procurement) in the EU must be echoed, voiced and supported.

This is something we intend to do at workshops B5 and B6 of the Global Revolution VI Conference next June in Nottingham. Suggestions and active participation is encouraged and definitely more than welcome!