The Daily Telegraph, 12th September 2005

By Ruth Lea

The recent "bra wars" fiasco, in which 80m sweaters, bras, trousers and other items of clothing were blocked in European ports, highlighted, yet again, just how EU commercial and economic policies can damage Britain's best interests. A brief resumé of events leading up to the recent deal between the EU and China shows this very clearly.

Back in 1974 the EEC, responding to protectionist pressures from textile manufacturers, negotiated the Multi-Fibre Arrangement (MFA) which limited clothing imports into the EEC. Like all protectionist measures this benefited the manufacturers, and their employees. But by maintaining artificially high prices the costs to consumers, especially the poorer consumers, were substantial.

In 1994 it was agreed in World Trade Organisation (WTO) negotiations to phase out the MFA. The phasing out would be over 10 years, from 1995 to 2004, in order to give EU textiles manufacturers time to adjust. In several EU countries, including the UK, the Netherlands, Germany, Sweden and Denmark, the manufacturers duly adjusted by diversifying into high-value and niche products, for example, or by getting out of the sector altogether.

But in several other EU countries, including France, Italy and Spain, the adjustment is far from complete and these countries still have sizeable sectors of relatively low-value textiles manufacturers, which are vulnerable to low-cost Chinese competition.

The MFA ended at the stroke of midnight on December 31, 2004, heralding a new era of free trade in textiles in the EU. Well, maybe. Alas this brave new era lasted less than six months. In June EU trade commissioner Peter Mandelson, capitulating to protectionist pressures from France, Italy and Spain, agreed a two-and-half-year deal with China to restrict Chinese clothing imports into the EU, after which time any quotas will breach WTO agreements.

Soon after the imposition of quotas in July, retailers were alarmed to see that some of the clothing quotas were not just filling up but were actually being broken - hence the blocked imports.

September's deal on the blocked clothing imports between the EU and China was a crude compromise. The Commission allowed half of the blocked imports to enter the EU, while China agreed the other half should be set against either 2006 quotas or unfilled 2005 quotas.

There are several implications for this sad saga. First, the business plans of many retailers throughout the EU, who acted in good faith, have been significantly disrupted with the blocking of Chinese supplies. Many will lose money. They were given little notice of the imposition of quotas by the Commission, which clearly has scant understanding of the nature of the business.

Second, consumers throughout the EU will miss the cheap Chinese goods. The cause for further trade liberalisation has taken yet another blow. Protectionism has won this round and that does not augur well for the forthcoming Doha talks in Hong Kong.

All this highlights the enduring chasm between the free traders in the EU, including the UK, Germany and the Netherlands, and the protectionists, led by France and Italy. The free traders are clear losers.

While the Common Agricultural and Fisheries Policies are vigorously criticised, little is said about the costs to Britain of the EU's common external trade policy, otherwise known as the Common Commercial Policy.

Yet, as "bra wars" shows, there are considerable costs arising from our inability to unilaterally negotiate international trade deals, as we have been unable to do since 1973, and having to rely on the EU's trade commissioner who is so clearly vulnerable to protectionist pressures.

There is also relatively little said about the costs to Britain associated with the developing single market, or internal market, which was launched with such brio in 1992. As the CCP swept away the tariff barriers to cross-border trade within the EU, so the single market is intended to sweep away the non-tariff barriers. The goal of the "completion" of the single market is regarded both politically and economically as a "good thing".

The main criticisms of the single market, therefore, focus on developments blocking further completion rather than on any costs arising from progress to date. The dilution of the Services Directive, at the insistence of the French keen to protect their plumbing profession from the Polish, was met by dismay earlier this year.

And there were grumbles about the recent announcement by the French government to protect businesses in 10 key sectors from cross-border takeovers, thus flying in the face of the principles of the internal market.

But developments towards the completion of the single market can bring costs, principally more heavy regulation, as well as benefits. A particularly glaring example is the Financial Services Action Plan (FSAP).

The FSAP is a gigantic regulatory programme, a costly monster comprising 42 detailed regulations and directives, which could undermine the City's competitiveness. One measure is the Market Abuse Directive (MAD), which partly concerns insider dealing. It will probably cost £50m and yet bring zero benefits in return.

Britain no longer has the individual sovereign power to make policy decisions across a wide swathe of commercial and business interests, having delegated the power to the EU. All too often the consequences are damaging to the economy, business and the country.