Tag: trade barriers

Long queues at petrol pumps, with many filling stations running out of fuel; fears of shortages of food and various other items in supermarkets; orders by shops and warehouses unfilled or delayed. These have been some of the headlines in the UK in recent days.

The immediate problem is a shortage of over 100 000 lorry drivers, with thousands of drivers from EU countries, who were previously living and working in the UK, having returned to their home countries. Their numbers have not been replaced by British drivers, a problem exacerbated by a decline in HGV tests during the pandemic. Thus the supply of lorry drivers has fallen.

At the same time, as the economy recovers from the COVID-19 pandemic, aggregate demand has risen and with it the demand for lorry drivers.

The shortage is pushing up wages somewhat, but not enough to eliminate the shortage. What is more, the supply of lorry drivers is relatively wage inelastic: a higher wage does not attract many more drivers into the market. Also the demand is also relatively wage inelastic: a higher wage does not do much to dampen the demand for drivers.

But why has this happened? Why has the supply of drivers fallen and why is it inelastic? And what will happen in the coming months? The three main causes are Brexit, COVID-19 and working conditions.

Brexit

With Brexit, many EU workers left the UK, finding life and working conditions more conducive in the EU. Many EU drivers had faced discrimination and felt that they were not welcome in the UK. It has been difficult finding replacement drivers from the EU as the UK’s immigration system, which now applies to the EU as well as other countries, prioritises workers who are classified as high-skilled, and these do not include lorry drivers.

Those EU drivers who do want to stay as UK residents are finding that settled status or visas are not easy to achieve and involve filling in various documents, which can be an onerous and time-consuming process. As the writer of the first linked bog below, who is a Polish worker in the transport industry, states, ‘Would you rather come to Britain and jump through all the hoops, or choose any of the well-paying EU countries, for example, Germany that, if you live in Western Poland, is just a short drive across (virtually non-existent thanks to Schengen) border?’ Another problem is that with EU driving licences: it is harder for potential employers to check on their status and thus they may prefer to employ UK drivers. This, again, puts off EU drivers from seeking to stay in the UK.

Even in the case of EU drivers living in the EU but delivering to the UK there are problems. First there are the dangers for drivers of boarding ferries in France, where people from migrant camps seek to board lorries to get passage to the UK, often threatening drivers. If illegal migrants do succeed in boarding a trailer unseen by the driver, the driver can then be arrested in the UK. According to the Polish blogger, it’s ‘no surprise that I hear more and more drivers who, when taking on new jobs, demand guarantees from their employers that they won’t be sent to the UK’.

Then there is a decline in the system known as ‘cabotage’. This is where an EU driver delivers from the EU to destination A in the UK and takes back a load to the EU from destination B in the UK. To avoid having to travel empty between the two UK destinations, the driver could pick up a load to take from A to B. With a fall in imports and exports from and to the EU following Brexit, there are fewer EU lorries on UK roads. This means that there is now less capacity for transporting loads within the UK.

There has also been a large rise in ‘red tape’ associated with post-Brexit customs checks and border controls. This means that lorries can be held up at ports. This makes it much less attractive for EU haulage companies to export to the UK rather than to other EU countries, where paperwork is minimal. In addition, m many drivers are paid by the length of the journey rather than by the time spent, so delays result in them earning less per hour. Full checks have not been introduced yet. When they are, in January and July next year, the problem will be worse.

Tax changes make it more difficult for drivers to avoid taxes by claiming that they are self employed when they are in reality employees. This too is discouraging drivers from the EU from moving to or staying in the UK since many would now (since April 2021) be paying more tax.

COVID-19

Another contributing factor to the shortage of drivers has been COVID-19 and the government’s response to it. COVID rates are considerably higher in the UK than in most EU countries and, not surprisingly, many EU drivers are afraid to come to the UK.

The pandemic led to fewer HGV driver tests, with 25 000 fewer candidates passing their test in 2020 than in 2019. It takes time to train new drivers and then to test them. However, even if there had been no reduction in HGV drivers passing their tests, there would still be a significant shortage of qualified drivers.

A further problem with the effects of COVID-19 on the economy has been the initial recession and then the bounce back. The sheer size of the bounce back has exacerbated the problem of driver shortages, which otherwise would have been slower to develop, giving the market more time to respond. Real GDP grew by 5.5% from 2021 Q1 to 2021 Q2, giving an annual growth rate of 23.6%. Nevertheless, GDP was still some 3.3% below its 2019 Q3 level.

Pay and working conditions

Working conditions are very poor for many drivers. The following are common complaints:

  • Driving jobs are often very tightly controlled, with computer monitoring and little freedom for the driver. Some cabs have cameras aimed at the drivers so that they can be constantly monitored.
  • Drivers are subject to very stringent health and safety regulations, such as not being allowed to drive longer than a certain time, even when they are queuing in congested traffic. Whilst many of these regulations are desirable to protect both the public’s and the driver’s safety, they can discourage drivers from entering or staying in the industry. And some regulations are hard to justify on safety grounds (see second linked article below, point 13).
  • Just-in-time deliveries at supermarkets, regional distribution centres (warehouses) or factories make timing very important and add considerable stress to drivers who may face abuse if they are late, even though it was not their fault, with their employer perhaps facing a fine. And yet on other occasions they might have to wait a long time to offload if drivers before them have been delayed, and often the conditions in waiting areas are poor with few if any facilities.
  • Drivers often feel a lack of respect from employers, trainers and the general public.
  • Rest and refreshment facilities are often very poor in the UK and generally much worse than in the EU. In the EU, motorway service areas have better parking, toilets, showers and shops. Restaurants are better and cheaper. Dedicated truck stops have supermarkets, laundrettes, showers or even open-air gyms dedicated to making drivers’ lives easier and more pleasant. The UK by contrast often has very poor facilities. Unlike in most EU motorway services, drivers have to pay to park and are faced with poor toilet and eating facilities. ‘Meanwhile, a typical British truck stop is some dusty yard full of potholes on the side of some industrial estate with a portaloo and a “greasy spoon” burger van parked next to it.’
  • Hours are long. Even though driving hours are restricted to 10 hours per day (recently extended to 11 hours), the average working day may be much longer as drivers have to wait at distribution centres, fill in increasing amounts of paperwork and help load or unload their vehicle. Also drivers may have to work variable shifts, which leads to disturbed sleeping patterns.
  • The work is often physically demanding, especially when a large part of the job involves loading and unloading and moving items from the lorry to where the customer wants them.
  • Many vehicles are hard and unpleasant to drive, with leased vehicles often low-spec, dirty, uncomfortable and poorly maintained.
  • Many of the jobs are agency jobs that do not offer stable employment.

Although pay is higher than in some parts of the labour market where there are shortages, such as social care and hospitality, pay per hour is still relatively poor when compared with many industries which have better conditions of employment.

The future

The government is allowing more foreign workers into the UK from this month (October); more training places will be offered for potential drivers and the number of driving tests will increase; the government is also encouraging retired drivers or those who have left driving for other jobs to return to the industry.

However, there are shortages of drivers in other EU countries and so it will be difficult to attract additional drivers to the UK from the EU. What is more, with wages and working conditions remaining poor and the labour market remaining tight in other sectors, it might be hard to fill new training places and encourage workers to return to driving. Also, with the average age of drivers being 55, it is likely that the outflow of workers from driving jobs could be large in the coming years.

Articles

Questions

  1. Why are the supply of and demand for lorry drivers relatively wage inelastic?
  2. Use a marginal productivity diagram to explain the current situation in the market for lorry drivers.
  3. What policy measures could be adopted to increase the supply of lorry drivers? How successful would these be?
  4. Is it ‘rational’ for consumers to ‘panic buy’ fuel and other products in short supply?
  5. Find out why there is a shortage of lorry drivers in the EU. Are any of the explanations similar to those in the UK?
  6. What are the macroeconomic implications of a shortage of lorry drivers and other key workers?

A deal has just been signed between 26 African nations to form a new free trade area, the Tripartite Free Trade Area (TFTA). The countries have a population of 625 million (56% of Africa’s total) and a GDP of $1.6 trillion (63% of Africa’s total). The deal effectively combines three existing free trade areas: the Common Market for Eastern and Southern Africa, the Southern African Development Community and the East African Community.

Although the deal has been signed by the nations’ leaders, it still needs parliamentary approval from each of the countries. It is hoped that this will be achieved by 2017. If it is, it will mark a major step forward in encouraging intra-African trade.

The deal will involve the removal of trade barriers on most goods and lead to a reduction in overall tariffs by more than 50%. The expectation of the leaders is that this will generate $1 trillion worth of economic activity across the 26 countries through a process of trade creation, investment, increased competition and the encouragement of infrastructure development. But given the current poor state of infrastructure and the lack of manufacturing capacity in many of the countries, the agreement will also encourage co-operation to promote co-ordinated industrial and infrastructure development.

Up to now, the development of intra-African trade has been relatively slow because of poor road and rail networks and a high average protection rate – 8.7% on exports to other African countries compared with 2.5% on exports to non-African countries. As a result, intra-African trade currently accounts for just 12% of total African trade. It is hoped that the development of TFTA will result in this rising to over 30%.

Much of the gains will come from economies of scale. As Kenyan academic Calestous Juma says:

“By having larger markets, it signals the possibility of being able to manufacture products at a scale that is cost-effective. For example, where you need large-scale investments like $200m to create a pharmaceutical factory, you couldn’t do that if you were only selling the products in one country.”

The question is whether the agreement signed on the 10 June will lead to the member countries fully taking advantage of the opportunities for trade creation. Agreeing on a deal is one thing; having genuinely free trade and investing in infrastructure and new efficient industries is another.

Videos and audio
African leaders ink trade deal Deutsche Welle (11/6/15)
African leaders sign pact to create ‘Cape to Cairo’ free trade bloc euronews (10/6/15)
Africa Free Trade Analysis BBC Africa, Calestous Juma (9/6/15)

Articles

African Leaders To Sign Free Trade Agreement To Create Common Market International Business Times, Aditya Tejas (10.6.15)
EAC, COMESA and SADC Blocs Ink ‘Historic’ Trade Deal allAfrica, James Karuhanga (11/6/15)
Tripartite Free Trade Area an Opportunity Not a Threat allAfrica, Sindiso Ngwenya (9/6/15)
Africa a step closer to free trade area Business Report (South Africa), Rob Davies (11/6/15)
The Cape to Cairo trade ‘super bloc’ is here; 15 surprising – and shocking – facts on trade within Africa Mail & Guardian (Kenya), Christine Mungai (8/6/15)
The tripartite free trade area agreement in Africa is bound to disappoint Quartz Africa, Hilary Matfess (10/6/15)
Africa creates TFTA – Cape to Cairo free-trade zone BBC News Africa (10/6/15)
Will the Cape to Cairo free-trade zone work? BBC News Africa, Lerato Mbele (10/6/15)
African free trade still some way off BBC News, Matthew Davies (10/6/15)
Zambia not to benefit from Africa’s TFTA Medafrica, Geraldine Boechat (10/6/15)

Questions

  1. Distinguish between a free trade area, a customs union and a common market.
  2. What does the law of comparative advantage imply about the gains from forming a free trade area?
  3. Distinguish between trade creation and trade diversion.
  4. Why is it likely that there will be considerable trade creation from TFTA? Would there be any trade diversion?
  5. Why are small countries with a relatively low level of economic development likely to experience more trade creation than larger, richer ones?
  6. What barriers might remain in trade between the TFTA countries?
  7. Why might smaller, less developed members of TFTA be worried about the removal of trade barriers?
  8. Why might concentrating on developing local capacity, rather than just lowering tariffs, be a more effective way of developing intra-African trade
  9. What ‘informal’ barriers to trade exist in many African countries?
  10. Why is it that ‘Ordinary Africans are most probably not holding their breath’ about the gains from TFTA?

The outbreak of E. Coli has already cost lives, but it is also costing livelihoods of farmers who rely on producing and selling agricultural produce. Immediately following the outbreak in Germany, the blame was put on Spanish producers of cucumbers, which lead to the destruction of tens of thousands of kilos of fresh produce, costing Spain an estimated £177m per week in sales. Although Spain is not the source of the outbreak, the problem has not disappeared and will now affect the whole of Europe: at least until the source is identified. Countries such as Spain, France and Germany are big exporters to Russia and these countries are likely to take a big hit with the Russian health service banning imports of EU vegetables. The impact of this action (together with other countries implementing similar strategies) has not only affected agricultural producers, but is also having wider impacts on other sectors, including transportation. If no-one wants to buy the products, there’s very little use for the companies and indeed drivers to deliver them.

The Spanish economy will be looking for compensation from Germany for the losses they incurred, when sales of fruit and vegetables practically ceased following Germany’s initial accusation. As the Spanish Prime Minister Zapatero said:

“We acted as we had to, and we are going to get reparations and the return of Spanish products to their rightful place. … I believe that any other interpretation or any effort to politicise the huge mistake made by the German authorities is totally unfair.”

The effects of this outbreak have spread to UK supermarkets and producers. The former have reported a slight drop in sales of fruit and vegetables, but have not taken this opportunity to drop the prices paid to British growers, which is particularly important for cucumber producers, given the high production costs. Sarah Pettitt of the National Farmers Union said she was ‘extremely encouraged to hear that the major supermarkets … are not using this unfortunate situation as an excuse to drop prices to British growers.’ In fact some believe that the outbreak could be good for UK producers, as consumers increasingly turn to home-produced products. While the source of the outbreak remains unknown, so does the future of agricultural producers throughout Europe, as well as all those that have any dependence on this huge industry.

E. Coli outbreak: UK cases rise to 11 BBC News (4/6/11)
E coli source hunted as growers fear sales slump Guardian, Robin McKie (4/6/11)
Farmers reel as outbreak hits demand Financial Times, Matt Steinglass and Victor Mallet (3/6/11)
Spain seeks compensation for E. Coli blame BBC News (3/6/11)
E.Coli: Economic impact on the agriculture industry BBC News, Richard Anderson (3/6/11)
Spain says Germany mulls EU aid over cucumber slur Associated Press (3/6/11)
Rose Prince: Cucumbers, diet and Prof Moth Telegraph, Rose Prince (4/6/11)

Questions

  1. Why have cucumber producers been experiencing falling profit margins in recent years?
  2. Could the outbreak of E Coli bring any benefits to the UK economy?
  3. What are the costs and benefits to Russian consumers and producers from the protectionists measures that have been imposed on EU imports of fruit and vegetables?
  4. Which sectors within the European market are likely to experience the biggest problems?
  5. Explain why the Chairman of the National Farmers Union was ‘encouraged to hear that the major supermarkets … are not using this unfortunate situation as an excuse to drop prices to British growers’. Why would supermarkets have an incentive to do this?

The following article from The Economist looks at the role of imports in stimulating economic development in developing countries. It questions the simple perception of many people, not least politicians, that exports are good, but imports are bad. Far from merely being a drain on the balance of payments and a threat to domestic industries, imports can provide both useful competitive pressures and access to intermediate goods.

Opening the floodgates The Economist (7/3/09)
(The paper referred to in The Economist article above)

Questions

  1. How can reducing trade barriers and thereby reducing the price of imports help a developing country?
  2. Consider whether the total removal of trade barriers would be desirable for developing countries.
  3. Explain what is meant by “But the Indian variant of creative destruction seemed unusually benign” and why this was so.
  4. Why has it proved so difficult to secure an international agreement to reduce trade barriers under the Doha trade round?