Richard North, 29/10/2016  
 


Rather oddly, while most of the newspapers on Friday carried front-page headlines on the Nissan announcement, the Daily Telegraph decided to break ranks and feature the words of Lord Bamford, chairman of JCB, telling us that the UK was better off outside the Single Market.

This was based on the rare intervention of the back-bench Peer (only three times in just over two years) in the House of Lords, where he dismissed the importance of tariffs and import duties. If it came to it, these were "simply part and parcel of doing business with Europe". They were not a concern or a threat to British business, unlike currency fluctuations. He said. "A weakening deutschmark against the pound could do a lot more damage than any tariff or import duty".

His greater concern was that, even with zero tariffs across the EU, we still did not operate on a level playing field. For example, Bamford said, "my company sells farm tractors into the Single Market, so there are zero tariffs, no import duties and, supposedly, no barriers to trade, in an EU without borders".

But, he said, farm tractors must comply with at least 10 individual - and different - pieces of national road legislation, at great cost to my business, in the likes of Germany, Italy, and certain other EU markets. So there are hidden barriers. This is just one example of many in my industry that proves that the single market has not created a level playing field.

Before going any further, one has to say that Bamford is being a tad disingenuous here. His company does not produce ordinary tractors, but is famous for creating the Fastrac, a fast tractor capable of speeds of 40kph or higher.

The machine blurs the division between agriculture and road haulage, and has sent regulators throughout the Continent into a tiz. As JCB continues to push both technical and regulatory boundaries, even to this day this is causing problems, not only in Europe but also in the United States.

This exceptional situation, created by an exceptional machine, can hardly justify a broad condemnation of the Single Market, especially as the European Commission recognises that where tractors are not covered by current legislation, braking requirements differ from one Member State to another.

As to other issues relating to his products, Lord Bamford and other JCB spokespersons have been remarkably unspecific. Other than the travails over the Fastrac, the company has not offered any other examples of "EU red tape", preferring to complain more generally about "employment regulation" and other generic concerns.

When it comes to obeying EU rules in general, however, JCB has in the past demonstrated a certain "flexibility", ending up in December 2000 having been fined €39.6 million by the European Commission for "unlawful distribution agreements and practices". The fine centred on JCB's strategy of preventing consumers in one EU country buying its machinery more cheaply from an authorised dealer in another EU country.

Commenting on the decision at the time, Competition Commissioner Mario Monti said: "It is shocking that important companies present in all Member States still jeopardise the most fundamental principles of the internal market to the detriment of distributors and, ultimately, consumers".

Small wonder, therefore, that Lord Bamford - who has been boss of firm since 1975 - has less than warm feelings about the Single Market. But, for JCB, Europe has been a tough market to crack. Although the company has about 45 percent of the combined backhoe loader market, its share has remained stable for the last 25 years.

Unsurprisingly, therefore, he was telling their Lordships last Thursday that: "We need the Government to secure an exit deal that is in Britain's best interests - one that will allow us to become a truly global trading nation". This actually reflects JCB's own market strategy, with the company having invested heavily in the emerging BRICs markets.

In addition to its North American manufacturing facility, which makes the entire 18-strong range of skid steer and compact track loaders, the company has recently built major new factories in Brazil, India and China. On the other hand, it has reduced its manufacturing in mainland Europe, and has only invested relatively small amount on a new European headquarters in Germany.

Initially, the investment started to pay off, with buoyant revenues from emerging markets. In 2012, the company was reporting record sales and profits. But last year profits were declining, as sales in these new markets stalled. Profits declined by 29 percent and the company was forced to announce it was cutting back its UK workforce by six percent.

The only thing preventing a more dismal performance was a boost in sales in the UK, fuelled by the construction boom which lifted sales by 50 percent. Now, JCBs are coming home to roost. In 1980, 96 percent of a JCB digger had been made in Britain. In 2010, it was just 36 percent. And, with so much manufacturing having been offshored, the company is having to import machines and components from its overseas (non-EU) companies.

Perversely, third country import tariffs for construction machinery are zero, although this is small compensation. The company is now looking for its expansion in the mature fork-lift market, where duties of 4.5 percent are levied on finished machines, with four percent imposed on parts.

"If tariffs are the price we have to pay to leave the EU, so be it", said Bamford to the Lords, but what he did not say was that, if the UK stood outside the Single Market, it would cost some of his competitors more to import into Britain, levelling the playing field for his business.

Small wonder, Lord Bamford is a generous donor to the raft of London think-tanks which opposed continued participation in the Single Market, and gave Vote Leave £100,000 to promote a Brexit without the Single Market.

For sure, the 4-4.5 percent tariffs could apply to certain types of UK-built machinery sold to the EU, but similar tariffs would be levied on equivalent products imported into the UK from EU countries. On this basis, Bamford says: "British businesspeople are very adaptable. They adjust very quickly to changes in the trading environment, so rest assured they would take tariffs in their stride".

UK tariffs would certainly help keep the giant Volvo at bay, with more than twice the market share of JCB. And, when it also stands to make marginal gains from leaving the Single Market, JCB is bound to be "very adaptable". Furthermore, with its extensive interests in the emerging markets, it might also benefit from the UK's freedom to make trade deals with the rest of the world.

Thus, it comes as no surprise that its chairman is so happy to say that, "If tariffs are the price that we have to pay to secure free trade agreements with the rest of the world, I think it is a price worth paying". Of course Lord Bamford is happy. It's a price his competitors will be paying.






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