The definition of insanity

Tom Forth,

The ASI thinks that the EU is insane. Why? Because an EU citizen can’t drive a rented car from Switzerland to the EU.

Usually stories like this are Euromyths – “bans” on pounds and ounces and large bunches of bananas spring to mind – but this one is true.

If you’re an EU citizen and you rent a car in Switzerland your rental company will ask you if you intend to take it outside of Switzerland. If you say yes they will make sure that you are given an EU-registered car. If you say no they might give you a Swiss-registered car.

But what if there’s a mistake or you accidentally cross a border while driving? Almost certainly nothing. Switzerland is in Schengen so there’s no physical border and Swiss-registered cars are absolutely fine to be driven in the EU. You’re not going to be stopped.

But let me be clear, it is against the law for an EU citizen to drive a Swiss-registered car in the EU.

Is this insane?

The first hint I got that this law might not be insane came from Canada. Just like in the EU it seems that a native citizen cannot legally bring a foreign-registered hire car into the country.

 

And then I found out about Mexico. Since 2012 Mexican residents have been unable to import a foreign-plated car, even if it is a hire car.

 

What’s going on?

So it seems that by the ASI’s definition the EU is insane, Canada is insane, and Mexico is insane. I suspect that if we looked a bit harder we’d find that more and more countries are insane.

Is everyone insane except the ASI?

I don’t think so. Instead I think the ASI need to re-read the works of the great economists. Adam Smith once wrote about retaliatory tariffs, conceding that they might be a good policy as long as there was hope that the parties involved would work together to reduce tariffs in the future. That test is definitely being met because as we speak the EU is negotiating a trade deal with the US. TTIP would remove most of the the tariffs and non-tariff barriers that reduce trade between the EU and the USA.

But until we have TTIP the EU and the USA will continue to apply retaliatory tariffs on a huge number of things, including cars. And in order to enforce those tariffs, and to bring about a trade deal in line with Adam Smith’s thinking, the EU has to do some things that might look insane. Let me explain.

 

A Fiat 500

Let’s imagine a small car that costs about £10000 and weighs about 1000kg. I hired one recently, so that’s why I’m imagining that. And now let’s imagine importing it to the EU, or to Switzerland, from the USA.

The EU has a value-based tariff against US cars. The Swiss have a weight-based tariff system against US cars. For our imaginary car we see that the Swiss Tariffs are much lower than the EU tariffs.

So here’s why the EU’s rule isn’t insane. It’s been designed very deliberately to achieve a very sensible goal. It’s designed to stop a Swiss hire car company from buying their whole fleet from the USA and then renting it to EU citizens. By dodging the EU’s retaliatory tariff this practice could, according to no less an economist than Adam Smith, reduce the chances of freer trade between the USA and the EU.

 

The EU isn't insane. It is promoting free trade.

 

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