So, rail manufacturer Bombardier's Derby plant is set to lose half its workfrce, a thousand jobs, because the government chose to award the £3bn contract for the new Thameslink trains in 2015 to Siemens.

Though Bombardier is headquartered in Canada, it would have built the carriages in the UK. Siemens, with some modest UK outsourcing, will now be making the carriages in Germany.

With an empty order book after a London underground contract has been completed, the last UK-based rail manufacturer's future is now uncertain, and many British subcontractors are set to lose business too.

The whole decision comes at a very odd time. After all, the consistent line coming out of government has been that British manufacturing has to be supported as much as possible. It certainly needs some kind of boost. The country last month fell to 10th place in the global national manufacturing rank, behind even South Korea.

Two years ago to was sixth. Yet. as Labour politician Peter Mandelson said in the wake of the financial crisis which ruined the dream of a merchant banking driven economy, the UK must have more real engineering and less financial engineering, We know the coalition agrees. So how come the failure to favour Bombardier?

Officially. the reason is the government does not have a choice. The UK is constrained by EU public procurement rules that require all public sector contracts issued by local authorities, central government and utilities of £100,000 or more for services and supplies, or £4 million or more for works, to be advertised throughout Europe. (In the EU's Official Journal.) The Thameslink train upgrade tenders falls under these rules. Siemens won because it offered a cheaper contract. Furthermore, discrimination on national grounds in the awarding of contracts is prohibited.

Yet that is not quite the whole story. Open EU tendering is practised in the spirit of the original law consistently only by the EU's small crew of committed free traders, in London and Stockholm and maybe Dublin. In practice, according to the Woods Report for the UK government published a few years ago, there is a lot of favouritism on the continent to ensure domestic producers get picked in a way that the rules don't blatantly appear to be circumvented. In reality, they are backing their own.

The Woods Report mentions numerous examples, designed to exclude foreign companies from havig a realistic chance of winning public procurement contracts in countries like Spain, Germany and, above all, France. Tenders are written precisely so that only a domestic contractor can fulfil it. Contracts are sliced up into parts so that each slice falls below the minimum required for compulsory international tendering.

And when all else fails, there is a loophole paragraph that states the final choice does not have to be on most competitive price alone, but on best value, an amorphous concept which allows domestic bidders to be favoured on aesthetic, environmental or social factors. On top of all this, some countries give two ot three times more state aid to their firms than the UK does, obviously distorting competition.

The result is that the single market in procurement is often a bit of chimera, with countries often supporting home industries as much as they can, with the exception of Britain and some of the Scandinavian countries. Have you ever seen French cops driving Range Rovers? Thought not. But domestic favouritism hasn't harmed the countries that practise it.

With strong domestic manufacturers, with a whole gamut of functioning local suppliers, these manufacturers have an excellent compact home base from which to expand into other countries which have opened their markets. (While their own markets remain effectively shut.) Many British businessmen quoted in the Woods report talk, with understatement, of an uneven playing field.

So what next? With a little imagination, saving the British workers could surely come under the social consideration loophole that would allow the government to support British manufacturing without contravening EU law. Business secretary Vince Cable has now written to David Cameron gently suggesting a more nuanced, less obviously price driven approach to public procurement, so we will see what happens.

However, it must be emphasized that this is not just a story about dodgy foreigners against the upstanding but duped Brits. Underlying the European commission's rules on open procurement - much pushed by the Brits, at the time - may be a romantic, ideological, in fact unsustainable, faith in the 200-year-old ideas of the economist David Ricardo.

As economist Ian Fletcher and others have argued, the idea of open markets always leading to win-win situations for everyone simply does not apply in the 21st century. Fletcher's essay brilliantly explains why. Open borders and allowing each counttry to find their area of "comparative advantage" while allowing its uncompetitive industries to go to the wall benefits not both sides equally - as Ricardo claimed - but the stronger party.

"All open markets are good" is simplistic and short termist. Retaining a skills base is much more important than short term price benefits of buying cheaply from a foreign competitor. The Germans and French have always been lukewarm about frree trade fundamentalism and rightly so. It's probably time the British felt the same.

-------------------------
Pelle Neroth -- EU correspondent

Edited: 28 June 2012 at 05:30 PM by View from Brussels Moderator