Sunday, July 23, 2017

Trade: no easy answers


Warning: this post contains detail for grown-ups. Again I find I am having to repeat the same basic points. As you should know by now, Britain cannot stay in the customs union. The customs union is one of the founding frameworks of the EU. It is the amalgamation of all customs rules, practices and tariffs - where all tariff revenues go to the EU under a single customs code. The EU has a Common External Tariff regime which varies according to product types.

Though we cannot stay in the customs union we can have an agreement on customs harmonisation. Tory Brexiteers have it that we cannot make our own trade deals if we have such an agreement. This is only partially true. It prevents us from diverging from the common external tariff rate. That though does not preclude new deals on removing non-tariff barriers, which are more significant.

The reason we would seek a customs agreement is to avoid Rules of Origin (ROO). If we have a zero tariff agreement with the EU but then started to give preferential access to third countries, goods could be re-exported to the EU at a rate less than the EU's own common external tariff. The EU does not allow this so it has a system of rules where exporters have to prove true origin and where there is a disparity a top up tariff must be paid in order to stop us undercutting member states.

This is condemned widely as bureaucratic and protectionist - which it is, and would lead to tariffs being applied to UK car exports - which could kill tens of thousands of jobs. The workaround for this is to unilaterally mirror the EU's rules of origin and to keep our regime of tariffs the same as the EU's. There is then no lawful basis for the EU to apply ROO.

That means any tariff agreements we look at will effectively have to be cleared with Brussels - which will in all likelihood say no. So here we have to do a value assessment as to whether a truly independent customs regime can provide sufficient economic progress so as to offset the loss of the UK automotive sector. Given that tariffs are complex and difficult to remove politically, there is no guarantee of that - therefore an accord must be struck with the EU. That means the Toryboys don't get to tinker with tariffs. Tory "free trade" ideas have no basis in fact.

This does not stop Toryboys bleating about tariffs on coffee but that little nugget of received wisdom is sufficient proof for them to gamble the entire UK automotive and pharmaceuticals sector. They are never going to grow up - nor are they going to crack open any books on the subject any time soon. This is what it means to be a Tory. Why would you crack open a book when you already know everything?

The hard reality of Brexit is that there are no sweeping unilateral measures the UK can take. UK consumption of goods alone is not sufficient to make an impact on global trade thus any issues we seek to resolve will have to be done on a multilateral basis with patience and skill. The process of reaching these such agreements is time consuming, politically contentious and very often sabotaged by the French looking after their former colonial interests. This is why we have to seek a number of allies across a number of sectors outside of the EU. That means we are going to have to find ways of securing goodwill which will be difficult when we don't have the ability to unilaterally open our markets.

This is why international development must be at the core of our trade policy because it is pretty much the only means at our disposal to enhance market access. We have to invest to ensure that LDCs can overcome the regulatory barriers. This is why our aid budget is so critical. It is an arm of our foreign policy.

As mentioned before, we could diverge from the EU regulatory regime but this would have consequences for EU trade as our risk assessment rating increases. This could lead to more costly border inspections - and it's not something we want to do anyway. Now you can bleat til the cows come home that the EU is protectionist - but it is a fact of life and something with which we must contend simply because we are not the trade superpower in this equation.

It would seem that Brexiteers are imbued with the idea that leaving the EU gives us an entirely free hand in trade. That was never likely. The only means of leaving the EU that will give us complete control of regulation and tariffs is to leave unilaterally - which comes at the expense of most of our trade. It is not a good idea.

This does not mean that we don't have considerable freedoms The UK could still negotiate its own trade agreements with other countries on services, investments, e-commerce, food, and agriculture – i.e. on all the areas that the UK disagrees with the rest of the EU - but again, any policy will have to be made with due consideration for its potential impact on existing trade and our general relations with the EU.

What we need to see is effects based trade policy, seeking to resolve political objectives, not least stemming the flow of counterfeit goods and migration. For that to happen we need multilateral solutions and some innovative thinking. One of the chief benefits of leaving the EU is regaining our right of initiative at the top tables - and that is something we can use to our advantage - not having to clear every decision with Brussels.

The short of it is, we have a very limited toolset at our disposal and no free hand in an ever globalised world of trade. It is going to take time to rebuild our trade instincts and we must pick our battles wisely. Brexit most certainly does open up doors - but we should not walk through those doors just because they are open - and we must not deceive ourselves into thinking there are shortcuts. We cannot expect miracles and we can expect no real progress for a decade or more. That is why safeguarding our trade with the EU is a paramount consideration for Article 50 talks. Too much is at stake to gamble it all on Tory free trade fantasies.

5 comments:

Unknown said...

Re paragraphs 3 and 4.
Why would top up tariffs kill UK car exports given that currently we are in EU therefore any importation tariffs apply already?

Pete North said...

They wouldn't be top up tariffs. You'd be paying the full whack because your finished product would not be considered sufficiently British.

Edward Spalton said...

It is a perniciously common fallacy amongst fundamentalist free traders that there is a great big unregulated world out there, just waiting for buccaneering British manufacturers, freed from EU regulation, to selll cut price, sub-standard good to grateful natives. There are unregulated parts of the world where, for instance, thousands of people die each year from fake medicines .

One successful export at present is the TV series " Only Fools and Horses" which is very popular in Momtenegro. When I pointed out to a frantically furious free trader that " Trotters' Independent Trading" was not really a good model for our export trade, he was somewhat peeved.

Anonymous said...

Who the fuck is Pete North? Where is Chris Mountsey? Iwas a LPUK member in 2010. How the world has changed.

Devil's Kitchen said...

I'm still here, Anon. I just don't post so often and, as always, occasionally ask other involved people to post—Pete is one of those...

DK