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A Zero Tariff UK Economy

by John Brian Shannon

Think about it for a second. The thing we call Brexit is being held-up by a tiny item called tariffs. It’s ridiculous. (OK, there are some other things too, but for today let’s talk tariffs)

At the moment, the UK is still a dues-paying member of the European Union and is therefore obligated to charge the same tariffs as any other EU country, and such broad agreement on external tariffs, combined with low or no tariffs between members, or even standardized tariffs between members, is part of what makes up what’s commonly called a Customs Union.

When the UK exits the European Union it’s right to assume that the UK will no longer charge the same tariffs as the EU.

In fact, that difference is part of the problem between the EU and the UK in the post-Brexit timeframe, and businesses near the Republic of Ireland and Northern Ireland border may find themselves affected by this change-up.


How Would a Zero-Tariff UK Economy Work vis-à-vis the European Union post-Brexit?

What if the UK decides to embrace an economy where no tariffs are charged?

There would, of course, be people who complain (on the UK side) about a loss of tariff revenue for UK government budgets, while on the Republic of Ireland (RoI) side, businesses located near the border might worry their customers will drive to Northern Ireland (NI) to save 6.5% worth of tariff value on their purchases.

Which are immensely easy problems to solve!


How to Solve a Disparity in Consumer Prices (Due to Tariffs) Across an Uncontrolled Border

  1. Offer a rebate to Republic of Ireland businesses located within, say, 100 miles (160 kilometres) of the Irish border and such rebates would be equal to the (tariff portion of the) savings RoI consumers would enjoy by shopping in Northern Ireland. In this way, RoI shoppers won’t bother travelling to NI to save (usually about 6.5%) on the price of imported goods and consequently, RoI businesses won’t lose sales to the (then) zero-tariff regime north of the Irish border. We’re talking about small amounts of money on each transaction — but over the course of a year, especially for small ‘Mom and Pop’ businesses in RoI, it could add up and potentially at least, represent a hardship for those business owners. Who will cover the cost of the rebates? The UK, of course. Why would the UK government want to do that? It’s just one more irritation that the UK government can remove from the negotiating table to simplify Brexit. Such rebates might cost the UK government as little as £1 million per year. Of course, it might cost as much as £20 million per year. But, with so much to gain (a quicker and less hairy Brexit) the UK government could afford to pay the Republic of Ireland those rebates a full 10-years in advance at the beginning of each decade.
  2. For businesses in the EU that import from other countries and are required to charge tariffs on behalf of their government — all they need to do after March 29, 2019 is add the UK to the list of countries they must charge tariffs.
  3. For companies that export from the UK in the case where those goods are shipped to the EU or other countries — there’s no hassle with a UK zero-tariff regime because there are no UK tariffs to add to the final price — no matter where those goods land in the EU or wherever in the world they go after that.
  4. The same is true for goods that originate in America (for example) but are shipped through the UK before being shipped on to the EU. Whatever the price of the item from America + zero tariffs added by the UK = landing in the EU with only the taxes or tariffs that originated in America. The UK adds nothing in the way of tariffs, nor takes anything away from those tariffs. It’s called being revenue-neutral.

It’s so easy when you know how!


How Could the UK Recover Lost Tariff Revenue and Pay the Proposed Irish Tariff Rebates?

There would be two costs for the Chancellor of the Exchequer to cover:

One would be the loss of tariff revenue which would represent a large annual cost — and the other would be the relatively small cost of rebates to RoI businesses located within 100 miles (for example) of the Irish border.

a. For as long as the UK has been in the EU Customs Union, consumers have unknowingly paid the cost of tariffs on goods imported from outside the EU. In some cases the tariffs involved are quite low, but in other cases EU countries are required to charge up to 18% tariffs on certain goods coming into the EU28. All EU consumers pay an average of 6.5% more for goods imported from outside the EU due to those EU tariffs. But as soon as the UK leaves the EU Customs Union it would no longer charge EU tariffs and the cost of imported goods in the UK would fall by an average of 6.5%. Which is a good thing, except that the Chancellor of the Exchequer would need to cut spending by that total sterling amount or, add 1% (or less) to the national sales tax to make-up for that lost revenue. Most Britons won’t even see the difference. But if you’re a Briton who buys a lot of imported goods you’ll be slightly better off.
b. If you’re a UK business, it’s one less piece of paperwork you have to deal with and one less revenue stream you must collect on behalf of HM government.
c. If you’re the Chancellor of the Exchequer, you’ll lose millions in tariff revenue, but you’ll gain even more from the (less than) 1% addition to the national sales tax. But even more important, you’ll save millions of pounds in spending to oversee, police, and navigate all that tariff collection. Those tariffs don’t get collected by themselves! Nor does every business remember to forward those tariff revenues to the government on time, etc. Nor will the Chancellor be required to keep abreast of competitor nation tariff structures and constantly adjust tariffs for the UK to remain tariff competitive, nor will the Chancellor be required to notify the WTO about tariff changes. Because, no tariffs!


A Word About the WTO

The World Trade Organization (WTO) is a great organization that was created to ensure countries play fair with each other, especially on tariffs and on the dumping of goods at outrageously low prices, thereby harming the country importing their goods. And if you’re a developing country, you definitely want to be a WTO member as the WTO will protect you from larger, more aggressive countries and their powerful transnational corporations.

However, it makes rules in accordance with its membership wishes and some of those rules may surprise you.

WTO rules do not apply to trading partners that charge tariffs lower than the WTO tariff schedule (which was recently increased to an average of 6.55% on a long list of goods) therefore, trade deals can be done more quickly without WTO tariff regulations to complicate things.

The WTO won’t arbitrate between non-WTO members, nor will it intervene where countries charge tariffs that are lower than the WTO tariff schedule. Nor will it involve itself where two countries have a dispute within a free trade agreement previously agreed by both sides — unless requested by one or both parties to mediate disagreements within that free trade agreement.

In short, countries that don’t charge tariffs have no dealings with the WTO, they owe it nothing, and they have no tariff disputes. (Because they have no tariffs to argue about)


Summary

Many things come together beautifully for the UK were the government to decide to operate a tariff-free economy.

Not only would Brexit be streamlined, the Irish border situation becomes simpler to settle, relatively small rebates can offset any hardships for RoI businesses located close to the Irish border, CEO’s from other countries would appreciate the ease of doing business in the UK, any losses in tariff revenue for HM government can be offset by a (less than) 1% increase in the national sales tax, and free trade agreements become simpler to negotiate.

The UK wouldn’t need to re-apply to become a WTO member, nor would it fall under WTO jurisdiction in trade matters, nor would the UK need to pay annual dues to the WTO.

And imported goods in the UK would become cheaper by an average of 5.5% roughly speaking (dropping the 6.5% average tariff on imported goods + 1% national sales tax increase on all goods = 5.5% cheaper on imported goods) which can help consumers in regards to their discretionary spending.

The government would save millions of pounds sterling annually because it wouldn’t need thousands of workers to work in the Treasury’s tariff section, adjusting tariffs, comparing tariffs, ensuring tariffs are properly implemented, ensuring that tariff revenue is properly submitted to the government by UK business, dealing with the WTO, and handling lawsuits caused by disagreements over which tariff schedule must be applied on a given product. And many more miles of red tape than that, that the UK government could forget about forever.

Just another list of the benefits of Brexit, my friends! Happy weekend!

Brexit Committee says ‘Not Enough Time to Execute Brexit’ by Target Date

by John Brian Shannon

“The Brexit Committee has warned that even under the most optimistic scenario, there may not be enough time to complete all necessary work before the UK is scheduled to leave the EU. The Brexit Committee report also calls for an extension to the exit timetable if a deal has not been finalised.”The Express


What *Have* They Been Doing?

Two years on from the June 2016 Brexit referendum and with almost one more year to go before the stated target date of March 29, 2019 and the Brexit Committee says that “even under the most optimistic scenario, there may not be enough time to complete all the necessary work before the UK is scheduled to leave the EU.”

That’s the definition of ‘Low Ambition‘ right there.

Whether the fault lies in Brussels or at 10 Downing, or even because of the infighting that happens within the Conservative Party itself, governments need to remember that the people have spoken (and quite apart from that) sentiment continues to grow among the UK voting public for the government to ‘just get on with it’.

Even people who voted Remain now think the best thing for the country is for a quick and streamlined Brexit agreement — one that is fair to citizens and industry on both sides of the English Channel.

If two years and nine months isn’t enough time to get it done, what is?

Do the politicians in London and Brussels think they have carte blanche to spend the rest of the decade and part of the next to arrange a suitable Brexit deal? If so, that’s very telling… and not in a good way.

Citizens on both sides of Brexit need to know and industry needs to know what to expect so they can prepare for life after Brexit. And they needed to know a year ago.


How Hard Can it Be?

Most of the existing EU laws will simply continue unchanged following Brexit, therefore, more will stay the same than will change.


FISHERIES

It was originally thought that the UK would be leaving The Common Fisheries Agreement by March 29, 2019, or at the latest, by July 2019.

Therefore the UK had been negotiating with the EU in good faith so they could make some basic decisions about how to manage UK fisheries after Brexit. Micheal Gove is surely an able enough minister to easily handle it, yet, the EU indicated that the Common Fisheries Agreement will remain in place until 2020 and there will be no negotiation about it. And that was the end of that.

Read this important article about UK fisheries policy between March 29, 2019 and January 1, 2021: Brexit: Michael Gove shares fishing industry ‘disappointment’

Actually, the EU might’ve done the UK a favour by sidelining fisheries policy until after Brexit. Imagine that!

As off-putting as that sounds, it dramatically lightens the load of UK government negotiators because it’s one less sector that needs to be debated with EU negotiating teams. All of which should have conspired to put both the UK and EU six months *ahead* of schedule on the Brexit negotiation timeline!

So we can’t blame Brexit delays on Micheal Gove, the Common Fisheries agreement, or the EU for delays to that timeline.


DEFENCE

Both the UK and EU will remain members of NATO post-Brexit and as the UK already operates its own defence infrastructure there isn’t much change expected there.

Apart from arranging the return of any non-NATO-dedicated Royal Air Force jets presently in EU countries, or removing Royal Navy ships from EU waters (unless there by invitation of an EU country or while taking part in a NATO exercise) there isn’t much for Gavin Williamson the Secretary of State for Defence of the United Kingdom to handle for this part of Brexit. A few phone calls before the Brexit date should cover it.

So we can’t blame the lack of progress on Gavin Williamson or his EU defence counterparts for agreements not reached in time for Brexit.


CUSTOMS and SINGLE MARKET

Thus far, the EU seemed to be in denial that the UK was actually leaving the bloc, so quite logically from their point of view; Why would they want to entertain UK negotiations allowing the UK to leave the customs agreement and the EU’s single market architectures?

But now that the UK Parliament have voted in favour of the EU Withdrawal Bill you’d think the EU would accept the UK is leaving the bloc and that it is time to begin crafting an agreement setting the dates and terms to allow Britain to leave both the Customs Union and the Single Market.

But since the Withdrawal Bill passed last week, some in the EU suddenly began saying that negotiations with the UK can’t continue because the UK’s ruling Conservative party is ‘deeply divided’ and that ‘the EU can’t be certain who it is dealing with’ — yet, the UK government easily passed the EU Withdrawal Bill which it said it would do all along.

Full marks here to Prime Minister Theresa May for shepherding this bill through and making it look easy. Brilliant!

Read this important article about: How MP’s voted on the EU withdrawal bill amendments

Until the Withdrawal Bill was signed into law, any Brexit timeline delays were the fault of UK Conservative Party MP’s and the EU bore no particular blame for its lack of enthusiasm regarding the furtherance of Brexit negotiations.

However, now that the bill has been made into law, negotiations must begin in earnest.


FREE TRADE BETWEEN THE UK and THE EU POST-BREXIT

Almost everything that applies to the delays in the customs and single market negotiations (see above) applies here too.

To reiterate: Until the Withdrawal Bill was signed into UK law, delays to the negotiation timeline are to be blamed on the UK side and not on the EU side for the simple reason that until the UK side got serious about Brexit, why would the EU get serious about it?

Fortunately, and better late than never, PM Theresa May got the job done and now things must advance in the interests of industry and citizens on both sides of the Channel.

Not that the UK can suddenly afford to make Brexit ‘the EU’s emergency’ as the UK pursued the Withdrawal Bill in a most leisurely fashion over the past 32 months.

“A lack of planning on your part doesn’t necessarily constitute an emergency on my part.”

Yet because trading arrangements will benefit business on both sides of the Channel things must now move smartly along or delays will hurt business on both sides.

I wouldn’t want to be the German Chancellor or the British Prime Minister (for example) who failed to get a trade agreement ready in time for Brexit, or the leader who failed to make the necessary modifications to their respective departments to allow trade to continue uninterrupted.


IMMIGRATION and FREE MOVEMENT

It looks like this is a non-negotiable for the UK government. Too many British citizens spoke too loudly and too clearly for any UK Prime Minister to dare overrule their wishes.

Each EU citizen wishing to remain in the UK after Brexit will pay a nominal annual fee (about the price of a passport) and will be required to provide an up-to-date address and telephone number for the Home Office. Simple enough.

EU citizens wanting to move to the UK after Brexit will face the same requirements as EU citizens who’ve elected to stay on in Britain.

Non-EU citizens can probably expect about the same, although emigrating to the UK *after* Brexit will be much easier if you’re an EU citizen or Commonwealth citizen.


Now that the EU Withdrawal Bill Has Finally Passed It’s Time to Lift Those Anchors!

For industry, change is always negative but still doable. But late changes are lethal to business on both sides.

And UK leaders and EU27 leaders must remember that!

Industry needs clear and timely regulations (with a long lead time) that must rank higher than the ideological differences between the heads of European states (including the UK) higher than the (occasional) personality conflicts between politicians, and must always rank above the partisan politics within a country.

From the day the Withdrawal Bill was finally signed into law, every day must now count, be counted, and be accountable — or the UK and the EU27 will be racing with ‘their anchors still in the water’ against every other ‘ship of state’ in the world.

And that’s not how you win races, whether nautical or economic.

Streamlining Towards Brexit

by John Brian Shannon

Time is running down on the Brexit clock (399 days and counting!) and the default path seems the only way that will allow a smooth and orderly Brexit in any sort of timeframe that could be construed as reasonable to British voters.

If the UK government chooses to simply photocopy existing EU trade regulations and then change those laws incrementally over a period of years, the UK should rightly expect to be invited by the European Union to continue their mutually beneficial trade relationship.

After all, how could the EU possibly be upset that the UK will voluntarily continue to follow European Union trade regulations in the pre-Brexit period?

However, this implies that until Brexit actually occurs, the UK will be obligated to consult with the EU on every incremental change made on those photocopied laws and regulations from now until the UK officially leaves the European Union on March 29, 2019. It’s not about polite diplomatic behavior, it’s about pragmatic self-interest.

The UK must begin today to re-prove that it intends — in all cases — to be a fair and reliable trading partner with the EU, and other countries are sure to be watching as this process unfolds. No amount of effort can be spared in this regard, because as so goes the UK trading relationship with the EU, so it will go between Britain and every other country in the world, after Brexit.


Trade After Brexit

Once March 29, 2019 has passed and the UK has officially left the European Union there will be no longer be any requirement for lengthy consultations with the EU on changes to British trade laws or regulations far in advance of them coming into effect.

That doesn’t mean that the UK shouldn’t continue to consult with the EU, it means that it doesn’t need to consult with the EU during the entire policy formation period. But once UK policy has been decided, the EU should continue to be the first to know about pending changes due to the bloc’s importance to the British economy.

As above, no effort should be spared in showing the EU every possible courtesy on even the most incremental of trade policy adjustments under consideration in the pre-Brexit timeframe.

And in the post-Brexit timeframe, a high level of communication and consultation must continue to define the relationship between the two sides.


Customs Law After Brexit

Unlike trade, the present customs union will end the day after Brexit which will be a very positive thing for the UK. After Brexit, the UK alone will be fully in charge of who can and can’t enter the country, and it should mount a Herculean effort now to identify and locate every single foreigner in the country, matching them to their home and workplace (or school) address.

Every non-British born resident in the country should be required to pay 100 pounds sterling per year, and also be required to provide their updated home and work/school address as often as it changes, no matter which country they originally hailed from. It’s the 21st century(!) all of this can be done on a UK.gov webform in less than 10 minutes per year.

Especially for those foreigners living in the United Kingdom anytime prior to Brexit day, the UK government should make the entire process as streamlined as possible.


Commonwealth Nations in the post-Brexit Timeframe

As the UK returns to its Commonwealth roots, immigration to the UK should thenceforth be sourced from Commonwealth nations.

Of course, there will always be a number of immigrants from the EU, America, and other countries. But as much as possible, the focus should be on the ‘all for one and one for all’ approach of Commonwealth nations — and one great way to keep that viable is by sourcing 2/3rds of the UK’s immigration requirements from the Commonwealth.


In addition, the UK should continue to spend .7 per cent of GDP on foreign aid — but spend it in Commonwealth nations exclusively.

This means that the British government must find other nations to take over its existing foreign aid commitments in non-Commonwealth nations so that Britain can concentrate on building a better Commonwealth.

Done right, every pound sterling spent in Commonwealth foreign aid should return a minimum of two pounds sterling to the UK, as a rising tide in a finite environment like the Commonwealth will lift all boats, which is quite unlike spending that same amount of foreign aid in the wider world.

One example of how Britain could benefit in the post-Brexit timeframe with a policy that favours Commonwealth nations is that UK universities, colleges and trade schools should see a vast increase in enrollment from the 2 billion citizens of Commonwealth nations.


Time is Tight

Although Brexit once seemed far-off, time is getting a little tight. Much needs to be accomplished in the remaining 399 days until Brexit.

The best way to do that is to harmonize UK trade law with EU trade law and then make incremental changes over time. That’s how not to lose.

How to win is to engage with Commonwealth nations as never before in ways that work to benefit both the United Kingdom and every Commonwealth member nation.

Keeping our EU friendships healthy on the one hand while updating our Commonwealth friendships for the 21st century on the other hand, is irrevocably in Britain’s best interests, thereby creating a new paradigm that will allow the UK to work to its strengths over the next 100 years.