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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. The term for that is revenue-neutral tariffs.

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 & Customs Union – The New Brexit Deal?

by John Brian Shannon

UK Prime Minister Theresa May continues to reach out to the EU in order to obtain a workable Brexit deal for both sides. As of today, she’s planning to offer a Brexit deal whereby the UK would stay in a Customs Union with the EU for a specified time in order to give negotiators the time they need to iron out their differences on the Northern Ireland question and other Brexit matters.

Some genuinely admire Ms. May’s efforts in this regard but wonder if she has spent too much time and effort ‘pitching’ to the EU without getting anything in return. It seems for all her good intentions all the EU side says is, ‘No’, ‘No’, and more ‘No’.

Indeed, that’s all they’ve been doing — the more Theresa May offers, the more the EU wants!

And unless the EU side suddenly gets more reasonable it’s going to end badly for both sides.


Is Brexit + a Time-Limited Customs Union Agreement Brexit In Name Only?

For hardline Brexiteers, such a capitulation (for that is how they will surely see it) would be considered a so-called BRINO (a Brexit In Name Only) and is worth much less to them than a so-called Hard Brexit where the UK would leave without the benefit of an agreement with the EU and the UK would be free to embark on any path it chooses.

The EU’s intransigence feeds this feeling among Brexiteers and it seems to be catching-on with moderates in recent weeks.

But there are positives to such a Customs Union plan.

It’s worth noting at this point that negotiators on both sides have been working to create a workable Brexit deal for 2-years and 4-months and have precious little to show for it. The combined total successes are zero and the European default to ‘Low Ambition’ is on full display. Yes, very European.

Yet, responsible leaders continue to throw themselves into finding a Brexit plan that works for both sides. For which they get nothing but abuse and insults on both sides of the English Channel. Shameful.

In the end, obtaining a Brexit deal that results in the least amount of disruption to both economies is the best outcome. And if that means the UK continues on in a Customs Union with the EU for 2-years to give negotiators the time to arrange a suitable Brexit deal — one that includes a proper Northern Ireland agreement — it’s worth the effort.

In the case of failure to reach an agreement for Northern Ireland and other Brexit issues, then a Hard Brexit would remain the only option.

But at least the UK will have put its best effort into obtaining a workable Brexit and any blame for that failure will fall squarely on the European Union as the facts will show Theresa May has been working diligently on the Brexit file through her entire Premiership and has been bending over backwards to find a suitable deal over the past 2-years, while the EU side has been cross with Ms. May for having the temerity to listen to UK voters.


If May Presents a Time-Limited Customs Union Plan, MP’s Should Support It

As they say here in North America, if you give the Europeans a week they’ll take a year and still be a few days late, just on principle.

The same holds true with negotiations: Look at the CETA deal that Canada and the EU negotiated. SEVEN YEARS! (And it’s still not fully implemented)

If the Canadian government had allowed it to go on and on it might have been 2025 by the time it was ready to sign. It seems someone on the Canadian side got a little bossy with the Europeans. Thank you Chrystia Freeland! (Canada’s excellent Foreign Minister) Eight years on, CETA is only partially implemented and none of the EU27 have ratified it. Historic Low Ambition!

Under no circumstances should a UK government ever enter into non-time-limited negotiations with any party, especially with the European Union.

You see what Theresa May is up against?

If there isn’t a strict time limit, the wheeling and dealing will go on forever. And with Theresa May’s well-intentioned but naive personality if it isn’t strictly time limited, by 2025 she will have negotiated away every bit of UK territory, wealth, and rights to the EU — which still won’t be enough for the EU side.

And if that is true, what is the benefit of dragging out negotiations over many years when putting them on a strict timetable will either timeforce an agreement on both parties or allow the UK to get on with creating a better future for Britons free of EU constraints.


Related Article:

  • May agrees to curbs on trade to break Brexit deadlock (The Times)

Theresa May + Customs Union = Conservative Coup?

by John Brian Shannon

While UK Prime Minister Theresa May continues to take the path of least resistance towards Brexit (all the while courting and fawning over EU politicians) Conservative backbenchers are said to be considering their chances of staging a coup against her leadership.

At this point, such a coup attempt would fail and leave Brexit forces in a much weaker position than they’re presently in. Considering they have the will of the people behind them and formalized via the June 2016 referendum result(!) Brexiteers haven’t begun to come close to working their movement to its full and proper potential.

But it’s not only May’s path of least resistance approach that’s raised the ire of the Tory caucus, it now appears PM May is trying to appease both Philip Hammond and the EU by suggesting Britain continue as a member of the existing customs union, or that it should become part of a new customs union.

All of which has conspired to convince Conservative backbenchers that Theresa May might be dithering on her promise of delivering a full Brexit.

“Brexit means Brexit” will have turned into “Brexit Means Half-a-Brexit” if Brexiteers can’t organize and morph into a cogent group with a clear leader — complete with a de facto shadow cabinet within the Conservative caucus ready (ostensibly) to take the reins of power at a moment’s notice.

And most importantly (seeing as Theresa May and Philip Hammond aren’t doing it) to speak out and to sell the many benefits of independence from the EU to people of all political stripes, ipso facto chiding the government for not doing so.


Do we have the wrong Prime Minister for Brexit? Is the task too big for her?

Or is it that Brexiteers, still at this late date, are a poorly organized group of patriots that haven’t gelled together to become a force majeur in British politics — and are therefore unable to take their rightful place as a powerful political bloc that truly represents the will of the people?

Every poll these days reports the collective will of the British people is to get a Brexit deal signed and get on with creating a better future for families, UK companies and the country as a whole. Even those who voted to Remain now agree that Brexit must be completed as soon as possible.

It’s universally agreed that political uncertainty is the enemy of economic progress and that industries need clear regulations in order to thrive. That truism is almost as important as ensuring the democratic will of the people is upheld by the government.


A Weak Brexit Lobby Will Cause a Weak Brexit

Brexiteers should stop blaming Theresa May for being a weak leader and become part of the solution instead of part of the problem!

After creating a nominal shadow cabinet within the Tory caucus, the Brexit faction should be hitting every talk show, every town hall meeting, every photo op and every possible event in order to showcase all that Britain can and should be post-Brexit because if it appears that Brexiteers aren’t enthused about Brexit, why should anyone else be enthused?

Let’s see some easy-to-grasp charts, let’s see some future projections based on best practices, let’s see some side-by-side GDP and per capita income comparisons between staying in the EU vs. leaving the EU. Let’s also see what the £8.6 billion (net) annual savings can do for the UK budget, for NHS funding, for transportation improvements, and so much more!

I strongly suspect that Theresa May is merely reflecting the views of the loudest faction within the Conservative Party (which at this point are the Remainers) and I further suspect that if there isn’t a cogent, united and highly visible faction within the Conservative Party supporting the Brexit viewpoint, Britons are on track for a weak and wobbly EU exit.

My heartfelt advice to all Brexiteers, especially MP’s and MEP’s is to ‘use it or lose it’ because if they don’t, Britons will receive a Brexit in name only.

The ball is in your court, Brexiteers!