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Post-Brexit: Building a License-Based UK Manufacturing Sector

by John Brian Shannon

One of the great things about Brexit will be the opportunity for the UK to sign trade deals with any country in the world and some of those trade deals may be quite innovative in nature. Novel trade opportunities shouldn’t be discounted simply because no one has ever done them, but such deals should be judged on their own merits.

In the age of the 3D-printing technology for example, there’s no reason why a company in America can’t electronically transmit code to a 3D-printer in the UK, allowing the UK company to manufacture the item there. Of course, this means paying a license fee to the American company, but think of the convenience for that UK manufacturer! Not to mention instant access to the item for the UK customer, and it means jobs at both ends of the equation. If you’re concerned about the CO2 emissions involved in shipping something from America to the UK, you’ll appreciate that transmitting a few hundred lines of computer code creates only a fractional amount of CO2.

Even better, is the case for cars and trucks to be built in the UK under license from American automakers.

For example, Ford Motor Company may choose to sell millions of automobile VIN numbers (basically, the serial number of each car or truck) and the complete instruction set for building and assembling each car or truck, to a UK company that specializes in building Ford vehicles. The UK company would pay a per-vehicle license fee to Ford Motor Company U.S.A. and agree to maintain the same high manufacturing standards of the American automaker and it would be required by Ford U.S.A. to adhere to the same warranty terms and conditions.

But still! Think of the CO2 savings, think of the jobs created in the UK, think about the UK building all Ford cars and trucks in the UK for the domestic market and exporting millions of those built-under-license vehicles to Commonwealth countries that have right-hand drive cars. That market, the right-hand drive car and truck market in the Commonwealth of Nations, would become the UK’s ‘beat’ and Ford would grant exclusive rights to the UK company to sell millions of Ford cars and trucks throughout the entire Commonwealth. (Note: Canada drives left-hand drive cars like the U.S., so Canadian cars would continue to be produced in the NAFTA countries)

So far, I’ve only talked about Ford vehicles. But what if it was all vehicles?

What if all American, Japanese, Korean and EU car manufacturers decided to make the same amount of profit per car as they do now, but only needed to sell a VIN number and the ‘vehicle blueprint’/computer code for each car to a UK manufacturer in order to do so? Ergo, all right-hand drive cars destined for UK and Commonwealth customers would be built in the UK and exported, where necessary, from Bristol.

What if it was more than cars and trucks?

What if Airbus, Boeing and Lockheed Martin sold per unit license fees to UK manufacturers, along with Bombardier and Embraer? What if Caterpillar heavy equipment and Toshiba and Hyundai Heavy Industries sold per unit license fees to UK companies? Yes, those companies would earn the same profit per unit as they do now — by selling only the license fee and VIN number and the technical aspects to the UK company — which, in turn, would manufacture those units within the UK and offer them for sale in the UK and to Commonwealth of Nations countries exclusively.

I’m still not done! What if everything sold in the UK was manufactured in the UK? How many jobs would that create?

What if you wanted a right-hand drive Mercedes CLA 250 4MATIC coupe? And what if you could simply order it from Mercedes online, and the Mercedes Benz approved manufacturer would fly you from anywhere in the UK to the factory in Bristol to pick up your new car, right off the assembly line. Some people might like to arrive a day early to watch their own car being built to their own option specifications. Then, you could take a nice leisurely drive home in your brand new car and not have to pay £2000 in shipping costs to get the car delivered from Germany, as is the case now.

What if you wanted an ACER computer, or a Lazy-Boy brand reclining chair? What if you wanted a Texas A&M hoodie for walks with your dog in cool weather? Get one for the dog too, is my advice, you’ll look great together! Or, what if you wanted the latest Italian cookware? Now, what if you could simply buy what you wanted, but it was manufactured in the UK under license from the original manufacturer, and in so doing, you received it sooner, with lower shipping costs, and far lower CO2 emissions — compared to the item being manufactured overseas and then shipped to the UK?

And what about companies in the UK making those items (and many more!) for Commonwealth of Nations consumers — which will number 2.5 billion by 2022?

Great for exports and great for those countries! Why? Well, assuming the UK government doesn’t blow this once-in-a-lifetime opportunity, there won’t be enough labourers in the UK to build all those cars, trucks, forklifts, computers, furniture, t-shirts, medical instruments, dishwashers, etc., etc., etc., and the UK will need to import Commonwealth workers to keep up with demand. Which itself, will help Commonwealth nations improve their per capita, disposable income — meaning, they’ll have more opportunity to afford such items.

Yes, via the UK hiring Commonwealth workers for UK assembly plants, people from Commonwealth nations will then have more money to spend on UK-manufactured goods, goods that might well be assembled by their very own children who work in the UK during their gap year between high school and university. Even mature workers from Commonwealth nations should be able to gain a UK work visa for one-year, to earn some British sterling, thereby advancing their own family finances, and find themselves better able to purchase a UK manufactured car or other item once they return home.

Just because it hasn’t been done before, doesn’t mean it can’t be done.

Just look at what JFK did… he promised America would put a man on the Moon by the end of the decade, and he succeeded in that. Nobody else was doing it, but that didn’t mean it couldn’t be done.

All the UK needs now is for a JFK-like leader (either in UK politics or a captain of industry) to do what nobody else is doing and make this thing fly. Many will say it can’t be done, but I don’t believe it for a second. Only mediocre people say things can’t be done.

So, stop talking about it, and get it done!

Because if you think you can dither and delay for 3.5 years like you did with Brexit, don’t bother trying, as you’ll soon find that every country in the world has beaten you to the punch and it will no longer be worth doing.


It Couldn’t Be Done

by Edgar Albert Guest

Somebody said that it couldn’t be done
But he with a chuckle replied
That “maybe it couldn’t,” but he would be one
Who wouldn’t say so till he’d tried.

So he buckled right in with the trace of a grin
On his face. If he worried he hid it.
He started to sing as he tackled the thing
That couldn’t be done, and he did it!

Somebody scoffed: “Oh, you’ll never do that;
At least no one ever has done it;”
But he took off his coat and he took off his hat
And the first thing we knew he’d begun it.

With a lift of his chin and a bit of a grin,
Without any doubting or quiddit,
He started to sing as he tackled the thing
That couldn’t be done, and he did it.

There are thousands to tell you it cannot be done,
There are thousands to prophesy failure,
There are thousands to point out to you one by one,
The dangers that wait to assail you.

But just buckle in with a bit of a grin,
Just take off your coat and get to it;
Just start in to sing as you tackle the thing
That “cannot be done,” and you’ll do it!

                          ###


And this is the attitude sorely lacking in recent generations. In my generation (yes, I know what that sounds like) our generation arrived at the best plan and got right to it.

We left our egos at the door, we left our personal lives at home, and we got the job done on-time and on-budget — or we were judged by our peers to be ‘not worth spit’.

And while that modality may seem harsh to some, it’s the best way to build a rocketing middle class economy, it’s the best way to create a thriving family lifestyle, and it’s the best way to stay ahead of our competitors who aren’t in the business of working for our best interests.

‘All for one and one for all, must henceforth be Britain’s clarion call’ if post-Brexit Britain is to succeed!

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!

Is Growth Possible in a Brexit Economy?

by John Brian Shannon

“KPMG predicts economic growth of 1.4 per cent next year, but cuts this to 0.6 per cent if Britain leaves the EU without a deal.”The Times

While some firms predict slower than normal growth for the UK economy in the post-Brexit timeframe, it’s always good to reflect on the assumptions that forecasters employ in creating their reports and why such forecasts can cause more harm than good.

  1. If you tell your employees that, ‘the chips are down, the economy is sinking, and corporate belt-tightening isn’t far off’ they are likely to respond in a negative way. Some may look for other employment, some will opt for early retirement, while others spend more time in the staff room talking with their coworkers about their employment concerns than getting their work done. Which means such reports can actually cause the negative outcome they’re warning about. It’s human nature to perform to a predicted level instead of trying to exceed expectations. There are few exceptions to this behavior and they are called names like; Olympic athlete, Pulitzer Prize Winner, President, or Astronaut who have the innate ability to ‘power through’ the negative times without losing momentum.
  2. Such reports deal with known inputs only. For example, a zero-tariff trade deal with the Americans may seem far off today, but by 2020 it may already be signed. And not only the U.S., other political and trade blocs are likely to sign trade deals with the UK following Brexit. The AU (Africa), MERCOSUR (the South American trade bloc), the Pacific Alliance (several Pacific nations), the CPTPP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) nations, ASEAN (the Association of Southeast Asian Nations), The Commonwealth (Commonwealth of Nations), and China, are likely to expand their trade links with the UK after it departs the European Union. America and those seven trading areas will have a combined total of 7.0 billion people by 2020. That’s a lot of potential consumers, and the massive opportunities presented by signing zero-tariff trade deals post-Brexit are absent in most economic projections by design. Even if the UK were to sign only one free trade deal (with the U.S., for example) it could improve UK growth by a full 2 per cent or more. Presto! A shiny new UK economy!
  3. “Now we’ve got them!” While economic forecasting provides vital information for policymakers, Brexit negotiators aren’t helped by the news that growth will slow even in the face of a ‘good Brexit deal’ and will slow moreso in a ‘no Brexit deal’ scenario. It’s the kind of report that makes Michel Barnier’s day! KPMG is certainly one of the most respected firms around, but if you’re a Brexiteer and a report like this has been released to the public instead of it remaining in the hands of policymakers it plays with your mind; “Are they working for the UK’s best interests or are they working for the EU’s best interests?” (and) “Who commissioned (who paid for) this report and what parameters were used?”

So, while the good people of KPMG do their best to provide policymakers with the best near-term assessment of the UK economy, making such reports public can actually cause the negative things to occur about which the report warns.

That’s why policymakers everywhere must be ahead of the curve and treat all such documents as ‘the worst-case scenario’ without exception.

Now that UK Prime Minister Theresa May has been reliably informed that the worst the UK can do is 0.6 per cent growth between now and 2020, it should be an easy matter to arrange a number of free trade deals and blow the doors off that projection by 3 or 4 per cent by 2020.

Looking at this in the proper context means accepting that exiting the European Union is merely a necessary stepping stone to get the UK to 4 per cent growth by 2020 — which should result in Theresa May keeping the PM’s chair for at least one more term and with all past ‘political sins’ forgiven.

Not a bad deal Theresa, if you’re up for it! 🙂