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The Case for an Incremental WTO-Style Brexit

by John Brian Shannon

Some 1013-days ago the British people voted to Leave the European Union, and 990-days ago Theresa May became Prime Minister of the UK with a promise to deliver Brexit for the British people. Pretty straightforward, so far. Right?

Ahem, yes, well; “That was then, and this is now,” you say.

Almost 3-years on from the UK referendum to Leave the EU; The UK is in turmoil, another UK civil war isn’t out of the question, British MP’s couldn’t be more divided, the recent series of indicative votes in the House of Commons was interesting, informative, but ultimately inconclusive, and EU leaders are making statements like, “I didn’t know I had this much patience,” and “There is a special place in Hell for those who promoted Brexit without even a sketch of a plan of how to carry it safely,” which is a polite way for continental European leaders to say that the UK side hasn’t got its act together.

Yet, whatever the plan is, it is inching along — about half as fast as it needs to — but at least something is happening.

And, sometimes plans evolve. Which is what I think we’re seeing.


So, let’s review what we know about Brexit as of April 2, 2019:

  1. An EU Withdrawal Agreement / Political Declaration / Joint Instrument has been approved by EU and EC Presidents (but not ratified by any EU27 Parliament) and by UK Prime Minister Theresa May (but not ratified by the UK Parliament) and it has been rejected by British MP’s three times in a row due to the 185-page Irish backstop clause. And no matter how many times Prime Minister Theresa May presents her WA/PD/JI to British MP’s it will fail. There is no chance of it ever passing as it means giving up any chance for the UK to write its own trade deals forever… or for as long as the EU remains an entity. And, yes, the people presently running the EU are very nice people. But as history teaches us, nothing lasts forever. So, who in their right mind would give up some amount of UK sovereignty (the ability to write free trade deals) to a foreign power and an economic competitor foreign power at that? SHEER LUNACY! Anyone who thinks this is a good idea is insane. Or, they hate the UK and want it to fail.
  2. Another offer on the table from the EU is either a Norway-style (EFTA) deal (but that means allowing unrestricted immigration from EU27 countries) or a Canada-style free trade deal (CETA) which is a highly regarded international trade deal between Canada and the EU27. The only problem, is that Canada loves the deal and quickly ratified it, while the EU 27 countries haven’t ratified it and are cherry picking which parts of the CETA deal they want to be bound by. Not a promising model for the UK to follow! Perhaps an EFTA deal with a no-immigration clause might work, or a CETA-style deal that both the UK and the EU27 are obligated to ratify within 90-days or automatic cancellation occurs. Either of those choices might represent an acceptable compromise. But choosing a pure EFTA deal where the UK gives up its sovereign rights to control immigration to a foreign power that is also an economic competitor, is a non-starter. SERIOUSLY! No country would consider such an agreement (prior to the so-called ‘Arab Spring’ / Syrian civil war the leaders of Norway couldn’t have foreseen millions of Middle Eastern refugees streaming into Northern Europe) but since 2010, anyone who thinks open borders is a good idea is insane. Or, they hate the UK and want it to fail.
  3. The ‘elephant in the room’ has a bad reputation, but only because of the groupthink mindset in the UK Parliament. Three years ago, one person(!) said that a WTO-style Brexit would cause irreparable harm to the economy and everyone in Europe has accepted it as unquestioned fact and have been repeating it verbatim since. Yet, all those Project Fear stories that had boffins hiding under their beds failed to materialize, and there’s every indication that the economic uncertainty provided by the past (almost) 3-years of dithering has caused far more harm to the European economy than an early WTO-style Brexit could ever have done. Really people, study this stuff! It’s important! A WTO-style Brexit, done properly, could save everyone from themselves, which is what’s needed at this time.

Everyone, on all sides, are so dug-in to their positions that the only possible way out of all this groupthink is a novel approach. And this is the approach I will discuss below.


How to Plan a Successful WTO-style Brexit

The first thing we must acknowledge is that any WTO Brexit must work for both sides; There is no point at all in the UK trying to gain the upper hand, nor is there any point in the EU trying to out-negotiate Britain in a WTO-style Brexit scenario.

a) A WTO-style Brexit must work for both sides.

The second important thing is to choose an early date for the WTO Brexit, as every business and citizen in Europe have had ENOUGH @#$%# UNCERTAINTY!

b) Choose a firm WTO-style Brexit date that falls before May 22, 2019 to miss the EU Parliament election cycle.

Get your Sherpas to prioritize items to be negotiated in advance. Obviously, some parts of the UK-EU relationship are more important than others. Therefore, aircraft landing rights (for example) in each other’s countries would be more urgent for their respective economies than whether foods are marked as GMO or non-GMO — and yes, that’s important too, but not as important as keeping passenger aircraft fleets flying.

c) Prioritize each Brexit item and create one ‘Opportunity’ for each so-called ‘Problem’ in the UK-EU relationship — on a 1-for-1 basis

i) On Day-1 of a WTO-style Brexit, let’s say that both sides agree to keep the existing civil aviation agreements in place for 90-days, but that any new rules would be added to the agreement and automatically kick-in on 90-days+1. Easy!

ii) If shipping (both passenger ferries and freight shipments) are the #2 priority (let’s pretend they are) then on Day-2 of the WTO-style Brexit, both sides negotiate a new agreement, but for 90-days the existing rules and regulations continue to apply. So, 92-days later the new regulations (whatever they may be) automatically apply and are thenceforth implemented by both sides. Done!

iii) Now let’s say that Chunnel rail traffic regulations need to be reapproved, or need changes to the existing ruleset. Both sides could agree to keep the existing regs for 90-days+3. So, whatever those new Chunnel rules and regulations are, 93-days from the official WTO-Brexit Day the new regulatory environment goes into full and automatic effect. Couldn’t be easier!

iv) We’re on Day-4 of the negotiations and we know that in 94-days new food production regulations will kick-in, but for the first 90-days they will remain exactly as they are now. Whatever those new regulations are, food producers will have 90-days to adapt to the new regulatory regime (ostensibly to apply to the next growing season) and those new rules will automatically apply beyond 94-days from the official WTO-Brexit Day. Farmers and Ranchers will thank you for the advance notification!

v) On Day-5 of negotiations, an Auto Pact (that’s a term used in North America, but call it whatever you want) could be arranged. And again, no changes to the existing agreements on vehicle trade between the UK and the EU for the first 90-days. But on Day-95 of the official WTO-Brexit date the new rules, regulations and standards would automatically apply and all European car manufacturers would need to comply with the new legislation. CEO’s from every manufacturer in Europe should be invited NOW to comment on what changes they’d like to see in the future trading relationship. BTW, let’s harmonize our financial incentives for new electric vehicle charging stations, for one, and harmonize our financial incentives to potential hybrid-electric vehicle purchasers, for two. Just two tiny examples of how the UK and the EU should be working together every single day of the year. So easy!

vi) Immigration is an important item (but not as important as international trade!) but by Day-6 of a WTO-style Brexit, immigration would by then rise to the top of the priority list. It’s so simple; Keep everything the same for 90-days and then on Day-96 of the WTO-Brexit the new immigration regime comes into force on both sides of the English Channel. How hard can it be? The UK wants full sovereign control over its immigration, as does the EU. And why not? That’s what real countries do. Obviously, EU people who live in the UK need a streamlined passport that they can order online in less than 5-minutes and pay a £100. fee. Likewise, UK people who live in the EU need a streamlined passport that they can order in 5-minutes and pay a €100. fee. All such expats would therefore have 90-days + 6-days to get ready and complete their 5-minute online application. Another so-called problem turned into a solution that makes politicians on both sides look brilliant! And all of it could be done on one super secure, mega-expat-website that both sides maintain. Expats on any continent never had it so good!

How different would Europe have looked to the world if this particular problem-solving / opportunity-based approach had been instituted beginning January 2017?

A full WTO-style Brexit would’ve been completed in 180-days!

How many billions of Sterling and Euros that HAVE ALREADY BEEN LOST due to the almost 3-years of economic uncertainty WOULDN’T HAVE BEEN LOST had the incremental WTO-style Brexit method been employed?

Instead of making Brexit part of the problem… UK and EU politicians should’ve been making Brexit part of the solution… towards a fairer, more secure, and more egalitarian Europe.

A Europe that respects ‘the other’ — not only in word but in deed — and gives proper place to the reasonable, legitimate, and sovereign concerns of modern-day nation states on both sides of the English Channel will enjoy ever more respect in the global family of nations.

Reach out to each other my European friends, for that ideal future is still within your grasp!

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!

What Would a WTO Brexit Look Like?

by John Brian Shannon

Assuming European politicians can’t get their act together enough to craft a reasonable Brexit deal that works for both sides by March 29, 2019 Europe will be faced with Brexit on WTO terms which is known colloquially as a ‘Hard Brexit’ where the UK would leave the European Single Market and Common Market mechanisms and other EU agreements and institutions without any subsequent deal in place.

Without further ado, and without boring you with statistics, let’s look at how a Hard Brexit would play-out in the months and years following a WTO-style Brexit.


Will There Be Famine in the Land?

Of all of the dubious claims by the Project Fear campaigners (and they’ve made many!) this must rank in first place.

No. There won’t be famine in the UK on account of Hard Brexit. However, you may notice your favorite brand of cheese may be unavailable for a time and you may find your prescription medications come from UK pharmaceutical companies or American pharmas instead of from continental Europe.

Saying the following words out loud will do you good, dear Britons — so repeat after me;

“The United States of America has come to Britain’s rescue in times past and will do so again in its hour of need.”

Regarding agriculture; The United States agricultural belt is unimaginably massive and its farmers and ranchers are just waiting to fulfill the UK’s orders. There are fields of crops in the United States larger than the entire United Kingdom. It takes 3-hours to overfly them in a jet aircraft flying at 500 miles per hour.

Regarding ranching; There are 93.5 million cattle in the United States (2017) and that number continues to rise at a little better than 1% per year, and significant capacity exists to raise it over a relatively short period of time.

Similar agricultural capacity is available in Canada for grains, corn, soybean, and other crops, and Canada boasts 4.6 million cattle at present (2018) and Canada has more arable land than the United States allowing it to exceed even the mighty U.S. in this regard if sufficient firm orders were placed.

To answer the question: “Where’s the beef?” It’s in the United States and Canada… Just pick up the phone and call us! North American farmers and ranchers would love to take your money — instead of the EU taking your money.

Britons might find their food costs plummet as the huge economies of scale that typify North American food production and the favorable growing conditions combine to produce bumper-crop after bumper-crop which lead inevitably to lower food prices.

Countries of origin for UK food consumption

Image courtesy of gov.uk | Figure 1: Origins of food consumed in the UK in 2016 — Department for Environment, Food and Rural Affairs, Agriculture in the United Kingdom data sets, Chapter 14 – the food chain (2017)


Aren’t All American Crops GMO?

Genetically Modified Organisms or GMO crops are grown on every continent, including Europe, which has about the same number of GMO crops as America.

Some Europeans fear that all crops grown in the United States are GMO crops, but except in the case of corn that isn’t true. All corn, no matter where it is grown in the world is GMO and that’s been true for a few decades now. Corn (and maize, which is a type of rough corn that is fed to cattle over the winter months) aren’t commercially viable crops unless the GMO component is added.

Some crops like ‘Yukon Gold’ potatoes, Canola (a seed grain) and every apple sold on the planet have been GMO for many decades.

To alleviate concerns about GMO foods being sold in the UK, Theresa May’s government could simply legislate that any produce or meat that *isn’t* GMO must be identified as non-GMO for UK consumers.

Explainer: Forcing producers to put GMO labels on their produce (if theirs is indeed a GMO variant) is seen as a negative by GMO food producers. But giving non-GMO farmers the right to advertise “Non-GMO produce” or “Non-GMO meat” on their labels would be seen as a positive for their non-GMO produce and meat.

See how easy it is?

Not only won’t there be famine in the land, UK consumers will enjoy a completely new supply chain from which to choose and sufficient labelling for them to make the best choices for their families.


What if the EU Decides to Punish the UK for Leaving?

If the EU wanted to drive the UK directly into America’s arms… the EU would ensure a Hard Brexit and not allow EU goods or produce to be shipped to the UK following Brexit, nor would it allow UK goods or produce to be sold into the EU following Brexit.

If that’s the EU plan, bring it on! Because that plan has a 100% chance of success should the EU choose to make it happen.

And Americans and Canadians are just waiting… “Please, oh God, please, cause the EU to drive the UK into our ever-loving arms!” said every North American farmer, rancher and manufacturer.

To say nothing about the even more fervent prayers being said by North American auto manufacturers in Detroit, U.S.A. and in Windsor, Canada.

For Britain, a WTO Brexit simply means changing suppliers — with a zero-tariff trade deal in effect with North America — combined with the opportunity to sell UK goods into the vast North American market.

The ball, as they say… is in your court, European Union!


Bonus Video

View the video where HM North American Trade Commissioner is interviewed by Bloomberg Television on March 26, 2018.

Clicking on the image takes you direct to the relevant Bloomberg webpage.

Brexit on WTO rules

Antony Phillipson, HM Trade Commissioner for North America on Bloomberg TV.