Brexiteers need a re-think on regulation

Over the last few years, if there is one thing I have learned about trade, it is that it is complex. If there is one thing I have learned in the last year particularly is that it’s even more complex than that. What has marked the trade debate on the Brexit side is an absence of concern for non-tariff barriers. Self-styled Brexiteer economists speak only in terms of tariffs – ignoring the all important non-tariff barriers, the costs of which far exceed the average tariff.

Over the last twenty years the global effort in trade has been geared toward the eradication of non-tariff barriers through regulatory harmonisation. There is enormous social and economic utility in it, the benefits of which we all enjoy on a daily basis.

As much as regulation is central to Brexit, it is now central to trade. This is an aspect largely lost on Tories who have an instinctive aversion to regulation of any kind. They believe the removal of regulation enhances commerce – rather than harmonisation and refinement. It is part of the liberal “free market” tendency.

An especially topical example of this is reported by The Independent with housing minister Brandon Lewis having declined to bring in regulation forcing developers to fit sprinklers to buildings. He said it was not the Government’s responsibility. He told MPs: “We believe that it is the responsibility of the fire industry, rather than the Government, to market fire sprinkler systems effectively and to encourage their wider installation”. Seventeen residents of Grenfell Tower are now dead.

Then we have the deregulation enthusiast Jacob Rees Mogg telling us that Britain could slash environmental and safety standards. This is absolutely what we must not do. In order to enjoy continued free movement of goods we will need to maintain a close alignment with EU standards. Divergence will only increase the likelihood of goods being stopped for customs inspections.

Furthermore, we might very well find that if we relax our standards on imports, the EUs risk assessment rating on UK produce is heightened resulting either in embargoes or a higher inspection rate. Any trade deals we do with third countries will have to be carefully measured against the trade we could potentially lose.

We cannot sign trade deals for their own sake. Any new deals will have to be forensically analysed for their potential impact on existing trade. We cannot expect to conclude any rapid deals, certainly not unless we are prepared to throw massive resources at them – which may prove economically neutral.

More to the point, with the advent of increasingly globalised standards, the scope for deviation is nothing like Rees-Mogg assumes. At best we can secure carve outs to protect specific sectors but we are obliged by a number of global accords on anything from emissions standards to maritime pollution. We also have to play by WTO rules.

In the mind of the well-meaning Tory, with an aversion to regulation, all these green measures are all part of the climate change hysteria. We should note, however, that climate change notwithstanding, pollution is a very real threat to our health and prosperity. Deaths around the world from air pollution, particularly in India and the Far East are spiralling. We do not have the same problems – but that is no accident.

Then we have measures like the International Maritime Organisation’s Ballast Water Management Convention. Invasive aquatic species present a major threat to the marine ecosystems, and shipping has been identified as a major pathway for introducing species to new environments. The problem increased as trade and traffic volume expanded over the last few decades and in particular with the introduction of steel hulls, allowing vessels to use water instead of solid materials as ballast.

The effects of the introduction of new species have in many areas of the world been devastating. Quantitative data show the rate of bio-invasions is continuing to increase at an alarming rate. As the volumes of seaborne trade continue overall to increase, the problem may not yet have reached its peak.

Now you may not care about biodiversity and all that tree hugging stuff, but one of the major opportunities for Brexit is an expansion of Scottish aquaculture. Alien parasites are massively damaging to business (no not Rees-Mogg). In the mind of the classic Brexiteer though, this is all meddlesome “Brussels” red tape. As much as anything Brussels is no longer the centre of the regulatory universe. Much of it starts life in Geneva.

Further to this, when it comes to trade, because of the complexity and the labyrinthine nature of regulation, we find that progress is often incremental, barely noticeable and there isn’t any low hanging fruit we can go after. This is a major misapprehension among Brexiteers.

The challenge, therefore, is not to prioritise new trade deals, rather we need to look at enhancing the profitability of existing trade, be that harmonising customs processes, further harmonising regulations and eliminating fraud and organised crime.

In this, standards are part of a broader system to prevent a massive multi-billion dollar black market on food. There are many examples of industrial scale manipulation of supply chains. A food fraud scandal came to light in 2008, when over 20 companies were found to have added melamine, a flame retardant plastic, to baby formula in order to fool tests designed to ensure adequate protein content. Around 300,000 babies became ill in China, with tainted formula being linked to 54,000 hospitalisations and 6 deaths from kidney damage and malnutrition.

Additionally, the product category Herbs and Spices is listed as number four in the ranking of most frequent product alerts in the European Rapid Alert System for Food and Feed (RASFF). About 75% of these reports are due to improper composition or contamination, both of which can affect the health of the consumer, as well as damage the brands of those involved in the supply chain.

In 2005 over 600 finished food products were recalled in Europe and the US due to the presence of the carcinogenic red industrial floor dye “Sudan”, which had been added to chilli powder to disguise its ageing. And it’s not just food either.

When an American Airlines plane smashed into a Colombian mountainside, outlaw salvagers didn’t even wait for all 159 victims’ bodies to be collected before they moved in. “Using sophisticated tools, they extracted engine thrust reversers, cockpit avionics and other valuable components from the shattered Boeing 757 and then used helicopters to fly the parts off the steep ridge, U.S. and Colombian sources say. The parts were offered for sale in Miami, a hub of the thriving black market in recycled, stolen and counterfeit aircraft parts. “They wanted to sell the whole lot, including the landing gear,” a law enforcement source said, speaking on condition of anonymity.”

Parts illegally salvaged from crashes, counterfeit parts and other substandard components regularly find their way into the world’s air fleets, sold at bargain prices, often with falsified documents about their origin or composition. The U.S. Customs and Border Protection seized $4 Million worth of counterfeit electronic components in Fiscal Year 2009. According to a 2001 publication produced by Lawrence Livermore National Laboratory, “as much as $2 billion in unapproved parts are now sitting on the shelves of parts distributors, airline, and repair stations”.

One major global concern is pharmaceuticals fraud. US pharmaceutical giant Pfizer has found that 69 of its products were falsified in 107 countries in 2014, up from 29 products in 75 countries in 2008 – a doubling of the problem in six years. Over 700,000 deaths per annum from malaria and TB have been attributed to falsified medicines and the Center for Medicine in the Public Interest in the United States estimated that counterfeits cost the global economy around US$75bn in 2010.

Then just recently, the World Customs Organization (WCO) and the International Institute for Research Against Counterfeit Medicines (IRACM) announced recently the results of their fourth common initiative in the fight against fake medicines on the African continent. There were record seizures of 113 million illicit and potentially dangerous pharmaceutical products, which took place in the context of Operation ACIM (Action against Counterfeit and Illicit Medicines) in September 2016.

The number of seizures made in joint IRACM-WCO operations has now reached dramatic proportions, with almost 900 million counterfeit and illicit medicines seized at the borders of the continent. “Of the 243 maritime containers inspected, 150 contained illicit or counterfeit products”. Staggering.

As much as this kind of criminal activity seriously hits all Western nations in the wallet it is very much one of the many blights standing in the way of development. If supply chains are known to be corrupt it deters investment. As you can see, enhancing our trade will rely on a huge commitment to international cooperation, working with standards bodies, Interpol, the EU and a number of other major international initiatives. Cutting corners with regulations is a non-starter.

To enhance our trade it requires that we throw substantial resource at trade facilitation measures while also doing what we can to help developing countries improve their regulations so that they can participate in the global rules based trading system. In so doing we boost our business to business services sector. This though demands a far more mature attitude to regulation than we are presently seeing from the Brexiteers. Misguided enthusiasm for free markets doesn’t hold water in the modern world of trade. We cannot afford to tread water while they learn the ropes if we are to make a success of Brexit.

 

Photo by hernanpba

Rejection of Theresa May’s little Englander ‘Brexit’ is splendid news

By Ambrose Evans-Pritchard. This article first appeared in the Daily Telegraph.

For liberal, free-market Brexiteers, the election shock is a gift from Mount Olympus. We are dancing cartwheels and quaffing our sparkling Kentish wines.

Theresa May’s plummeting star is an entirely unexpected chance to refashion British withdrawal from the European Union along different lines. It re-opens the possibility of a ‘Norwegian’ solution or close variant, an option that she shut down prematurely without debate because it limits her ability to control inflows of EU workers.

Mrs May sees Brexit through the fatal prism of migration, borders, and criminal justice – the déformation professionnelle of the Home Office – strangely oblivious to the immense economic risks of pursuing a narrow strategy to the detriment of all else.

Her vision is irksome to those of us who backed Brexit chiefly in order to restore the law-making prerogatives of Parliament, and to keep a safe distance from an EU that must evolve into a unitary political state if the euro is to survive. Such a destiny is self-evidently incompatible with British democracy and self-rule.

Mrs May is a Remainer who tries too hard to compensate. She has misunderstood the subtleties of Brexit, hijacked the Referendum for the better part of a year, twisted its contours, and seems unaware how her strategy is playing into a corrosive and false narrative taking hold in the world: that the British people are turning nasty and nationalist. So let us begin again.

The shrunken Tories will have to rely on the Ulster Unionists (DUP), who will not brook a hard economic border with the Republic of Ireland.

They will also have to listen more attentively to the Scottish Conservative leader Ruth Davidson and with her triumphant vanguard of Westminster MPs. She is pressing for the “largest amount of access” to the EU single market.

The balance of political power has changed. To the extent that this safeguards the unity of these Isles – the foremost priority – it is a blessing.

The election was not a rejection of Brexit, as Europe’s press seems to suppose. Some 84% of votes went to Brexit parties. But it was certainly a rejection of Mrs May’s particular variant of Brexit. Call it ‘hard’ if you wish. I prefer to call it insular, pedantic, and illiberal.

The natural fit at this stage is the European Economic Area (EEA), the Norwegian option that was once held out as the Holy Grail by Brexiteers of gradualist philosophy, but was subsequently rubbished by the tub-thumpers and Burka banners. The party of this ideology secured 1.8pc of the vote on Thursday, nota bene. It has no legitimate veto over anything.

The EEA would in principle allow Britain to preserve open trade with the EU single market and retain passporting rights for the City of London, the goose that lays the golden egg for a very vulnerable British economy.

“We should use the EEA as a vehicle to lengthen the transition time,” said Lord (David) Owen, one-time Labour foreign secretary and doyen of the EEA camp.

“Theresa May’s massive mistake has been to allow talk of a hard Brexit to run and run, and to refuse to frame a deal in a way that makes sense for the Europeans. The logic of the EEA is irrefutable,” he said.

Lord Owen said the EU’s withdrawal clause, ‘Article 50’, is designed as a deterrent to stop any country leaving. It leads to a cliff-edge, facing Britain with a take-it or leave-it choice when the clock stops ticking. “This puts us in a dangerous position,” he said. The EEA is a way to overleap this Article 50 trap.

Meredith Crowley, a trade expert at Cambridge University, says the great worry is that tariff barriers into the EU will jump to 12pc or 15pc overnight on UK exports of cars, engines, auto parts, and a range of machinery, setting off an exodus of foreign investment. “Joining the EEA would shut that threat down,” she said.

Critics argue that the Norwegian route is tantamount to remaining in the EU, but on worse terms, with no vote over policy: “While they pay, they don’t have a say,” said David Cameron before the Referendum.

This is a canard. EEA states are exempt from the EU’s farming and fisheries policies, as well as from foreign affairs, defence, and justice. They are free from great swathes of EU dominion established by the Amsterdam, Nice, and Lisbon Treaties.

Above all, EEA states are not subject to the European Court’s (ECJ) limitless writ over almost all areas of law through elastic invocation of the EU Charter of Fundamental Rights. The ECJ would no longer be able to exploit the Charter – in breach of Britain’s opt-out under Protocol 30 – whenever it feels like it. We would no longer be under an EU supreme court asserting effective sovereignty. These are not small matters. They are elemental.

Yes, the Norwegian option is a compromise. We would continue paying into the EU budget. This would do much to defuse the escalating showdown over the €100bn bill for EU reparations, poisonous because of the way it is presented. The transfers would become an access fee instead. Norway’s net payments in 2014 were £106 a head. Let us not die in a ditch over such trivia.

Britain would have to tolerate relatively open flows of migrant workers. But contrary to widespread belief, the EEA does not entail full acceptance of the EU’s “four freedoms” – movement of goods, services, capital, and people. Nor does it give the European Court full sway on these issues.

The arrangement allows “a lesser degree” of free movement than within the EU. The language covers the issue of residence, an entirely different matter from the rights of EU citizenship created by the Maastricht Treaty. The EEA permits the sort of emergency brake on migrant flows that was denied to Mr Cameron in his last-ditch talks with the EU before the Referendum.

The point in any case is that the EEA would be a temporary way-station for ten years or so, giving us time to negotiate 80 trade deals with the US, China, Japan, India, Mercorsur, and others without a gun held to our head.

Britain is a contracting party to the EEA. The agreement is binding on all members, and entails rights under the Vienna Convention on the Law of Treaties. Yes, we would need the goodwill of the EEA-trio of Norway, Iceland, and Liechtenstein, and the EU itself.

It is possible that some in the EU are now so intent on punishing Britain – or carving up post-Brexit spoils – that they would stop us pursuing this course. But that would be a hostile act. It would certainly clarify the issue. We would then know exactly what the real agenda was in Brussels. It is better to know this sooner rather than later.

There is no such thing as a soft Brexit. Wise statecraft can nevertheless work through this thicket. The EEA option is the best political solution on offer given the new circumstances. It is a graceful way out of the impasse for all parties, not least for a divided EU with a looming budget crunch and a mountain of other problems to deal with.

Tory ultras might balk at a settlement so far short of total liberation. I balk myself whenever I have to listen to the insolence of Jean-Claude Juncker. Yet Tory ultras did not win a mandate in this election for their hair-raising adventure into uncharted waters.

The vote changed the dynamics of Brexit. Compromise is now ineluctable. Jeremy Corbyn and his army of the young may have done this nation a favour.

Customs Union: from Zollverein to irrelevance

By Ian Milne

Preamble

Orwell’s Nineteen Eight Four came out in 1948, less than a decade before the official birth of the European Community.  In Orwell’s vision, three totalitarian super-states, Oceania, Eurasia and Eastasia, were perpetually at war.

The European Community was – is – merely the latest version of the chimera of a single European state that had been pursued in the nineteenth century by writers such as Victor Hugo, by Continental tyrants such as Napoleon, and, in the twentieth century, by German governments led in 1914 by Bethmann-Hollweg  and from 1933 to 1945 by Hitler.

Consciously or not, the European Union was built on similar assumptions: that the post-war world would consist of huge “blocs”, competing for resources & markets, and that European states were destined to amalgamate into a single state. In the Eurocrats’ weltanschauung – world-view – North America constituted one bloc, Europe another, while to the East, (the Soviet Union, its first candidate, having failed) China would exercise hegemony over the Asian land-mass.

The EU Customs Union

Since its accession to the “Common Market”,  “British Trade Policy is not to have a British Trade Policy”. The UK hasn’t been in control of its own trade policy since 1973. What the UK has had since 1973 is being trapped – for the first time in its history – inside a customs union – the EU Customs Union.

The EU Customs Union, the only one in the developed world,  is a relic from the “Fifties” –  the 1850s. This is how it came about.

In  German & French “received wisdom”, customs unions are (still !) a peculiar obsession. The 19th century German customs union – “Zollverein” –  was the mechanism associated in the German collective consciousness with the Bismarckian creation of Prussia & then the German Empire.

On 4th September 1914, a few weeks after the  outbreak of the First World War,  Chancellor Bethmann-Hollweg issued his letter setting out German war aims. War aim number four1 was to “create a central European economic association through common customs treaties…….”. (A Figaro journalist, Eric Zemmour, describes this as a plan for the “vassalisation économique” of France through the mechanism of a customs union2.)

Two years later, in 1916, when the war wasn’t going too well for Germany, Berlin offered a separate peace to the Belgian Government (then in exile in Le Havre3), involving the evacuation of German occupying forces from Belgium & the signing of a bi-lateral Belgian-German customs union4.   This was turned down by the Allies.

In early 1917, when a compromise peace with Britain, France and Russia might just have been possible, German aims were for a “German peace” with a customs union led by Germany and with the involvement of Austro-Hungary and Romania, thereby solidifying Germany’s hold over its supposed allies and converting them to a de facto part of the peacetime German economy, no different from Alsace-Lorraine and a large slice of Belgium which Germany also proposed to retain.

In the next war, in 1942, when Germany still believed it would win, the Reichsbank organised a conference5 in Berlin to plan how Germany would run the European economy afterwards.  This involved a European Customs Union – Zollverein – very similar to the one we have today.  (It also involved a single currency with – believe it or not – an opt-out for the UK).

 Almost two centuries on, in 2016, with average customs duties worldwide (including in the UK) down to a little over one per cent6, customs unions have lost whatever economic raison d’etre they ever had.

The EU is likely to experience a significant decline as an important trading partner in the future due to demographic issues. These two Global Britain briefing notes (here and here) list the projections for population growth and decline within and outside the EU. It is particularly interesting to see the very different projections for France and Germany.

Ian Milne

1          The full text (translated) is: “We must create a central European economic association through common customs treaties, to include France, Belgium, Holland, Denmark, Austria-Hungary, Poland “sic”, and perhaps Italy, Sweden, and Norway.”
2          Eric Zemmour, Figaro, 29.9.16 
3          The building which housed the Belgian government in exile between 1914 & 1918 survived the 1944 bombing & still stands in Saint-Adresse, a suburb of Le Havre.
4          Georges-Henri Soutou, La Grande Illusion, 1914-1920, pp 75.
5         The title of the 1942 conference was “Europäische Wirtshaftsgemeinschaft”
6          In 2013, 82 % by value of all UK imports of goods from outside the EU bore zero customs duties. The remaining 18% of such imports bore an average rate of EU-mandated customs duties of 8%. That 8% average is likely to be lower now.

 

Photo by Polybert49

Another nail in the coffin of the Single Market?

Last month, an event occurred which got little fanfare, but is likely to have a significant effect on the future of the UK, especially after Brexit. What happened was that the WTO Trade Facilitation Agreement has now entered into force

Lord Lamont, the former UK Chancellor of the Exchequer wrote in The Telegraph:wto

The single market is open to all advanced economies, in exchange for paying a relatively modest tariff of 3 to 4 per cent, something that evidently does not stop non-EU countries from selling within it.

‘Every developed country has access to the single market. The EU has a relatively low external tariff with the exception of certain goods such as agriculture.’[i]

When taken prima facie, Lord Lamont’s comments are seemingly correct. Only those countries who are essentially rogue states or have violated international agreements don’t have the ability to conduct trade with the EU, and the EU’s external tariffs are fairly low.

But Tariffs are only half of the story.

The problem of tariffs could be easily addressed by the UK signing a goods Free Trade Agreement (FTA) with the EU. Given the high volume of UK- EU 27 trade, this is seemingly a given.

A basic FTA need not take long to complete. The EU’s earlier iteration the European Economic Community (EEC) concluded basic FTAs in the early 70’s that took 6-7 months to agree, sign and come into force.

But the other half of the story relates to non-tariff barriers (NTBs), sometimes called “Non-Tariff Measures (NTMs)”. These comprise everything else that can slow down trade or make it more expensive or complex.

The European Commission describes the Single Market as:

‘…one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. The Commission works to remove or reduce barriers to intra-EU trade and prevent the creation of new ones so enterprises can trade freely in the EU and beyond. It applies Treaty rules prohibiting quantitative restrictions on imports and exports (Articles 34 to 36 TFEU ) and manages the notification procedures on technical regulations (2015/1535) and technical barriers to trade.’[ii]

So the Single Market goes beyond tariff reduction, and encompasses far more than just a Free Trade agreement. This is why the ‘remain’ side in the EU referendum campaign were so concerned about the UK leaving the European Union’s Single Market.

‘Remainers’ believe that after Brexit, even if the UK does get a Free Trade Agreement, our importers and exporters will be deluged with red tape, endless forms, checks and other barriers to entry as we will be operating outside the Single Market.

These are valid concerns, but we believe they are largely exaggerated – and here are the reasons why:

wco

The EU has signed up to the WCO

In July 2007[iii], the EU signed up to the World Customs Organization (WCO) which works to enhance customs co-operation between signatory countries and works to simplify issues such as Rules of Origin (ROO).

From the European Commission’s own press release:

‘On 30 June 2007, the Council of the World Customs Organization (WCO) decided to accept the request of the European Union to join the WCO as of 1st July 2007. This decision grants to the European Union rights and obligations on an interim basis akin to those enjoyed by WCO Members.

‘The WCO plays an important role in promoting international customs co-operation and addressing new challenges for customs and trade. It is deeply involved in designing and implementing policies worldwide that integrate measures, which help ensure supply chain security, combat counterfeiting, promote trade and development, as well as guarantee efficient collection of customs revenues. Membership of the WCO highlights and confirms the central role and competence of the EU in international discussions on customs issues including customs reform. EU involvement in the WCO will focus on the full spectrum of customs issues, in particular the following broad areas:

  • Nomenclature and classification in the framework of the Harmonised system;
  • Origin of goods;
  • Customs value;
  • Simplification and harmonisation of customs procedures and trade facilitation;
  • Development of supply chain security standards;
  • Development of IPR enforcement standards;
  • Capacity building for customs modernisation and reforms, including in the context of development cooperation;
  • Mutual Administrative Assistance for the prevention, investigation and repression of customs offences.

‘The EU is a contracting party to several WCO Conventions, and contributes to the work of this organisation, including by ensuring presence and coordination with the Member States in defining and representing EU positions in the relevant bodies managing these conventions.’

The UK signed up to the WCO in the 1950’s and is a signatory in its own right, so will be able to address customs issues with the EU via this body after Brexit.

Harmonisation with EU rules

The UK’s rules and regulations are already synchronised with EU/EEA (European Economic Area) regulations and standards after decades of membership. This will also be true on the day after Brexit due to the Great Repeal Bill. Hence a strong (if not overwhelming) argument for ‘rules equivalence’ can be made.

The WTO Agreement on Rules of Origin (ROO)

This agreement encourages WTO countries (including all EU countries) to have fair and transparent rules pertaining to Rules of Origin:

 wtostructure

These rules state that:

‘Rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade.  They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin….rules of origin are administered in a consistent, uniform, impartial and reasonable manner’.[iv]

Guidelines in the EU treaties

treatylisbon

Article 8 of the Lisbon Treaty states that:

‘The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.[v]

As the UK will become a new ‘neighbouring country’ after Brexit, the EU is compelled to deal with us according to the Article 8 terms.

WTO Technical barriers to trade Agreement

The TBT agreement is key – it means that signatories (again, including the EU) agree to abide by rules about international product and technical standards. From the European Commission’s website:

‘The TBT notification procedure helps prevent the creation of international technical barriers to trade. It was introduced by the Agreement on Technical Barriers to Trade (the TBT Agreement), a multilateral agreement administered by the World Trade Organisation (WTO). It gives participants advanced knowledge of new technical regulations or conformity assessment procedures envisioned by other countries. The EU’s participation in the TBT Agreement helps businesses in EU countries access markets outside the EU.’

Aim of the TBT notification procedure

To avoid any potential technical barriers to trade, WTO Members submit national legislation at draft stage to other members of the TBT Agreement. They can then assess the impact on their exports and identify any provisions breaching the Agreement.

While allowing all WTO Members to maintain their right to adopt regulations, the TBT Agreement aims to:

  • prevent the creation of unnecessary and unjustified technical barriers to international trade;
  • prevent the adoption of protectionist measures;
  • encourage global harmonisation and mutual recognition of technical standards;
  • Enhance transparency.[vi]

The commission somewhat downplays the TBT agreement, however. What it actually states is that:

‘Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.

‘Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.

‘Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations. Members shall give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations.’[vii]

Since UK regulations and standards will be equivalent to their EU counterparts from day one, and will continue to meet international standards going forward, it will be extremely difficult for the EU to reject UK products sold into the EU market.

WTO Trade Facilitation Agreement

The most recent agreement, the WTO Trade Facilitation Agreement (TFA) will further increase trade co-operation.

As the WTO website states:

‘The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.’[viii]

Perhaps especially important for Northern Ireland post-Brexit, the TFA also states that:

‘Each Member shall ensure that its authorities and agencies responsible for border controls and procedures dealing with the importation, exportation, and transit of goods cooperate with one another and coordinate their activities in order to facilitate trade.

‘Each Member shall, to the extent possible and practicable, cooperate on mutually agreed terms with other Members with whom it shares a common border with a view to coordinating procedures at border crossings to facilitate cross-border trade.’

The WCO welcomed the ratification of the TFA agreement in their press release of 22 February 2017, in which they wrote:

‘The World Customs Organization (WCO) congratulates the World Trade Organization (WTO) on the entry into force today of the WTO Trade Facilitation Agreement; an agreement that will expedite the movement, release and clearance of goods, including goods in transit, and which sets out measures for effective cooperation between Customs and other authorities, as well as provisions for technical assistance and capacity building in this area.

‘The WCO takes this opportunity to highlight that it will continue to seek improvements throughout the global supply chain to obtain the highest levels of safety, security and integrity, which will enhance trade facilitation for compliant actors. This will ultimately have a positive effect on the relationship between all border agencies and the Private Sector.

‘The entry into force of the Trade Facilitation Agreement (TFA) is an important milestone for the international trade and Customs community, coming about as a result of the fact that it has been ratified by 110 WTO Members, which pushes it above the threshold needed to take effect, namely ratification by two-thirds of the WTO’s 164 Members.’[ix]

In conclusion:

  • The volume and UK and EU will likely at least sign a basic goods FTA; meaning tariff-free goods trade will continue.
  • The UK’s rules and regulations are already synchronised with EU regulations and standards. This will also be true on the day after Brexit.
  • The UK and EU are signed up to the WCO, which exists to help simplify and resolve customs issues.
  • The WTO TBT agreement prohibits the EU from banning UK goods that meet international standards.
  • The WTO agreement on Rules of Origin means that the EU will have to ensure rules of origin are administered “in a consistent, uniform, impartial and reasonable manner” when dealing with exports from the UK.
  • The WTO Trade Facilitation agreement means the EU must co-operate with the UK on issues around the “movement, release and clearance of goods”.

When we combine these factors together we see that after Brexit, UK trade with the EU will be very similar after Brexit as before Brexit.

The EU has signed up to many agreements and treaties which in effect reduce the uniqueness of the single market.

Britain can therefore essentially have almost duplicate trade relationship by falling back on these international agreements (if necessary) which would mean that the UK could have the majority of the benefits of Single Market membership, but be free to choose which rules to obey when not exporting to the EU 27 countries or for domestic sale.

The TFA might not then be the final nail in the Single Market coffin (it is still useful to EEA members), but it is one substantial step towards reducing the importance of the Single Market to a post-Brexit UK.


[i] http://www.telegraph.co.uk/news/2016/06/13/not-only-can-britain-can-leave-the-eu-and-have-access-to-the-sin/

[ii] https://ec.europa.eu/growth/single-market_en

[iii] https://ec.europa.eu/taxation_customs/business/international-affairs/international-customs-cooperation-mutual-administrative-assistance-agreements/world-customs-organization_en

[iv] https://www.wto.org/english/docs_e/legal_e/22-roo_e.htm

[v] http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-european-union-and-comments/title-1-common-provisions/6-article-8.html

[vi] https://ec.europa.eu/growth/single-market/barriers-to-trade/tbt_en

[vii] https://www.wto.org/english/docs_e/legal_e/17-tbt.pdf

[viii] https://www.wto.org/english/tratop_e/tradfa_e/tradfa_introduction_e.htm

[ix] http://www.wcoomd.org/en/media/newsroom/2017/february/wco-welcomes-entry-into-force-of-the-wto-trade-facilitation-agreement.aspx

This article first appeared on the Bruges Group website and is used with permission.

When you don’t understand the question

In the run up to Christmas I went to quite a few parties and social events. I do not mention this to boast about my social life, but because I ran into quite a few Remainers – some were old acquaintances I had not seen for a while, others were new to me. It was an illuminating experience.

Most of them were friendly – one was not, but then I never liked her very much anyway – and the majority accepted that they had lost. Quite a few had voted Remain only because they had been influenced by the speeches by the great and the good, others because they liked going on holiday to Europe, some because they backed the status quo. They had moved on and accepted that Brexit would happen. A few had voted Remain simply because most of the people they knew were voting Remain.

But the ones I found most interesting to talk to were those who had been vociferous Remainers and still believed that Britain should remain in the EU. And especially entertaining were those who did not know that I had spent the campaign working as Campaigns Manager for Better Off Out.

The conversations often revolved around the fact that Leave voters “believed lies”, or rather less politely “were ignorant” or “stupid”. We’ve all heard these unpleasant slanders, but I took the opportunity to probe further. What seemed to be behind these comments were that the Remainers I was talking to felt that the Leave voters had not understood the question posed in the Referendum.

These folks were keen to talk to me about the “real issues” at stake. Each person had their own take on these, but they tended to be variations on the economic issue. They were concerned with trade with the EU. A few of them actually worked for companies that did business in the EU, but most did not. They seem to have bought the line that you need to be in the EU to trade with the EU. They were worried about the economy or jobs. Despite the lack of any economic downturn since 23 June, they were convinced that disaster would strike soon. They felt that leaving the EU was economic suicide. People who voted to leave had, apparently, not understood the economic issues at stake.

They were keen to tell me that the Brexiteers had not understood the question.

But actually, it was my party-going friends who had not understood. The ballot paper asked us if we wanted Britain to be a member of the European Union. It did not ask us if we want to buy cars from Germany, nor if we wanted to sell pizza to Italy (I jest not, I know one company that does).

Of course, trade with the EU will be affected by the terms of whatever trade deal emerges from talks with the EU. But for me at least such issues were unimportant.

Essentially the question on the ballot paper was a constitutional one. Should the UK be an independent sovereign country or a member state of the European Union?

When a Remainer says that Leavers were “ignorant” or “stupid” or “did not understand”, what they really mean is that the leavers did not agree that economics were of prime concern. They are concerned about the money, the cash, the lucre. Not that they would ever admit to anything so vulgar, of course. They talk about the economy, the jobs, the exports, but their concerns always boil down to money.

And money was not on the ballot paper. Freedom and independence was.

Next time a Remainer tells you that Leavers were “stupid”, you know who is really showing their ignorance.

The UK’s strong hand in trade negotiations

The war of words between UK ministers and EU officials continues. Donald Tusk, the President of the European Council, insisted that the only choices available ot the UK were “Hard Brexit ” or No Brexit” – in other words,  give up trying to leave the EU or accept that if we will not accept freedom of movement, we canot have access to the single market. The article mentioned Norway and Switzerland, which both accept freedom of movement. It failed to mention Liechtenstein which, as we have frequently mentioned before, does not.   

As we have pointed out, this is not he first instance of the media being less than helpful in reporting the prelimiarnbies to the negotiations. However, sometimes, some useful facts to appear. The article below, from the Economic Research Council,  indicates the importance of the UK as an export market for several leading EU nations. Of course, the UK needs to ensure that our goods meet all the EU’s complex regulatory requirements to access the Single Market, but if we adopt the Liechtenstein route or some sort of shadow-EEA arrangement, we do have quite a bit of leverage.

Summary: The chart shows some aspect of each nation’s position on trade with the UK in the run up to Article 50 negotiations with access to the single market being the key issue. Theoretically, countries with a greater reliance on the UK for exports could (or should!) take a softer stance on Brexit negotiations, in order to safeguard these trade links. Where the export/import ratio increases; this pressure to achieve favourable terms should be compounded.
ercchart4116

What does the chart show? The blue bars show the export/import ratio of each nation. Values above 1 denote that the country is a net exporter to the UK, and values below 1 show that the country is a net importer from the UK (of the nations shown, only Greece and Ireland are in this category). The red dots show each country’s exports to the UK as a % of their total exports to EU28 countries, so higher values therefore signify a greater reliance on the UK trade in their dealings with other EU nations. The data represents trade in goods only (not services) and is from 2015.

Why is the chart interesting? The chart shows that the key European nations individually have a very significant reliance on trade with the UK, with five of the key players doing over a tenth of all their export trade in Europe with the UK. What is also underlined is that, unless a united front from the EU states is shown in negotiations, Britain has serious clout with each of them through the sheer scale of its buying power. In addition, the graph only displays trade in goods not services, which might increase EU state’s reliance on Britain yet further.

There has been much speculation on the tone Article 50 negotiations are likely to take, not helped by entrenched ideological positions. We have seen firm and unequivocal comments from some ministers in EU member states who are taking a decisive ‘all or nothing’ stance. This toughening of tone stands in contrast to early conciliatory statements in the days that followed the result. On the other side, the self-assured attitude of some members of the British government, particularly Johnson and Gove, stems from their confidence in the UK’s strength based on the EU’s reliance on UK trade.

What the chart illustrates well is that for the key states in Europe, these negotiations are about far more than trade, indeed they may well allow their economies to take a hit for the longevity of the political union.