Over a year on from the Brexit vote, UK businesses which trade with the EU are increasingly concerned about the impact of leaving the EU. Currently, over 40% of both UK imports and exports come from, or go to, the EU. While this percentage is falling, it is still too important a part of our economy to jeopardise and if we leave the EU without any trade agreement, our economy is likely to suffer in the short term. Tariffs are not the main concern, although some sections of industry may suffer here. The automotive industry could find itself subject to tariffs as high as 10% if the EU treats us as a “third country” after March 2019. Far worse are the many non-tariff barriers we would face. Take aviation, for instance. Just pulling out with no trade agreement with the EU would ground our aircraft. They would not be able to fly in EU airspace, nor would our aircraft have rights to use air space and landing slots in third countries under treaties negotiated on our behalf by the EU until some new deal could be reached.
Then comes the extra paperwork involved in complying with the EU’s “port of entry” rules for our exports and the need to negotiate new mutual recognition agreements (to ensure that a product made in the UK complies with EU standards and vice versa) which would severely affect our businesses.
There is no doubt that a badly-botched Brexit would be anything but a benefit for UK industry, but the very fact that serious concerns are being expressed proves the point that we were right to vote to leave. The concerns expressed by businessmen are the inevitable consequences of over 40 years of entanglement with an organisation which has removed from its member states the power to determine their own trade policy. We do not now have any experience of negotiating international trade deals and the newly-reconstituted Department for International Trade has been forced to look overseas when seeking to fill the post of chief trade negotiation advisor. Crawford Falconer, a New Zealander, took up his position in August 2017. He brought with him 25 years of trade experience, having represented New Zealand at the World Trade Organization (WTO) and held various posts in foreign and trade affairs in his home country. No one of working age in the UK could possibly have had a comparable degree of experience.
Short-term concerns notwithstanding, Brexit will unquestionably be beneficial to the UK in the long run in freeing our trade policy from control by the protectionist European Union and enabling us to reorientate our trade away from a bloc in demographic decline.
Dealing firstly with the EU’s protectionism, the UK has historically been an advocate of free trade. One of the classic defences of free trade, The Wealth of Nations, was written in 1776 by a Scotsman, Adam Smith. The first General Director of the General Agreement on Tariffs and Trade (GATT), which sought to eliminate import tariffs and promote free trade across the world, was an Englishman, Sir Eric Wyndham White. We were one of the founding members of EFTA, the European Free Trade Organisation, which was set up in 1960 as a purely trade-based alternative to the political project which has become the European Union.
When we left EFTA to join the EEC in 1973, many people were misled into believing that we had moved from one free trade area to another. In fact, we had joined a customs union – a group of nations which allows a degree of free trade among its members, but imposes common tariffs on goods imported from elsewhere.
At that time it seemed a good move to reorientate our trade towards the growing economies of Western Europe. The first 25 years of GATT had not succeeded in making many serious inroads into protectionism. Most of Latin America imposed tariffs on imports from the UK. Even Commonwealth countries applied import duties on many British products. Our economy had not performed well in the previous decade and the opportunity to develop tariff-free trade links with a bloc of nations on our doorstep with dynamic economies helped swing the vote in favour of entry.
Over forty years on, the picture is very different. Thanks to the World Trade Organisation, GATT’s successor, import duties worldwide are far less widespread and lower than they were in 1973, with the signing of many free trade deals between nations and the establishment of regional trading blocs such as MERCOSUR in South America and ASEAN in Asia.
What is more, large-scale comprehensive free trade agreements such as the recent deal between the EU and Canada (CETA) are falling out of favour, being replaced with limited mutual recognition deals covering specific products. It is often correctly pointed out that there is no free trade agreement with the European Union and China. It is no so widely known that the EU and China have signed a Mutual Recognition Agreement on conformity assessment procedures and have also signed an agreement on customs co-operation along with a number of Memoranda of Understanding, each of which facilitate trade in limited areas.
The EU does tend to be behind the curve in trading issues because of the need to satisfy the concerns of the different member states. The French are particularly protectionist and this does not just apply to their agricultural sector. The Transatlantic Trade and Investment Partnership (TTIP) the now-defunct proposed EU-US trade deal, nearly came to grief well before the election of President Trump due to French concerns about their film industry, even though it was much smaller than the UK’s.
It will therefore be beneficial for the UK to regain its own seat on international trade bodies such as the World Trade Organisation, rather than continuing to be represented by someone from the EU who also has to speak for 27 other very different nations. David Cameron was very keen to stress that he wanted the UK to have a seat at the world’s “top tables”, but he was living in a fantasy land. We were not in the EU’s “top table” by virtue of wishing to keep out of the €urozone, yet at the same time, by sub-contracting our trade policy to the EU, we were excluded from the top tables which determine the future of global trade.
Furthermore, the freedom to strike our own trade deals will enable us to increase our trade with the growing economies of Asia and Latin America. Customs unions tend to be protectionist and inward-looking. For some EU nations, this introversion is not a big problem as most of their trade takes place with the other member states. Belgium, for instance, sends 72.3% of its goods exports and 68.7% of its services exports to other EU countries. The figures for the UK are 47% and 37% respectively and this does not take into account the “Rotterdam-Antwerp distortion” whereby goods destined for a third country which may or may not be in the EU are counted as exports to the EU because they are initially sent to these two large European ports from which they are shipped onwards to their final destination. In reality, the true figure for goods is more like 43%, notably lower than the 48.4% of all goods exports from non-member Switzerland which end up in the EU.
Given that the EU is likely to become less important for international trade as the century progresses, it makes no sense to be locked into the EU’s Customs Union, free to trade with the EU but unable to strike or own trade deals elsewhere. On Brexit day, to continue with this situation even as a transitional arrangement makes no sense. All we need is a customs clearance agreement, which is very different.
Brexit will open up all manner of opportunities for UK trade. Another possibility being suggested in some quarters is a Commonwealth Free Trade area, while some senior figures on both sides of the Atlantic have suggested that the UK joins NAFTA, the North American Free Trade Association. The latter looks rather a long shot for now, given President Trump’s protectionist leanings. These possibilities, however, are for the longer term. The immediate concern for our Brexit negotiators is to ensure that our existing trade with the EU can continue to flow smoothly. It is no good enthusing about the freedom to cut tariffs on non-EU imports and strike dals with China while the M20 turns into a massive lorry park due to our failure to come to any sort of arrangement with the EU on customs clearance.
[posts-for-page cat_slug=’industry’ num=’10’ read_more=’
Read More »’ use_wp_excerpt=’true’ show_meta=’true’ force_image_width=’150′]