A former Chair of Vote Leave, John Mills says panic at Britain’s future trading arrangements is overblownby John Mills / April 18, 2018 / Leave a comment
How much difference will Brexit make to Britain’s trade with the EU27? Most likely there will be some change but not nearly as much as some people fear.The most probable outcome to the current trade negotiations still seems to be a free trade agreement along the lines of CETA, the terms negotiated by the European Union with Canada. This would involve almost totally tariff-free trade on goods, including most agricultural products, but with rather greater limitations on services—much as at the moment.If we were outside the single market, as is currently government policy, the paperwork involved would be a little more complicated than it is at the moment, but not that much. The biggest change would be that certificates of origin would be required, as happens now with the vast majority of world trade. With pre-clearance, trusted traders and the Authorised Economic Operator (AEO) system all in place, hold-ups would be minimal. HMRC could make this all work. Trustworthy estimates of the extra costs involved, compared to the existing “free movement” of goods and services, hover around 1 per cent of the value of the trade concerned.
It is possible—although unlikely—that we will not secure a free trade deal in which case World Trade Organisation tariffs would apply. This has been portrayed in some quarters as a disastrous outcome but this is surely an absurd exaggeration. It would be disappointing to have tariffs on trade between the UK and the EU27 re-imposed, but on industrial goods the average import duty would only be about 2.5 per cent. If agricultural products are included, the average rises to about 4 per cent, but if services ae included it drops back again to around 2.5 per cent.
“WTO tariffs have been portrayed as a disastrous outcome but this is an absurd exaggeration”
If, on the other hand, we were to stay in the single market, we should be able to continue with “free movement” of goods and services, but very probably at the cost of continuing high levels of net contributions to the EU budget (£9bn in 2017), no restraints on EU immigration, and continuing EU regulation over which, as non-members, we would have no control. This would look like a very poor deal to the 52 per cent of the electorate which voted for Brexit in June 2016.
How would these options look when measured against the key wider criteria by which they are likely to be judged? Would trade, especially the sections of it involving tightly managed supply chains, be disrupted if Britain left the SM? Would we lose out as the EU27 sold much more to us than we to them?
Getting goods through a border quickly and reliably is essentially a management problem. It will help that “Just in Time” operations are almost entirely conducted by trusted traders, not by small time operators who are likely to need checks. The fact that large volumes of world trade are conducted across WTO borders shows that it is perfectly possible to overcome any potential problems.
Are we likely to see trade between the UK and the EU27 diminishing significantly if we leave the SM? Why should it? If trade is really worth doing it is unlikely to be inhibited by a <1 per cent increase in costs. After the EU referendum, sterling fell to $1.22. It is now around $1.40. If this 15 per cent increase has had almost no impact on total trade volumes, which is what the trade figures tell us, why should any of the potential Brexit outcomes make a larger difference?
There is a factor relating strongly to trade, however, which needs to have much more attention paid to it than has apparently so far been the case. The UK has a massive balance of payments deficit with the EU27, running at around £100bn a year for the last few years—5 per cent of UK annual GDP. This is dragging the UK economy down in the short term, and is entirely unsustainable looking ahead.
The only way to overcome this problem is for the UK to have a much more competitive exchange rate generally, but particularly against the euro. When are we going to wake up to this pressing requirement?