Underplaying the strength of Britain’s post-Brexit negotiating position (again and again)

Even Eurosceptic inclined publications underplay the strength of Britain’s trade position vis à vis the EU.

Thus the first of a series of “Fact Checker” articles (on March 1st in the Daily Telegraph) referred to the supposed tariff barriers that an independent Britain would face should she not conclude a free-trade agreement (FTA) with the EU as Korea (2013) and Canada (2015) have recently done.

All other publications which this writer has seen implicitly assume that in such a scenario (which is highly unlikely), the tariff barrier would be about the current rate reported by the World Trade Organisation, namely 5.3% on the value of goods imported (£135 billion in 2015).

According to Peter Lilley, former Treasury Minister and Shadow Chancellor (see post of 13th February) this would be more than offset by savings on our payments to the EU (£11.4 billion in 2014) – what this writer refers to as an effective tariff of 7.7% on British goods (Daily Telegraph letter of 27th January).

But, as this letter states, there is no need to tap into our EU savings to cover manufacturers’ tariff costs, because we would naturally introduce reciprocal tariffs on the £220 billion of goods the EU exports to Britain. This alone would, at 5.3%, provide revenue for the British Treasury of £11.7 billion, to which should be added the customs duties on imports of non-EU goods, worth £2,926 million in 2013, which currently flow directly to Brussels (See National Statistical Office Pink Book section 9.9).  Thus the Brexit dividend balance sheet on 2013/14 figures looks like this:

The Brexit Dividend

Present 2013/14 Post Brexit
Paid to EU £ million £ million Paid to UK
National Contributions to EU Budget 8,556 nil
Customs duties on non-EU goods imported into UK 2926 +2,926
Total fees for UK access to EU markets 11,442
Customs duties on EU goods imported into UK 5.3% on £220 billion nil 11,660
Duties on UK goods imported into EU 5.3% on £148 billion nil -7.844
Total income to UK -11,442 million +6,742

Thus the Brexit Dividend for the UK is £6,742 million plus £11,442 million or £18,184 million per year and much greater than the figures of £4 billion or so which have been cited elsewhere.

No other country would dream of turning down this enormous dividend, equivalent to half the defence budget, and especially as it is paid entirely in much needed foreign exchange.

Compensating the Exporters: an Export Growth Fund

In the unlikely event of the EU not wanting tariff free trade between us, Britain will need to find ways of reimbursing exporters who will have to pay the 5.3% average tariff themselves.  On 2014 figures this amounts to the £7,844 billion in the Dividend table.

Direct subsidies for exports by individual firms are not allowed by WTO rules, nor are tax changes which apply only to them. However setting up an Export Growth Fund to provide specific assistance – cash grants for all facets of production and sales: marketing in export markets, new product development, prototyping, process improvement, is certainly allowable.  Access to the Fund would be in the form of direct payments against tariff receipts.

With the sums involved, such a fund, with appropriate direction and inspiration, would herald a veritable regeneration of British industry. Far from fearing Brexit, every British person should welcome the opportunity it will bring.

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2 Responses to “Underplaying the strength of Britain’s post-Brexit negotiating position (again and again)”

  1. Anne says:

    Are you suggesting that in the event of us trading under WTO rules only, we could introduce specific tariffs only for EU imports. Because this breaks WTO MFN rules.

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  2. Stephen Bush Stephen Bush says:

    Sorry we missed this comment at the time (22nd July).

    No, we are not suggesting that the UK would introduce specific tariffs only for EU imports to Britain.

    If Britain withdrew from the EU without a specific EU-UK trade deal (which is very improbable) it would, as you say, trade under WTO (World Trade Organisation) and MFN (Most Favoured Nation) rules. That would mean that the UK import tariff regime would be the same for EU goods, as for Australian or the US goods, pending any specific trade agreements with those countries.

    Likewise the EU Common External Tariff (CET) which applies to all non-EU goods imports to the EU (with the exception of goods from countries like Korea, with which the EU has signed a trade deal) would automatically apply to British exports to the EU once we have withdrawn from the EU, in the absence of a specific EU-UK trade deal.

    The MFN rules restrict customs duties (tariffs) which the EU could impose on the UK and vice versa. The customs duties in the table posted on March 4th are the 2014 figures supplied by the WTO. The EU is committed publicly to lowering its tariffs so these figures will be reduced as time goes on, probably as a result of the WTO Doha negotiations, when eventually they are resumed and completed.

    For the record, I have argued that, for the short to medium term at least, Britain should accept the CET and Tariff Free circulation of goods in the UK and the EU 27, in the practical interests of keeping the goods flowing without changing the paperwork. At the same time we should install the same immigration/visa regime for EU nationals as we currently have for non-patrial Australians, Canadians and New Zealanders (see Chapters 10 and 11 of my book “Britain’s Referendum Decision and its Effects” advertised on this website).

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