Disentangling the Brexit Muddle
Like many people, your editor is very concerned at the muddle which Mrs May’s government has got into with Brexit.
To disentangle the muddle, Mrs May needs to be clear that among many possible objectives, two outway all the others. These are:
- stopping uncontrolled immigration from the EU-27;
- continuation of the tariff-free flow of goods between the EU and UK.
For (1), the government should declare at the outset of negotiations, or better still now, that immigration is a UK sovereign matter, entirely separate from anything else and is non-negotiable. We will apply to EU nationals exactly the same arrangements we apply to non-patrial Australians, Canadians and New Zealanders, i.e. the visa-waiver scheme for short-term visits and work permits for jobs (as set out in Chapter 4).
For (2), the government should declare that consistent with the objective of continuation of the tariff-free flow of goods in the UK and EU-27, it accepts the Common External tariff (CET). If tariff-free trade is to continue, it must be recognised that the central problem is the tariff treatment of goods entering the EU-27 from the UK (and vice versa), which contain significant quantities of materials originating in the rest of the world (ROW) outside the UK and the EU-27. At the moment, this problem is dealt with by the EU’s common external tariff (CET), common that is to all 28 EU countries plus Turkey. The EU has registered some 9,000 product lines with the World Trade Organisation, to each of which has been assigned a specific tariff rate. For industrial goods, these rates average about 4.8% by value of goods, ranging from zero (oil) to about 9.9% for cars. Agricultural tariffs are much higher, aimed at third-world produce, but even here 20% are duty free.
If Britain sought to retain tariff-free circulation of goods within the EU-27 and itself, while setting its own, different, tariffs with the ROW, it would have to obtain clearance under the “Rules of Origin” for each class of merchandise exported to the EU-27. In the Swiss-EEC rules of origin negotiations of the 1970s, limits of 30-35% were placed on the value of non-Swiss non-EEC content of goods qualifying for tariff-free circulation, but the percentage for each class of good had to be separately negotiated.
Today, the EU’s Generalised System of Preferences (GSP) defines the terms of entry, including the Rules of Origin, for all goods imported from outside itself. Because of globalisation, each class of goods is highly differentiated (the GSP gives straw hats and straw baskets as distinct examples, for instance) and immensely more time-consuming to classify than 40 years ago.
Even if Britain were to opt for a tariffed relationship with the EU like the US or Australia, as some have advocated, individual UK exporters would still have to obtain the EU tariff classifications applicable to their products. As this writer can testify from experience, this can involve a lot of work: there are three different rates applicable to plastic sheeting alone for instance and many more for every conceivable type of fitting and component.
A European Trade Partnership (ETP): Example of Turkey
(see Chapter 11.3)
The present trade-weighted average EU tariff on goods which the UK exports to the EU now, is only 2.4% and about 3.0% on those she imports from outside the EU. It makes a lot of sense to bypass all these rules of origin difficulties by simply applying the current EU external tariff (CET) to goods imported into the UK from the non-EU world. This would amount to a UK-EU customs union, but without the EU’s requirement to allow free movement of people.
Turkey is the model here. Since 1996 she has enjoyed tariff-free access to EU markets (including Britain’s), and with no free movement of people. The CET has posed little difficulty for her in making trade agreements with other countries or trade blocs including the European Free Trade Association (EFTA). Turkey has direct access to the European Commissioner for Trade and has been assured that it will be consulted about negotiations with the USA concerning the proposed TTIP agreement.
This same arrangement for the UK could appropriately be termed the European Trade Partnership (ETP). It would please British firms doing business with the EU, since no paperwork would change, and it would relieve British travellers into and out of the EU-27 from tiresome customs declarations.
In due course Turkey could formally join the ETP, giving a pleasing symmetry to the arrangement: two countries with similar populations, distinctly different cultures, but trading freely with the EU and each other.
The major differences from the present arrangements would be:
(see Chapter 11.3)
- The customs duties on non-EU imports to the UK (about £2.1 billion net of collection costs) would go henceforth to HMRC, not Brussels.
- Allowing for a contribution to the EU equal to half the tariff of 2.4% on the value currently of UK goods sold there, less collection costs (about £1.7 billion), Britain’s net contribution to the EU budget (excluding the customs duties collected by HMRC in future) would fall by about £7.5 billion after paying all present EU grants to the farmers, universities, regional and local authorities.
- Britain’s Continental Shelf fisheries rights would be asserted, potentially sparking a massive renaissance of the East coast fishing industry.
- It would not disturb existing EU arrangements with the Channel Islands and the Isle of Man.
- Because the UK is a direct signatory of each of the EU’s bilateral trade treaties with third parties (including Korea and Canada), these would continue after Brexit.
- Any UK trade deal with other third parties would have to respect the CETs, but for industrial goods these are now mostly very low, and will become lower in future. In any case the main issues in free trade agreements between industrialised countries nowadays relate to non-tariff matters, such as upholding intellectual property rights, payment of royalties and standards.
- The whole principle of an ETP along these lines could be accepted by both parties in an afternoon.
 Britain’s Referendum Decision and its Effects”, by Stephen Bush, published by Technomica, May 9th 2016, available from Amazon, and direct from Prosyma Research Ltd, Unit 4B, Boldero Road, Bury St Edmunds, IP32 7BS.