A comprehensive answer, backed with facts, to a Brexiter — characteristically full of rhetoric and very light on detail — and his absurd claim that a No-Deal Brexit means everything becomes cheaper.
It all started with Henry Bolton’s claim on Twitter that “No-Deal can make goods cheaper.” An assertion Jim Cornelius could not let go unanswered.
(ICYMI: Henry Bolton was the Leader of UKIP for 21 weeks, from 29 September 2017 to 17 February 2018.)
This is complete nonsense. The 20% figure is pure fantasy. On the majority of goods imported into the UK tariffs do not apply because they are imported:
1. from the European Union;
2. from Free Trade Agreement (FTA) partners at 0%;
3. from developing countries at 0%;
4. under a tariff quota at 0%;
5. on a 0% tariff rating anyway.
By the World Trade Organization (WTO) definition, an FTA must eliminate tariffs on substantially all trade, that is usually in the region of 90-95%. For the EU’s 25-odd Economic Partnership Agreements (EPAs) that figure is 100% for all countries bar South Africa where it is 98.7%.
These are the EU’s current FTAs:
On 29 March 2019 we become a third country. With No-Deal our FTAs with these countries no longer apply so we automatically become a third country subject to Most Favored Nation (MFN) tariffs from them and likewise must reciprocate. We are not going to lower tariffs BEFORE securing trade deals which do so.
Before the UK joined the European Economic Community (EEC) in 1973, we had tariffs and quota restrictions on non-Commonwealth and even some Commonwealth goods that were higher than the EEC’s Common External Tariff, and after Brexit we will still have tariffs. The Department for International Trade has no plans to reduce them.
EU tariff rates are on the more liberal side compared to other nations and because of EU Trade preferences and free trade deals they do not apply in many cases.
The World Bank published a report on trade preferences a few months ago.
There is a nice graph on page 10. The top orange dot is the average trade-weighted MFN tariff. Preferences for FTA partners and developing countries pull this down to the green dot. (I have annotated it to highlight EU countries and some others for comparison.)
I have rotated the EU section to make it a bit clearer. Note how trade preferences mean that the average trade-weighted tariff (green dot) for EU countries ends up BELOW New Zealand, Australia, the United States and Canada.
The lower tariffs from third countries mean cheaper imports for us.
How Preferential Is Preferential Trade? - May 2018. (World Bank Group)
Looking at agricultural goods, we can see how preferences affect tariffs. Here is a table of average agricultural tariffs OECD countries outside of the EU, the UK/EU, and a few others for comparison. The EU, already in the lower half, is lower still once preferences are taken into account.
Market Access Map / ITC
And here for non-agricultural goods:
Market Access Map / ITC
As for all this making goods more expensive. It is simply not true, as a comparison of retail prices easily shows. US on the left, UK on the right:
Cost of Living Comparison / Numbeo
“No-Deal can make goods cheaper,” Henry Bolton claims.
I have not even hinted on the fact that No-Deal means no FTAs, so all UK exports will be subject to tariffs from third countries under WTO, MFN terms. If we unilaterally lowered tariffs as you suggest, what leverage is there then for trade deals?
What is the point?
1. Used as leverage when negotiating FTAs;
2. They are a source of revenue;
3. The UK has already submitted a schedule which is a duplicate of the EU’s schedule;
4. The effect on the Consumer Price Index (CPI) of removing tariffs on non-UK produced goods would be a maximum of 0.4%.
I should have mentioned preferences. If you eliminate a tariff you also eliminate the preference for developing countries. Particularly important to countries like Bangladesh. The exemption they have due to the Everything But Arms (EBA) scheme allows them to compete with China in provision of apparel for example.
So much to unpack here. Have you ever noticed that goods are cheaper in certain regions of the UK? Goods are priced at whatever people are prepared to pay and often that is determined by disposable income.
But I am going to talk about rice as you mentioned it...
Under EU Regulation EC 972/2006, unlimited quantities of basmati rice from India and Pakistan may be imported into the EU entirely free of duty. Under this scheme about 450,000 tonnes of rice is imported annually, which is approximately half of all EU rice imports, majority goes to the UK.
Commission Regulation (EC) No 972/2006 / Publication Office of the European Union
Of the remainder of rice imports into the EU, approximately 300,000 tonnes are imported from Cambodia, Myanmar, Guyana, Surinam and several other countries tariff-free due to FTAs and the aforementioned schemes for developing countries.
“The idea that No-Deal means no FTAs is daft,” Henry Bolton claims.
Leaving with No-Deal is daft.
No-one is going to want a deal with a country that cannot even negotiate in good faith with its nearest and biggest trading partner, and plans to renege on a commitment to settle a £39 billion debt.
Your link does mot make your case. All of that is about improved market access under the Southern African Development Community (SADC) Economic Partnership Agreement (EPA) in a few market sectors. The fact is that 98.7% of goods are exempt tariffs under the EPA for South Africa and 100% for the other SADC countries.
Let’s look at the quota for South African wine, which was increased under the SADC-EU EPA.
The quota is 112,118,000 litres (nearly 150 million bottles).
You have completely misunderstood the slide that refers to cheese and olives (it is the only reference)! This is about the protection of PRODUCT NAMES, there is no quantitate restriction or tariff on cheese or olives from South Africa!
Slide 18 - Update on South Africa’s Trade Agreements, November 2017 (Department of Trade and Industry)
With regard canned fruit. The tariff and quotas are being entirely eliminated in phases (as it usual under most FTAs, so as not to cause market shock). See the highlighted sections, and preceding paragraphs from the text of the EU-SADC EPA.
Economic Partnership Agreement between the EU and the SADC EPA States (EU Commission)
Sorry, Patrick Minford’s models are not credible.
For clarity, Minford’s lot is the Liverpool Research Group, with a score of 3/10 in the Sunday Times’ poll of the most accurate forecasters of the UK economy in 2018.
Bolton has a history of believing the first thing he reads that agrees with his prejudices without submitting it to critical thought. It is not an uncommon trait, but it is one that I think children should be taught to reform and abandon from about age 9.
Ok. You need a little history lesson here.
Bananas are 0% from Commonwealth, African and Caribbean countries, but there is a tariff on bananas from countries where giant US firms dominate production in Latin America. This is a continuation of a British policy from 1958.
You are arguing a straw man. For what reason I cannot fathom. I already explained to you that the WTO require that FTAs eliminate tariffs on substantially all trade, which is usually about 90-95%, not necessarily all.
The reductions in tariffs for bananas was part of the WTO settlement of the 20-year trade war between the European Union and the United States backed South American Banana producers.
Do you still stand by your claim that there is a potential 20% saving from eliminating tariffs?🔷
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(This piece was first published as a Twitter thread and turned into the above article, with the author’s consent, with the purpose of reaching a larger audience. It has been minorly edited and corrected. - For the purpose of offering our reader a better understanding of the main thread that split in three other threads during the exchanges, we have not always been able to follow the chronological order of the main tweets.)