It is often claimed that there is no strategy for "Brexit". This puzzles many who voted "Leave" because there is only one realistic path forwards. Obviously the UK must ensure that the UK can continue to trade the moment that any negotiations expire. This means that the UK must, prior to officially informing the EU that it will leave, get undertakings signed by the WTO and EU that the UK will have independent WTO Status with all the necessary tables of Tariffs and minor agreements in place. This is the inevitable plan for Brexit:
Stage 1: Obtain undertakings by the WTO and EU, lodged at United Nations, that the UK will be recognised as a fully functioning, independent WTO member the day that its membership of the EU expires. Without such undertakings the UK might be left without any trade when its EU membership ends. It is a condition of WTO membership that members do not put obstacles in the way of fair trading. The guarantee of independent WTO Trading is a prerequisite of further negotiations.
Stage 2: Once the undertakings in Stage 1 are complete the UK should issue an official notice to withdraw from the EU under Article 50 of Treaty on European Union. This begins a two year Exit period from the EU.
Stage 3: Explorations of trade deals with EFTA and the EU and other countries will take place over the two year Exit period. A final decision by the government on whether the UK will join a WTO grouping such as the EU or EFTA or be an independent WTO member will be taken.
Stage 4: On the last day of the two year Exit period the UK will adopt its new trading posture.
The highly political part of this process is Stage 3. Which trading group will the UK join, if any?
The UK has been in the EU Group for over twenty years but it is not doing well within that group. The UK Balance of payments with the EU is disastrous:
The Balance of Trade is just as bad:
The EU exported goods and services worth £288,265 million to the UK in 2014 which was £61,578 million more than the UK exported to the EU. This huge deficit in trade has been allowed to occur over a decade but if the economy is to be re-balanced it needs urgent action.
Part of the objective of a Brexit would be to address our appalling trade relations with the EU, relations that hugely benefit the EU. (If you do not believe this see: The Imbalance of EU-UK Trade and its Consequences)
Britain is extremely fortunate because it can start the obligatory "2 year notice period" from the EU whenever it wants after voting for Brexit. The Government would spend the time required for planning and all preliminary negotiations before a giving a formal notice to the EU.
The best plan for leaving the EU is to change allegiances within the WTO by joining EFTA (the European Free Trade Association) but without joining the EEA (the European Economic Area). It is the EEA which has "Access to the Single Market" with strings attached and costs (see Note 3). EFTA membership is highly likely because Norway and Iceland have the UK as a major trading partner and are unlikely to jeopardise this arrangement. This will give the UK trade deals across the world but will leave the UK-EU relationship in "limbo". It will do this deliberately.
Apart from trade, a few individual deals would need to be concluded as quickly as possible such as those to care for UK workers who are already working in the EU and vice versa, for reciprocity of medical treatment, and to clarify the status of EU and UK citizens who wish to stay in the UK and EU etc. Deals on trade and capital flows can wait. The UK should be happy to take on World Trade Organisation "MFN" status with the EU which allows trade with tariffs.
As members of the WTO, the UK and EU are obliged to allow trade between each other and not to place obstacles in the way of this trade. However, once the UK is outside the EU tariffs will be charged on UK-EU trade. The immediate resumption of tariffs with the EU will not be bad, it is what the UK needs and will be inexpensive. The EU has arranged its tariffs to punish poor countries that produce food. The UK exports services and manufactured goods much more than food. The total tariff charge on UK exports to the EU will only be around £5-7 bn (see Note 2 below), the charge on EU exports to the UK will be higher, at nearly £10bn. Neither of these charges is particularly high but the EFTA Trade Agreements will allow UK producers to export to many non-EU destinations freely and the tariffs charged on EU goods will give UK producers a small advantage over EU producers in the UK.
Every assistance should be given by Government to the areas where the EU had previously penetrated and damaged the UK economy, ready for an eventual trade deal with the EU. Such assistance should extend to using the new tariffs on imports from the EU to pay off any EU tariffs for exports to the EU (see note 1). Any eventual trade deal might leave small tariffs in place against EU products to ensure that the UK economy does not get unbalanced with the EU again.
The most important area to be addressed on Brexit is EU investment in the UK and the flow of rents, dividends and profits out of the UK to the EU. £47 billion flowed out of the UK to the EU in 2014 as a result of these movements of cash (Primary and Secondary Income deficit). This is almost as high as the trade deficit. As a member of the EU Single Market the UK is unable to encumber the exchange or flow of capital and cash between the UK and the EU. Outside the EU there are a host of measures that a clever central bank can take to slow down and surcharge such movements.
Such measures can serve to encourage re-investment of profits and rents etc. in the UK or encourage investment of monies overseas, returning the profits to the UK rather than to the EU Single Market.
In simple terms, the UK government has, over the past 20 years, neglected the terms of trade and finance between the UK and the EU Single Market. It would never have allowed a combined, annual trade and financial deficit of over £100 billion to occur with any other trading partner (and did not allow it). It is time to rebalance the UK economy. Only bankers could be opposed to this policy.
"Project Fear" has been stating that it could take 5-10 years to conclude a Free Trade Agreement with the EU. In fact it would only take a couple of years but it is hugely to the advantage of the UK to string out such an agreement for as long as possible, ideally waiting until our trade and financial relations with the EU Single Market have balanced. Once EU trading and financial relations have rebalanced the UK might seek a Free Trade deal with the EU like that between S.Korea and the EU, Singapore and the EU etc. (See The Great Myth of EU Tariffs)
See also: The Imbalance of EU-UK Trade and its Consequences
Note 1: A government paying export duties for exporters avoids anti-dumping regulations because it ensures what the WTO requires: a level playing field for UK exports to the EU. Many of the export tariff reliefs would be at the minimal level of about 3% - no action can be taken against relief at this level according to WTO. In the case of higher tariffs the export tariffs payable to EU and non-EU would receive refunds using import tariffs, this is within WTO rules as an emergency measure to correct a balance of payments crisis and as an interim measure before agreeing an FTA with the EU.
Note 2: See EU Key Facts
Note 3: It is often said that Norway pays a similar sum per head to the EEA as the UK pays to the EU but does not have as much say as the UK. Norway's high contribution is due to the fact that it is an extremely wealthy country with a GDP per head of almost two and a half times that of the UK. Contributions to the EEA are calculated on the basis of GDP per head so the UK would pay only 40% per head of the Norway contribution. In the EEA the UK would pay only about £5bn pa compared with the £12bn paid to the EU - a very substantial saving. The £5bn would buy into Erasmus+ etc. giving the UK all the "benefits" of EU schemes.
10/8/16
Stage 1: Obtain undertakings by the WTO and EU, lodged at United Nations, that the UK will be recognised as a fully functioning, independent WTO member the day that its membership of the EU expires. Without such undertakings the UK might be left without any trade when its EU membership ends. It is a condition of WTO membership that members do not put obstacles in the way of fair trading. The guarantee of independent WTO Trading is a prerequisite of further negotiations.
Stage 2: Once the undertakings in Stage 1 are complete the UK should issue an official notice to withdraw from the EU under Article 50 of Treaty on European Union. This begins a two year Exit period from the EU.
Stage 3: Explorations of trade deals with EFTA and the EU and other countries will take place over the two year Exit period. A final decision by the government on whether the UK will join a WTO grouping such as the EU or EFTA or be an independent WTO member will be taken.
Stage 4: On the last day of the two year Exit period the UK will adopt its new trading posture.
The highly political part of this process is Stage 3. Which trading group will the UK join, if any?
The UK has been in the EU Group for over twenty years but it is not doing well within that group. The UK Balance of payments with the EU is disastrous:
 |
| Current Account. Source: http://www.ons.gov.uk/ons/dcp171778_429314.pdf |
The Balance of Trade is just as bad:
The EU exported goods and services worth £288,265 million to the UK in 2014 which was £61,578 million more than the UK exported to the EU. This huge deficit in trade has been allowed to occur over a decade but if the economy is to be re-balanced it needs urgent action.
Part of the objective of a Brexit would be to address our appalling trade relations with the EU, relations that hugely benefit the EU. (If you do not believe this see: The Imbalance of EU-UK Trade and its Consequences)
Britain is extremely fortunate because it can start the obligatory "2 year notice period" from the EU whenever it wants after voting for Brexit. The Government would spend the time required for planning and all preliminary negotiations before a giving a formal notice to the EU.
The best plan for leaving the EU is to change allegiances within the WTO by joining EFTA (the European Free Trade Association) but without joining the EEA (the European Economic Area). It is the EEA which has "Access to the Single Market" with strings attached and costs (see Note 3). EFTA membership is highly likely because Norway and Iceland have the UK as a major trading partner and are unlikely to jeopardise this arrangement. This will give the UK trade deals across the world but will leave the UK-EU relationship in "limbo". It will do this deliberately.
Apart from trade, a few individual deals would need to be concluded as quickly as possible such as those to care for UK workers who are already working in the EU and vice versa, for reciprocity of medical treatment, and to clarify the status of EU and UK citizens who wish to stay in the UK and EU etc. Deals on trade and capital flows can wait. The UK should be happy to take on World Trade Organisation "MFN" status with the EU which allows trade with tariffs.
As members of the WTO, the UK and EU are obliged to allow trade between each other and not to place obstacles in the way of this trade. However, once the UK is outside the EU tariffs will be charged on UK-EU trade. The immediate resumption of tariffs with the EU will not be bad, it is what the UK needs and will be inexpensive. The EU has arranged its tariffs to punish poor countries that produce food. The UK exports services and manufactured goods much more than food. The total tariff charge on UK exports to the EU will only be around £5-7 bn (see Note 2 below), the charge on EU exports to the UK will be higher, at nearly £10bn. Neither of these charges is particularly high but the EFTA Trade Agreements will allow UK producers to export to many non-EU destinations freely and the tariffs charged on EU goods will give UK producers a small advantage over EU producers in the UK.
Every assistance should be given by Government to the areas where the EU had previously penetrated and damaged the UK economy, ready for an eventual trade deal with the EU. Such assistance should extend to using the new tariffs on imports from the EU to pay off any EU tariffs for exports to the EU (see note 1). Any eventual trade deal might leave small tariffs in place against EU products to ensure that the UK economy does not get unbalanced with the EU again.
The most important area to be addressed on Brexit is EU investment in the UK and the flow of rents, dividends and profits out of the UK to the EU. £47 billion flowed out of the UK to the EU in 2014 as a result of these movements of cash (Primary and Secondary Income deficit). This is almost as high as the trade deficit. As a member of the EU Single Market the UK is unable to encumber the exchange or flow of capital and cash between the UK and the EU. Outside the EU there are a host of measures that a clever central bank can take to slow down and surcharge such movements.
 |
| Swiss National Bank £300bn Euro Reserve |
In simple terms, the UK government has, over the past 20 years, neglected the terms of trade and finance between the UK and the EU Single Market. It would never have allowed a combined, annual trade and financial deficit of over £100 billion to occur with any other trading partner (and did not allow it). It is time to rebalance the UK economy. Only bankers could be opposed to this policy.
"Project Fear" has been stating that it could take 5-10 years to conclude a Free Trade Agreement with the EU. In fact it would only take a couple of years but it is hugely to the advantage of the UK to string out such an agreement for as long as possible, ideally waiting until our trade and financial relations with the EU Single Market have balanced. Once EU trading and financial relations have rebalanced the UK might seek a Free Trade deal with the EU like that between S.Korea and the EU, Singapore and the EU etc. (See The Great Myth of EU Tariffs)
See also: The Imbalance of EU-UK Trade and its Consequences
Note 1: A government paying export duties for exporters avoids anti-dumping regulations because it ensures what the WTO requires: a level playing field for UK exports to the EU. Many of the export tariff reliefs would be at the minimal level of about 3% - no action can be taken against relief at this level according to WTO. In the case of higher tariffs the export tariffs payable to EU and non-EU would receive refunds using import tariffs, this is within WTO rules as an emergency measure to correct a balance of payments crisis and as an interim measure before agreeing an FTA with the EU.
Note 2: See EU Key Facts
Note 3: It is often said that Norway pays a similar sum per head to the EEA as the UK pays to the EU but does not have as much say as the UK. Norway's high contribution is due to the fact that it is an extremely wealthy country with a GDP per head of almost two and a half times that of the UK. Contributions to the EEA are calculated on the basis of GDP per head so the UK would pay only 40% per head of the Norway contribution. In the EEA the UK would pay only about £5bn pa compared with the £12bn paid to the EU - a very substantial saving. The £5bn would buy into Erasmus+ etc. giving the UK all the "benefits" of EU schemes.
10/8/16
Comments
What fantasy. Have you not heard of the WTO MFN rules? They state that you must give every other nation you trade with the same terms as you most favourited nation. So if you say we'll levy tariffs on EU you'd have to do the same on the USA, China New Zealand etc. That would leave Global Britain's free trade deal completely in tatters.
So unless you're telling us with a Brexit Britain will leave the World trade Organisation as well this blog post is utter bullocks
Andrew
How can UK tax EU exports without levying the same tariff on every other nation a post brexit would trade with? MFN rules of WTO mean we'd have to tax every other trading nation the same as our 'Most favourited nation'
I really tend to agree more with Dr. North and his rantings on www.eureferendum .com
What make you more of an expert. What exactly are your credentials to claim these outrageous claims?
But this is the rate we already charge as an EU member to non-EU members. So there would be no change on our MFN rate. And we would then be free to negotiate preferential FTAs with any of these countries, to lower or remove these tariffs.
Andrew
Andrew