The discussion of trade after a possible Brexit has been an appalling mix of ignorance and scaremongering. The simple fact is that both the EU and UK are members of the World Trade Organisation and to continue as members they agree to continue to trade with each other. The only issue is the tariffs that would be charged.
First, and most important to understand, is that trade with the EU (imports and exports) is about only about 25% of UK GDP. As mentioned above, trade will continue after any Brexit so even the most outrageous claims of a 20% increase or a 20% decrease in trade with the EU would only cause a 5% change in GDP. In fact, as summarised below, any Brexit will have little effect on total tariff charges and only the deepest pessimist or optimist would believe that UK-EU trade would change by over 10% in either direction (+/- 2.5% GDP but see below).
The EU has published its tariff rates at the WTO for general trade with nations where it has no other trade agreement. These are the "WTO Tariff rates" for the EU. If the UK left the EU without any trade agreement this WTO Tariff rate would be payable on UK exports and the UK would impose a corresponding charge on imports from the EU. Now for the really important point: the total WTO tariff payable across all goods exported to the EU would only be about £5 billion a year, even the global bill, without EFTA membership, would only be about £10bn in about £389bn of export volume. (See EU Referendum: Key Facts). Tariffs are not what they used to be. The UK would be entitled to use any tariffs charged on imports to pay export tariffs.
This is not the 1970s. Tariffs are no longer high on most goods and the government could pay the tariffs for exporters on the few areas where these are high. The WTO permits emergency measures where there is a Balance of Payments crisis (such as the UK economy) and transitional measures.
There also appears to be a great deal of confusion about the trading relationship between the UK and the USA. The USA currently charges WTO tariffs on goods from EU countries. There is no trade deal between the EU and the USA at present. This means that there would be no change to UK-USA trade relations after Brexit. The EU is negotiating a deal with the USA called "TTIP" but this is not just about trade and is highly contentious.
So why are we discussing tariffs so much in the EU Referendum campaign? It is a scaremongering tactic by the Remain lobby. It is part of Project Fear and the Brexit campaign are falling for it. Those who wish to leave the EU should call the Remainians bluff and demand that they come clean about the tiny tariffs payable today. The Leave campaign should state that they will give subsidies to any exporters disadvantaged by tariffs after Brexit, the sums being small in the scale of trade in general. It should also stress that the UK would join EFTA (without EEA) after a Brexit so that Free Trade is available with much of the world other than the EU.
The Data
As a WTO member the EU must trade with other WTO members. It publishes the EU general tariff rate on the WTO website.
The UK's export profile is as follows:
The Top 20 UK Exports of goods are:
£ m Tariff% Tariff £m
Mechanical machinery 38 576 2.5 964.4
Cars 25 652 7.5 1923.9
Medicinal & pharmaceutical produ 24 460 2.5 611.5
Electrical machinery 24 067 2.5 601.675
Other miscellaneous manufactures 12 766 2 255.32
Aircraft 12 380 2 247.6
Scientific & photographic 11 356 2 227.12
Crude oil 10 604 1 106.04
Refined oil 10 585 3 317.55
Organic chemicals 8 754 2 175.08
Unspecified goods 7 857 5 392.85
Road vehicles other than cars 6 437 7.5 482.775
Beverages 6 387 8 510.96
Works of art 6 101 5 305.05
Clothing 5 793 10 579.3
Plastics 5 429 2 108.58
Non-ferrous metals excl. silver 5 310 2 106.2
Miscellaneous metal manufactures 5 145 2.5 128.625
Fertilisers & other chemicals 4 912 2 98.24
Toilet & cleansing preparations 4 870 2 97.4
Iron & steel 4 733 1 47.33
The Tariff% comes from the WTO Tariff Database
The total value of UK exports in goods in the year to December 2015 was £389,000 m (exc. "erratics"). The value of the top 20 export types was £211,775 m and the total tariff that the EU would charge on these, had they all been exported to the EU, would have been £8,287m without EU membership. 57% were exported elsewhere, to places with lower tariffs so the estimates of about £7.5 billion as the total tariff that the Business for Britain calculated the UK would pay on exports to the world without any trade deals is not vastly out. Certainly a maximum of about £10 bn plus or minus £4 bn (ie: very little in the context of £389 bn annual exports) seems about right. The UK would charge slightly more in tariffs on imports. Only 40% of exports are to the EU and would only attract about £4-5bn a year of EU tariffs. The UK pays over £10bn per year to the EU to avoid some of the £10bn in global tariffs through free trade with the EU and trade agreements that the EU has arranged with other countries.
If there were a Brexit the UK government could use import tariffs to pay the export tariffs paid by UK exporters. The Brexit campaign should make it clear that this will happen.
Services, including software, have almost no tariffs in most countries and foreign providers are to be treated in the same way as national providers although Insurance companies, Banks etc. need to have branches or partners overseas to manage local regulations (this is also needed in the EU at present).
In other words the Tariff issue is entirely scaremongering, it is not critical to the debate on the EU. See Why the EU Referendum is happening for a clear account of what the EU Referendum is about.
The effect of a temporary end to free trade with the EU could be more beneficial than destructive - see The Imbalance of UK-EU Trade and its Consequences.
I favour delaying trade agreements with the EU, except for cars and food, for many years after leaving the EU because the UK has such a dreadful trade deficit with the EU. See A plan for Brexit.
First, and most important to understand, is that trade with the EU (imports and exports) is about only about 25% of UK GDP. As mentioned above, trade will continue after any Brexit so even the most outrageous claims of a 20% increase or a 20% decrease in trade with the EU would only cause a 5% change in GDP. In fact, as summarised below, any Brexit will have little effect on total tariff charges and only the deepest pessimist or optimist would believe that UK-EU trade would change by over 10% in either direction (+/- 2.5% GDP but see below).
The EU has published its tariff rates at the WTO for general trade with nations where it has no other trade agreement. These are the "WTO Tariff rates" for the EU. If the UK left the EU without any trade agreement this WTO Tariff rate would be payable on UK exports and the UK would impose a corresponding charge on imports from the EU. Now for the really important point: the total WTO tariff payable across all goods exported to the EU would only be about £5 billion a year, even the global bill, without EFTA membership, would only be about £10bn in about £389bn of export volume. (See EU Referendum: Key Facts). Tariffs are not what they used to be. The UK would be entitled to use any tariffs charged on imports to pay export tariffs.
This is not the 1970s. Tariffs are no longer high on most goods and the government could pay the tariffs for exporters on the few areas where these are high. The WTO permits emergency measures where there is a Balance of Payments crisis (such as the UK economy) and transitional measures.
There also appears to be a great deal of confusion about the trading relationship between the UK and the USA. The USA currently charges WTO tariffs on goods from EU countries. There is no trade deal between the EU and the USA at present. This means that there would be no change to UK-USA trade relations after Brexit. The EU is negotiating a deal with the USA called "TTIP" but this is not just about trade and is highly contentious.
So why are we discussing tariffs so much in the EU Referendum campaign? It is a scaremongering tactic by the Remain lobby. It is part of Project Fear and the Brexit campaign are falling for it. Those who wish to leave the EU should call the Remainians bluff and demand that they come clean about the tiny tariffs payable today. The Leave campaign should state that they will give subsidies to any exporters disadvantaged by tariffs after Brexit, the sums being small in the scale of trade in general. It should also stress that the UK would join EFTA (without EEA) after a Brexit so that Free Trade is available with much of the world other than the EU.
The Data
As a WTO member the EU must trade with other WTO members. It publishes the EU general tariff rate on the WTO website.
The UK's export profile is as follows:
The Top 20 UK Exports of goods are:
£ m Tariff% Tariff £m
Mechanical machinery 38 576 2.5 964.4
Cars 25 652 7.5 1923.9
Medicinal & pharmaceutical produ 24 460 2.5 611.5
Electrical machinery 24 067 2.5 601.675
Other miscellaneous manufactures 12 766 2 255.32
Aircraft 12 380 2 247.6
Scientific & photographic 11 356 2 227.12
Crude oil 10 604 1 106.04
Refined oil 10 585 3 317.55
Organic chemicals 8 754 2 175.08
Unspecified goods 7 857 5 392.85
Road vehicles other than cars 6 437 7.5 482.775
Beverages 6 387 8 510.96
Works of art 6 101 5 305.05
Clothing 5 793 10 579.3
Plastics 5 429 2 108.58
Non-ferrous metals excl. silver 5 310 2 106.2
Miscellaneous metal manufactures 5 145 2.5 128.625
Fertilisers & other chemicals 4 912 2 98.24
Toilet & cleansing preparations 4 870 2 97.4
Iron & steel 4 733 1 47.33
The Tariff% comes from the WTO Tariff Database
The total value of UK exports in goods in the year to December 2015 was £389,000 m (exc. "erratics"). The value of the top 20 export types was £211,775 m and the total tariff that the EU would charge on these, had they all been exported to the EU, would have been £8,287m without EU membership. 57% were exported elsewhere, to places with lower tariffs so the estimates of about £7.5 billion as the total tariff that the Business for Britain calculated the UK would pay on exports to the world without any trade deals is not vastly out. Certainly a maximum of about £10 bn plus or minus £4 bn (ie: very little in the context of £389 bn annual exports) seems about right. The UK would charge slightly more in tariffs on imports. Only 40% of exports are to the EU and would only attract about £4-5bn a year of EU tariffs. The UK pays over £10bn per year to the EU to avoid some of the £10bn in global tariffs through free trade with the EU and trade agreements that the EU has arranged with other countries.
If there were a Brexit the UK government could use import tariffs to pay the export tariffs paid by UK exporters. The Brexit campaign should make it clear that this will happen.
Services, including software, have almost no tariffs in most countries and foreign providers are to be treated in the same way as national providers although Insurance companies, Banks etc. need to have branches or partners overseas to manage local regulations (this is also needed in the EU at present).
In other words the Tariff issue is entirely scaremongering, it is not critical to the debate on the EU. See Why the EU Referendum is happening for a clear account of what the EU Referendum is about.
The effect of a temporary end to free trade with the EU could be more beneficial than destructive - see The Imbalance of UK-EU Trade and its Consequences.
I favour delaying trade agreements with the EU, except for cars and food, for many years after leaving the EU because the UK has such a dreadful trade deficit with the EU. See A plan for Brexit.
Comments
Andrew