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Michael Gasiorek12 December 2019

Michael Gasiorek is Professor of Economics at the University of Sussex and a Fellow of the UK Trade Policy Observatory. Nicolo Tamberi is a Research Assistant in Economics for the UK Trade Policy Observatory. 

Following Brexit, and assuming the UK is no longer part of a customs union with the EU, the UK will be able to sign free trade agreements (FTAs) with third countries. Indeed, the Conservative manifesto aims to have 80% of UK trade covered by FTAs within three years. This is clearly unrealistic, because it would require signing agreements with more than 12 countries within a time-scale which has rarely been achieved for a single agreement.  The objective, however,  highlights that, post-Brexit, there will be a lot of focus on trying to sign FTAs. Other than the somewhat significant matter of signing an agreement with the EU, top of the UK’s FTA wish list is an agreement with the US. (more…)

December 12th, 2019

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11 December 2019

In the lead up to the General Election, we have analysed the manifestos of the five main political parties and what they imply for future UK trade.

Overall, we find that the manifestos in this General Election are incoherent and vague on trade and contain several unachievable targets. (more…)

December 11th, 2019

Posted In: UK - Non EU, UK- EU

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Image of Alan Winters9 December 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Our analysis finds that under the UK-EU Protocol on Northern Ireland, about 75% of Northern Ireland’s imports of goods from other locations, including Great Britain, would be subject to EU tariffs on their arrival in Northern Ireland. This is not easily reconciled with the government’s assertion that Northern Ireland remains within the UK customs territory.

Under the Brexit Withdrawal Agreement’s Protocol on Ireland/Northern Ireland, Northern Ireland’s imports from the EU, including the Republic of Ireland, would face no tariffs. Among imports from elsewhere, the Protocol requires that any goods deemed at risk of moving to the European Union should be subject to the tariffs of the EU rather than those of the UK.

Relying on a a range of statistical data and informed assumptions, the analysis breaks Northern Ireland’s imports down according to the risk criteria in the Protocol and finds that about 82% of Northern Ireland’s imports from non-EU countries and approximately 64% of imports from Great Britain would face EU tariffs. Summing the contributions to Northern Ireland’s imports from the EU (25% of the total), the rest of the world (12%) and Great Britain (63%) suggests that, overall, around 75% of all Northern Irish imports will pay the EU tariff on entering the province.

While goods that are proved to have been sold to final buyers in Northern Ireland can have any EU tariff they have paid rebated, those rebates are likely to be difficult for the private sector to claim and are therefore unlikely to refund much tariff revenue.

Further, since Northern Ireland’s imports from the EU would not face any change under the Protocol but a large share of imports from Great Britain may newly face tariffs, it seems likely that, over time, Great Britain may lose market share in Northern Ireland, both to domestic supply and to increasing imports from the EU.

Further, a Free Trade Agreement between the UK and the EU would not completely avoid the problem. While goods produced in Great Britain exported to Northern Ireland and transiting on to the Republic of Ireland would face no tariffs, they would still need to satisfy rules of origin to prove that they had been produced in Great Britain. Hence there would still be administrative hurdles for such exports to jump.

The analysis was commissioned by the Good Law Project, who explain its context and also provide a link to the evidence.

Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

December 9th, 2019

Posted In: UK - Non EU, UK- EU

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Image of Alan Winters4 December 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

The Prime Minister seems to think that an ‘oven-ready’ Brexit deal is the best that we can choose from the menu of policy alternatives. It sounds neither appetising nor nourishing, but if it really were quick and easy, maybe it would be worth it.

But it’s not quick or easy: ‘oven-ready’ is just not true.

It is true that a Withdrawal Agreement exists and could be put to Parliament in December, but even that is not ready-to-go and passing the Withdrawal Agreement is not the same as Brexit. A couple of examples of how the Withdrawal Agreement is part-baked:

  • The financial settlement (the price tag) is not specified.
  • The Conservative manifesto promises Northern Ireland ‘unfettered access’ to the market in Great Britain. Launching it, two Cabinet Ministers said ‘There will never be any fees or tariffs on goods flowing between Northern Ireland and Great Britain and vice versa … .’ In fact, the Withdrawal Agreement clearly states that many goods flowing between Great Britain and Northern Ireland will face tariffs (at EU levels!) and the Brexit Secretary conceded in Parliament that there would be forms to fill for any goods flowing the other way.

Passing the Withdrawal Agreement and exiting on 31st January 2020, is just the start of a complex negotiation between the UK and the EU, which will be painful, long-lived and probably chaotic.

First, consider the parties.

For the EU, the negotiations will take place under Articles 207 and 218 of the Treaty on the Functioning of the EU, which govern negotiations with countries outside the EU, and which have a far more demanding process for approval than the Withdrawal Agreement. The member-states have to agree to any deal unanimously and if the deal spreads into areas which are still governed by the States themselves (some services and investment), each will have to go through a ratification process that may involve their national and regional parliaments. The EU’s agreement with Canada, which took seven years to negotiate, was held up for nearly a year because the Wallonian Parliament declined to agree.

On the UK side, there has been no effort to spell out the implications of the Free Trade Agreement (FTA) that Mr Johnson wants, let alone the one he will get. For example, Michael Gove claimed on 26th November that because there was effectively no EU Single Market in services, UK services firms will suffer no adverse effects from Brexit with an FTA. Wrong! OECD has shown that EU barriers to service imports from third countries are, on average, four times higher than those between members. Canada failed to get much in services from the EU after seven years negotiating; the same will apply to us.

Second, consider the commitment to get it all done by December 2020. Any deadline puts pressure on both parties, but particularly the one with more at stake (the UK). The default at the end of 2020 is not the status quo but a ‘no deal’ Brexit, so the cliff-edge that plagued the March and October 2019 deadlines will be repeated.

Third, the content: we may agree to keep zero tariffs on all goods, but there will still be border formalities. In order to claim tariff exemptions, UK exporters will have to prove that their goods are substantially made in the UK. Most commentators reckon that together these frictions add perhaps 4% or 5% to the cost of exports. We may be able to negotiate better conditions than average, but not by December.

Worse than tariffs will be regulations.

First, UK exporters will have to prove that their goods meet EU standards. It doesn’t matter that the UK says they do, they have to prove it. Where standards are critical, either the UK government will have to enforce EU regulations throughout the UK (which a Johnson government won’t) or exporters will have to obtain certification from an EU-approved inspection agency. If that task is to be done in the UK, it needs to be negotiated.

If the EU is to give up its tariff protection, it will want to know that UK firms are not obtaining ‘unfair’ competitive advantages through lax labour or environmental rules or through subsidies or violations of competition law. (These are the so-called level-playing field conditions.) The current government clearly hates such constraints, but the EU will not commit to free trade without some such commitments – result impasse. Mr Johnson’s casual suggestion on 29th November that the UK relax EU rules on state-aid to companies will make this doubly difficult.

Finally, there are issues strictly lying outside an FTA, but which will inevitably be bound up with it. For example, whether airlines based in the UK can fly between EU cities and whether EU fishermen get access to UK waters in return for the UK selling its fish in the EU.

You can’t help feeling that it is us, the British public, that is oven-ready, who are going to get ‘done’.

We will have a torrid 2020 deciding what we want of an FTA and a worse time getting even a part of it. Much will remain undone by December 2020, and so the subsequent years will be spent trying to patch up the holes, one-by-one from a position of weakness. The UK will spend five years trying to restore commercial relations with the EU and still end up with something a lot less satisfactory for traders than we have at present.

This blog was first published by Remain United.

Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

December 4th, 2019

Posted In: UK- EU

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