The below is an extract from Economists for Free Trade’s new report, No Deal is the Best Deal for Britain
Leaving the European Union without a Withdrawal Agreement under Article 50 is not a step into a legal vacuum. Still less does it amount to going over any kind of “cliff edge”.
What happens is that our international trade with the European Union will become subject to the same legal regime which currently governs the majority of our export trade to the rest of the world. That is trade under the World Trade Organisation rules-based system.
The three key elements of the WTO system that will affect our post-Brexit trade with the EU are its rules on tariffs, its rules on non-tariff regulatory barriers to trade and its rules on the facilitation of customs procedures.
The WTO’s rules on tariffs allow members to charge tariffs on imported goods up to certain limits, but, subject to limited exceptions, any tariffs must be imposed equally on goods from all countries – the so-called Most Favoured Nation (MFN) principle. The EU will therefore impose its standard external tariffs on goods imported from the UK, unless and until a future free trade agreement or interim agreement leading to an FTA is agreed.
This is not a big deal. These tariffs will come to £5-6 billion per year, less than half the UK’s current net budget contribution to the EU.
The UK will be obliged to charge the same level of tariffs on imports from the EU as it does on imports from the rest of the world. But, contrary to much ill-informed comment, the UK is not required to charge the same tariffs on its imports as it currently charges under the EU-mandated Common External Tariff. We will be free to charge lower tariffs, or zero tariffs, as we judge appropriate, so lowering the cost of basics in household budgets.
The WTO agreement on Technical Barriers to Trade will require the EU to recognise UK-based goods certification procedures and allow entry to the EU Single Market for UK goods which comply with UK rules until such time as they are changed to become different from the EU’s rules. At the same time, the Withdrawal Act mandates that the UK shall continue to recognise EU rules and EU certifications on goods unless and until this is changed by secondary legislation. This means for example that medicines made in the EU will continue to be recognised as conforming to the UK’s import rules and arguments that there will be shortages are pure mythology.
The WTO Trade Facilitation Agreement will apply to smooth customs procedures between the UK and the EU. It mandates for example electronic pre-clearance of imported goods, avoiding the need for physical inspections at the point of entry except in exceptional circumstances.
In an ideal world, we would progress forward to a full Free Trade Agreement with the EU. But there is no need to rush it – our trade relations with the EU will operate just fine under WTO rules for as long as necessary.
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The wide-ranging Free Trade Agreement with zero tariffs proposed by Donald Tusk in March foundered on the supposed problems of the border between Northern Ireland and the Republic of Ireland. In response, the Prime Minister proposed in her Chequers document to bind the UK to a “common rulebook” – really the EU’s rulebook – for goods in order, she said, to ensure continued frictionless trade between the EU and the UK.
This attracted little political support in the EU because it was seen as “cherry-picking” and even less in the UK for leaving us as permanent, non-voting rule-takers. The proposals were rejected on a technical level by the professional customs body, CLECAT, whose 19,000 members handle 80% of European customs transactions. They found that Chequers “would require five to ten years before it can be applied in practice… new/non-existing systems and procedures will potentially lead to more complications.”
Reports this week suggest that the Prime Minister has now gone even further to secure a deal at any cost. Her new “backstop” proposal is for an open-ended customs union. She has ruled out customs union membership 21 times, so this would represent a humiliating defeat. The UK would have submitted to everything the EU demanded, paying them over £40bn for the pleasure and completely ceding our international trade policy to Brussels in clear breach of the Conservative Party’s manifesto commitments.
How has the Prime Minister got into this mess? Her motivation – a seamless border – is well founded, but her premise is that the only way to guarantee this is by some new, complicated customs arrangement. This is simply not true.
Firstly, only 4.9 per cent of Northern Ireland’s sales are with the Republic of Ireland, representing under 0.2 per cent of UK GDP. We should not, surely, give up our law-making capability over a wide area for the sake of that tiny fraction.
Secondly, there is already a border now – for tax, VAT, currency, excise duty and security – managed by technical and administrative procedures. These existing measures provide the foundation to maintain frictionless trade after Brexit. The Heads of HMRC and the Irish Revenue have confirmed this, saying that any additional requirements can be achieved without any new facilities at the border.
To see why, consider the range of simplifications to customs procedures and administrative obligations available under EU law. These are an ideal fit for much cross-border trade, characterised by regular, repetitive shipments – the same milk, from the same cows, from the same farm, in the same tankers, on the same roads, to the same destination. These obligations typically require only a one-off registration and, for regular trade, negligible costs of repetition. Companies already have to report all cross-border trade for VAT purposes, and the current system provides a framework for streamlining customs controls. Even small traders can – and currently do – take advantage of a voluntary registration to claim back VAT.
The agri-food sector accounts for just under half of all cross-border trade. Inspections can be necessary for these products but can, in practice, take place many miles from the physical border. I saw this myself when I visited Rotterdam, Europe’s largest port, this week. The Border Inspection Point is 40km from the docks and deals with 30,000 shipments annually from all over the world, including from outside the Single Market and Customs Union. There, 97-98 per cent of chilled or frozen meat and fish are cleared without physical inspection. Only 2-3 per cent are physically checked, based on intelligence, and 90 per cent of those shipments are cleared well within an hour.
The simplest way to avoid the need for animal checks between Northern Ireland and the Republic of Ireland is by maintaining an all-island biosecurity zone for disease prevention and public health. I visited the facility where inspections already take place for livestock shipments from Great Britain at the port of Larne. There are clear lessons from Rotterdam as to how such checks can be managed efficiently and how intelligence can minimise the need for lengthy inspections.
The Prime Minister’s convoluted customs proposals are unnecessary. Existing technical and administrative processes can ensure that a frictionless border is maintained after Brexit, not as a temporary, cobbled-together “backstop” but as a durable, long-term arrangement which allows for the wide-ranging, zero-tariff trade agreement which Donald Tusk proposed. That, surely, is the optimal solution for all sides.
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