Sunday, 22 January 2017

Tariffic!



We have been having a lot of discussion about the implications of moving to "WTO only" trade relations with the rEU once the UK has left. But not much has been said about the costs we already pay thanks to the EU's existing common external tariffs. It is almost not worth repeating that the EU is not a paragon of free trade with the rest of the world. While the EU treaties (claim to) aim at an undistorted market within Europe's boundaries, they do not shout from the rooftops the protectionist goals of Fortress Europe. We tend to forget that for a long time the UK ran a unilateral free trade policy with the rest of the world. When we joined the Common Market we agreed to erect barriers with former major suppliers. Food prices soared as a result, and this was much discussed during the 1975 referendum apparently.

The EU customs barrier is protectionist, aiming to save certain national industries from international competition. It (sometimes in combination with other EU policies) keeps certain prices in Europe much higher than world prices. In some areas it deliberately forces world prices down while keeping internal prices high. This is especially true with food, where Europe actually exports processed food to poorer countries - trashing their agricultural industries while we pay more than we need to. We then often send the same countries aid money. Meanwhile capital is invested inefficiently in the production and processing of food which could be imported more cheaply from elsewhere. How many whammies is that now?

This is especially visible when there is a European industry in processing a raw material that does not naturally occur in Europe. Coffee and chocolate spring to mind. Raw coffee beans can be brought into the EU without a tariff, but if an African company dares try to export roasted coffee beans to the EU it is hit. The more the developing world tries to rise up the value chain, the more it is taxed. Do you know which country dominates the EU coffee processing industry? Hint: it isn't Italy. 

The EU slaps around a 32% levy on wine imported from the new world and about 18% on processed chocolate. One wonders who these are supposed to benefit. These numbers are all estimates because the rules are extremely complicated (shock) and opaque (shock): there seem to be exemptions and surcharges and quotas aplenty. So much for "frictionless" trade.

Still keen on staying in the EU Customs Union? 

But surely we should not be cutting tariffs unilaterally? After all, we put ourselves at a disadvantage if we allow foreign goods in without them allowing in our exports in return? Who cares if a bottle of Chilean red is a bit more expensive than it otherwise might be? Well maybe this recent BBC article will help.

12 comments:

Electro-Kevin said...

Thank you for saying this (I will use it elsewhere) and I promise, I HAVE read this article.

"But not much has been said about the costs we already pay thanks to the EU's existing common external tariffs"

I repeat...repeat...repeat...

the internals of the EU 'tariff free' zone are not cost free.

Many in the UK are impoverished by wage depression, high house prices, lack of democracy... *struggles for alliteration*

Blue Eyes said...

"I HAVE read this article. "

Makes a change :-D

markc said...

Read the clear question in the headline.
Read the article.
Read it again.

Nope, no conclusion in answer to his own question. Tariff- and barrier-free trade is like the Curate's Egg - it has good and bad bits. Good God, who'da thunk it? Another BBC non-analysis. I think your own summary is clearer as to effects, more apposite, and a lot briefer.

Anonymous said...

There are more questions on this than answers. For example, what happens to the quotas the UK has. If the default position is WTO then the comments about the EU being protectionist would indicate that it's going to be difficult for UK Food and Drink industries.

Again what about the Japanese car plants who use the UK as a springboard for the EU. Some say they can't uplift Sunderland and move it to Stuttgart but car plant machinery/tooling is moved around the world all the time.

Financial Services? There are skills London has that can't been found anywhere else so mixed bag here but there will be some damage.

So if you have a SIPP, should you be actively culling the companies that have the most exposure to Brexit uncertainty? You can bet the fund managers are.

And finally who has the most to lose. Seems it is both sides. As a nation we continue to run a deficit in trade in Goods and Services with 80% of that deficit being an EU one.

https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/january2016

So we'll pay more for those EU imports which will encourage alternative sources. And those UK exports to the EU will be in the same boat - if you can get a quota for them.

If you are looking for a car, you might want to get some German engineering before having to make do with a Chevrolet.

Blue Eyes said...

Anon, thank you for making me chuckle. I always find it entertaining when people comment in such a way as to prove they have not understood the issue at all.

John Miller said...

I think, for the sake of clarity, to help Jeremy and Theresa, you should publish a list of countries or satraps that put tariffs on their exports.

At PMQs these two seemed to be confused as to who sets tariffs and who pays them. since I have not seen anyone point out the economics to Jez and Tez, I can only conclude that the meeja seem to have the same problem.

Blue Eyes said...

Ha! Weirdly some countries DO put tariffs on their exports. I know that Malawi does, presumably in the misguided belief that it raises government revenues. And one wonders why Malawi is one of the poorest countries (and why you don't see its excellent coffee in your local hipster café)...

John Miller said...

Quite.

Since we pay a tariff on our food - whether by way of EU tariffs or the CAP- it's difficult to follow Corbyn's argument that we will find food more expensive after leaving the EU. Does he really think that the UK government will slap a tariff on imported food? Or does he think that EU food is the cheapest in the world, despite their tariffs and the CAP? Is the Leader of HM Opposition a moron?

To answer my own questions,

He doesn't know there is a relevant question there, who knows and yes.

Nick Drew said...

Granted all the above: unfortunately, if EU is in *punitive* mode there is still ample scope for negative-sum outcomes here, possibly even lose-lose

rationality gets short shrift when set alongside the imperatives of the federasts and acquis-merchants

that's even before India (and even Oz, we learn) demands massive immigration rights as part of any trade deal

Blue Eyes said...

Nick are you suggesting we may want to stay inside the customs union after Brexit to avoid the rEU imposing punitive tariffs? How would we ever then leave?

Nick Drew said...

oh no: full steam ahead for whatever we can get, consistent with *true* Brexit

and I can certainly frame the opportunities for win-win
(vis-a-vis EU)

it's just that I can also see a scorched earth case, arising from mulish the hostile mindsets of the euro-players

Electro-Kevin said...

We don't have hipster cafe's 'round 'ere. Plenty of oldster ones though.