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“Sajid Javid your time is now”: Why Theresa May’s vision for post-Brexit free trade is myopic for business

Prime minister Theresa May has said we have no choice but to protect our EU facing trade from destruction other than to go along with continuing to be a rule taker from the Brussels superstructure. This is grade 1 nonsense, says Real Business columnist The City Grump.
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For years now Patrick Minford’s Economists for Free Trade have been explaining why. Their position was written in a seminal paper, entitled “When we can’t agree. Why a world trade deal exit from the EU will be best for the UK”. It will take you 20 minutes to read and digest, so here are a few highlights.

The first explodes a lie given to us by May, that the World Trade Organisation (WTO) is for the birds:

“Some commentators think the WTO is an irrelevant ‘toothless’ body that will be trampled on by large trading powers like the US. This is false as can be seen by the WTO’s judgement on GM foods. Similarly, it has ruled in favour of Boeing against Airbus in a case involving illegal state subsidies.

“The US has a strong interest in upholding the WTO because it can force the EU to open its markets to products that have been scientifically tested, such as GM foods. The EU in turn will want to use the power of the WTO to hold back or complicate as far as possible president Donald Trump’s tariff threats.”

The second highlight does away with the Establishment’s Project Fear utterance that without the Maybot’s chequers approach there will be chaos at the ports and borders:

“WTO directives about customs procedures – as mandated in the WTO Trade Facilitation Agreement – are uncompromising. Borders must be seamless and state-of-the-art technological practices employed. Developed countries with adequate resources are expected to install state-of-the-art border systems in order that trade should not be impeded. 

“These mandated changes were only ratified by WTO members in February 2017. Therefore, many commentators are unaware of their importance. However, as they were initially agreed in November 2013 and built upon existing best practice, most developed counties have been implementing such procedures for quite some time.

“For example, the World Customs Organisation (WCO), an offshoot of the WTO, operates a ‘SAFE’ Framework of Standards to Secure and Facilitate Global Trade. Currently, 169 countries are covered by the scheme, including the EU 28. It is based on four principles (Longworth/Bannerman 2018):

  1. Requirements for harmonised advance electronic cargo information.
  2. Consistent risk management approaches by governments towards security threats.
  3. Outbound inspections of high risk cargo and/or transport performed by the exporting nation using non-intrusive detection equipment to avoid holding up goods on arrival.
  4. Fast-track Trusted Trader Schemes for businesses that meet supply chain security standards and best practices.

“Following this lead, most countries permit traders to submit customs documentation electronically in advance of the goods arriving at the border. Virtually all submissions of the EU’s own Single Administrative Document (SAD), for declaring imports and exports, are made online.

“So, most trade arriving from countries that are members of neither the single market nor the EU Customs Union suffer little or no hold up at the border when entering the EU. There is no reason for this to change after Brexit.”

The third point the paper makes blows away the smoke and mirrors put up by our feeble PM and her associates over Northern Ireland:

“The politics of the Northern Ireland border fanned by party political issues in the Republic together with manipulation of these issues by the EU have put trade across the Northern Ireland border at the centre of Brexit negotiations. These centre on the requirement of there being no ‘hard’ border requiring the use of border ‘infrastructure’. It is important to establish some basic facts:

  1. There is already a border: it hasn’t gone away. It is a tax, immigration, currency, political, international, excise and security border. 
  2. This border is not one of Europe’s weightier ones. Some 65% of Ulster’s trade is internal to the province, 20% goes to the rest of the UK, and 5% goes to the Republic. A miserly 1.6% of the Republic’s exports go north, while 1.6% of its imports come from Northern Ireland.
  3. To place these traffic flows in context, in an average month 177,000 lorries and 208,000 vans cross the Irish border. In comparison, over a million lorries pass the Swiss-EU border on a monthly basis.
  4. The bulk of the trade is highly regular, so it is simple to regulate. There are 13,000 border crossings annually, solely for the production of Guinness. Likewise, movements in the milk trade are predictable, and ideal for ease of monitoring.
  5. Ireland  conducts one of the lowest levels of physical inspection in the world (1%).

“Given the above, it is not surprising that HMRC has testified on multiple occasions before various select committees that they do not foresee the need for changes in border procedures after Brexit.

“Because of the low volumes of goods and people crossing the Northern Ireland border, implementation of the Maximum Facilitation scheme using electronic customs clearing to avoid any new hardware on the Irish border should be straightforward; as well as wider adoption of trusted trader schemes, derogation for small traders, and a system of self -assessment (which is set out in the EU Customs Code and which is the direction of travel for EU trade with third countries).

“Note that, under the World Trade Deal approach being discussed, there is no need to negotiate a trade deal with the EU.

“Hence, the onerous ‘backstop’ requirement falls away. Furthermore, freed from the need to negotiate a trade deal with the EU, the UK’s need to curry favour with the EU will disappear and the UK will be in a position to challenge the EU to follow their lead in establishing a ‘soft’ border.

“If the EU were not to establish sensible border procedures thereby unilaterally causing disruption at the border, it would be a breach by the EU of its international commitments as WCO members. These WCO standards are now incorporated into the EU’s own Union Customs Code.”

Judgement day is obviously here for the government. The Maybot has been found wanting and incapable of seeing the EU wood from the stout oak trees of free trade. Timid Tory wet Remainers need to read this City Grump carefully and then vote her out. Sajid Javid your time is now. Seize the day.

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About Author

The City Grump

The City Grump, having recently turned 64, has spent north of 30 years in the City of London. He started as a stockbroker's analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in startups.

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