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Learning Your Trade Part 1

By Ed Pond

Article 50 will be invoked very soon, and from then on there will be lots of trade talk. This can be confusing and very often people get it wrong. Worse, they can get away with it at your expense, showing you up! I've been there. So here is trade simplified for your Brexit locker. 

The EU single market and customs union are closely associated and all full EU members are in both. The single market involves free movement of people and investment, and enforces regulations to do this. The customs union is concerned only with flow of goods, maintaining free trade within itself, while enforcing protectionist measures for outside trade. Both systems come under the category of free trade areas – an ironic name in this case, perhaps...

 

The EU allows full members tariff (import duty) free access to its customs union. So, for example, cars Germany sell to France do not cost any import duties. Cars from outside the EU do cost a duty of 10%. This is to protect the car industry within the EU. Outside car firms have to cover their costs so make their vehicles more expensive, thus consumers are encouraged to buy cheaper cars made by EU manufacturers. The tariffs can be so steep to some that potential foreign traders are put off altogether - African companies, for instance. Quotas can also come into play, limiting the amounts of products they can bring in. This is what is called protectionism.

 

Two nations do not need to have a trade deal to do business with one another. As a customs union member, Britain is allowed to import goods from outside countries (and does so for 56% of its exports), but it has to charge the protectionist tariffs. What it is not allowed to do is draw up trade deals independently. Trade deals, like the EU's own internal set-up, do make the process easier and more stable, so are preferable. The reason the EU demands customs union exclusivity is make us rely on the EU, pushing forward the political integration at the project's heart.

 

Global trade is regulated by the World Trade Organisation (WTO). 164 of the 196 world countries are signed up to it, and it sets rules on how high (and low) tariffs can be on individual product categories. This is to prevent trade wars, monopolies and product 'dumping'. Nations can choose whatever tariff rate they like, so long as they fall within that range. However, they are obliged to charge the same rates to all of the partners they trade with. This is known as the 'Most Favoured Nation' rule. Exceptions are made for free trade areas such as the EU (there are two others as members). This is officially because they encourage regional economic integration, and in the EU's case probably because it predated the WTO by many years. These blocs count as one member and the EU draws up trade deals collectively for the whole union. That said, each EU member state does have its own WTO status already, so the UK would not have to reapply.

 

The WTO and tariffs are not the only factors determining trade. Other non tariff barriers (NTBs) exist. These include regulatory frameworks. The EU single market insists on rigid safety and quality regulations. For trade within the single market, the EU does not check so stringently, as a membership perk and timesaving measure. For trade outside, checks are arduous, routine and come at a charge for the company involved. There are outside countries with specific agreements on regulations with the EU, though (on certain products), such as Australia, and they are extended the same benefits. The UK could easily follow suit, and indeed improve on these arrangements. And so we should; the high standards are a good thing, and we will not need to adapt because we've already been following them. In any trade deal, products have to meet the receiving country's stipulations. By meeting high standards we are in a position to demand the same from our world business partners.

 

Border checks are another NTB. For trade within the customs union, the need for exhaustive checks in each country the products travel through is removed. For outside trade, customs checks in each country apply; although again some countries have special agreements, which the UK could secure. Any trade agreement worth its salt will not rely only on WTO rules, but will involve advantageous arrangements on NTBs as well. China, Australia and the USA have these with the EU, in lieu of an actual deal. Britain must have these in all of the trade deals or agreements it draws up - with the EU and everywhere else.

 

In Part Two:

-Why Britain should avoid 'WTO' rules

-Types of trade deal

-Switzerland, Norway and all that.  

Labour Leave shares a number of viewpoints from external commentators, both Leave and Remain, without necessarily endorsing any of the viewpoints therein.


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