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Negotiators from the EU and the UK are currently continuing post-Brexit negotiations in Brussels, in what appears to be the last possible stretch towards an agreement. Despite the fact that all deadlines previously envisaged have been missed, the European Commission has said it continues to believe in a deal. However, the UK’s chief negotiator David Frost has already signalled that he will not be deviating from Prime Minister Boris Johnson’s “red lines” amid speculation that the departure of Dominic Cummings from Number 10 could herald concessions.
He said there has been “some progress in a positive direction” but admitted there were still “significant” differences between the UK and EU on fishing and the level playing field.
His tone was echoed by Simon Coveney, the Irish Foreign Minister, who said a deal was “very doable” but also “very difficult” and could be scuppered by deadlock over fishing, with the EU demanding 50 percent of the catch in British waters and the UK sticking at 20 percent.
As the clock ticks down and tensions rise, in a recent report, senior economist Harry Western explained why “leaving with a deal is not worth it for the UK”.
He explained: “The UK currently conducts around 45 percent of its foreign trade with the EU (equivalent to about 13 percent of GDP) so a simple zero-tariff and zero-quota deal would be nice to have.
“But as we have repeatedly said, the difference between a simple trade deal and trading on World Trade Organisation (WTO) terms is not that large.
“In the absence of a deal, UK exporters would face average EU tariffs of about three percent, and UK importers would need to pay tariffs on EU goods that would be a little higher than this.
“By comparison, just before the UK joined the EU in 1972, average tariffs on UK-EU trade were around 11 percent and much higher for many sectors. The average tariff levels of today are quite low.”
Trade economists, Mr Western argued, are always quick to point out that Britain needs to consider non-tariff barriers to trade as well.
This is correct but estimates of these are often exaggerated – figures of 10-20 percent of trade values are often bandied about when something like three percent is much more realistic.
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And much more importantly, he added, these non-tariff barriers are going to be there whether there is a free trade deal or not.
He concluded in his piece for Briefings for Britain: “The kind of free trade deal under discussion is not going to reduce non-tariff barriers by much – for goods or for services.
“Crucially, this means a deal will not have much, if any, impact on much-agonised issues concerning managing freight at the UK’s borders.
“So, the UK calculation about deal or no deal is largely about avoiding quite low average tariffs of three percent or so. If the quid pro quo for doing so is agreeing a bad deal on fishing that preserves the EU’s incredibly privileged access rights to UK waters and surrendering autonomy over state aid and large areas of regulatory policy it simply isn’t worth it.”
Mr Western’s comments were echoed by Chancellor of the Exchequer Rishi Sunak in 2016.
Campaigning for Britain to leave the bloc before the EU referendum, Mr Sunak wrote: “The EU has a dismal record on opening up new trade markets for its members. It took Brussels 58 years to sign a Free Trade Agreement (FTA) with a top ten economy, Canada, and even this was almost derailed by a tiny Belgian province.”
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Mr Sunak recalled how independent nations everywhere have a better record at managing trade policy.
For example, Switzerland has signed FTAs with eight of Britain’s largest ten trading partners while the EU has only managed to strike deals with two.
Canada has covered 90 percent of its exports with FTAs, considerably more than the EU achieved for Britain.
South Korean companies enjoy tariff-free access through FTAs to markets worth $44trillion (£33trillion) in GDP, 60 percent more than EU companies.
The Conservative MP for Richmond added: “The EU clearly has the wrong set of trade priorities. Reversing these failures is one Brexit’s biggest prizes. Outside the custom union, Britain can regain control over its trade policy and use it to turbo charge growth.
“The EU’s protectionist trade policy slaps big tariffs on everyday products to prevent European producers from being undercut, resulting in higher prices for consumers. Outside the customs union, Britain can cut import tariffs on goods we don’t produce at home and that are cheaper to import from outside the EU.
“Imported oranges, for example, are taxed at 16 percent to ensure Europeans buy Spanish rather than cheaper alternatives from Egypt. Bicycles meanwhile, which in Britain are largely imported from Asia, are taxed at 15 percent to protect Italian producers.
“Outside the customs union, shoppers could buy the cheapest products available, saving us all real money.”
He noted that any tariffs incurred after leaving the customs union would be manageable, even with no free trade agreement with the EU in place.
He explained: “Cheaper oranges are all very well, but what about the tariffs we’d face outside the customs union? Luckily, there is no need to speculate.
“As members of the World Trade Organisation, we know that the total tariff bill facing British companies if no trade deal is secured with the EU would be £5billion a year.
“But the UK will be saving at least its net annual contribution to the EU budget of around £9billion and also in the same scenario EU firms will be paying the UK £13billion a year in tariffs. So in context, tariff costs can easily be offset with funds raised elsewhere.”
Mr Sunak concluded in his piece for ConservativeHome: “Britain is the world’s fifth largest economy, NATO’s second largest military power, and the world’s leading financial centre. have we really lost such confidence that we would rather be a second class member of the European Union than strike out to be one of the first-class nations of the world?
“If the answer is no, the customs union can only hold us back. Let’s cut it loose before it does.”
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