Monday, 13 March 2017

Brexit Ought To Mean Leaving The Customs Union

In case you’ve forgotten, I wrote an article back in December explaining why Brexit must involve leaving the customs union. More recently Ryan Bourne at CapX adds weight to this by alluding to the shocking 12,651 different taxes associated with Common External Tariff (CET), and how the EU is internally trade liberating but outwardly protectionist, as UK businesses outside the EU could face two-way tariffs if they import and export simultaneously.

As we all know, after leaving the EU, the UK will be able to set its own trade deals in keeping with WTO rules. Given that the pain of tariffs is entirely self-inflicted – rather like ramming a broom handle through the spokes of your bike as you’re riding it – the sensible post-Brexit policy for Philip Hammond and Theresa May will be to abolish tariffs altogether and allow manufacturing industries to import more cheaply from anywhere in the world. For as Ryan Bourne points out in the article – a fact that is utterly pain-inducing:

“The CET, coupled with non-tariff barriers imposed by the EU, has resulted in agricultural and manufactured goods prices being around 20 per cent above world prices.”
This should tell you two things. Firstly, as I’ve often remarked on here - that people in the agricultural industry in the developing world are being screwed over here, unable to compete with the EU’s protectionist racket. And secondly, we consumers are being screwed over too because we are paying more than the market value for our goods. Because in case you’ve forgotten, consumption is the primary benefit of trade.

Remember, it’s not Steve’s Steel that pays the tariffs to export, it’s the customers of Steve’s Steel that pay when it is imported. Apparently the EU buys 44% of our exports, whereas we buy just 7% of theirs, which means they tax themselves a lot more than we tax ourselves. The alternatives to exporting to the EU are exporting to non-EU countries or not exporting at all and increasing our home-grown consumption – both of which are more sensible than taxing ourselves - and the EU countries would be wise to adopt the same approach. The outcome – tariff-free trade for both parties, and mutual benefits for both importers and exporters. It’s a no-brainer really.