UK negotiators must remember the EU has far more to gain from a Free Trade Agreement than the UK
20 December 2019
When I heard the exit poll on the evening of 12th December, I could hardly believe it – but was able to go to bed with a very deep sense of relief (and was even more relieved when the exit poll’s prediction of 55 SNP seats was later shown to be exaggerated).
Now that we have a Government with a good majority – not tight, but not too big either, which can bring its own problems – it is important that they remain focused. Johnson has made many promises on Brexit and other policies and it is crucial that these are properly delivered. Leaving the EU political structure will be a reality on 31st January and then the trade agreement has to be negotiated in a thoroughly hard-headed manner.
Over the last fifty years trade in goods has changed dramatically. In a way it has become democratized in that it is no longer the preserve of large firms, but is now made up of a mass of small businesses shipping thousands of small consignments around the world. The key is to look at keeping the costs of trade to a minimum and even with a Free Trade Agreement with the EU, we could still find a cost barrier in the way VAT is handled as they may require this to be collected at the border.
At present, VAT on trade with the rest of the EU is covered by the Intrastat system and if we were to continue to use a system like this in conjunction with an FTA it would mean that there was no requirement for a clearance cost to be levied on business to business trade with the EU. The key thing for UK negotiators to remember is that the EU has far more to gain from an FTA than the UK and therefore if they don’t agree to our requests, we can very safely walk away and they should be in no doubt that we will.
A big priority for the new Government also needs to be re-energizing the WTO. It is a disgrace that Donald Trump has managed to hobble the WTO’s appellate body by vetoing all new panel members. This situation has to be reversed and Johnson must, maybe with the help of Nigel Farage, push hard for this situation to be changed before world trade descends into the law of the jungle.
We hear much talk about making trade deals all over the world; these make good headlines, but should not be the absolute priority. What should instead be prioritized is reducing the cost of trade with other countries. The UK takes a very enlightened view on processing imports, but this is not shared by many of our trading partners who appear to try to hinder imports into their countries by adding regulatory costs on the exporter.
For Russia and China, amongst others, the requirement for expensive product certification sets the bar very high for any new entrant to these markets. Pre-shipment inspection – costing in many cases between £500 and £1,000 per shipment – adds a considerable cost to exporting to other markets. Legalization by embassies of certificates of origin takes time and also adds cost that can make small orders uneconomic.
The UK has traditionally led in the field of breaking down non-tariff barriers using the Simpler Trade Procedures Board later known as SITPRO and this baton needs to be picked up again with gusto. The EU loves forms like EUR1 and ATR certificates; they must be avoided like the plague. Whilst there is a limited headline cost to processing these, once one considers the time taken and delay in shipping induced by this bureaucracy, their impact is similar to throwing sand into a smooth running machine.
Frictionless trade is not just doing away with tariffs, but it also relates to documentation, certification, inspection requirements and this has to be fully understood by those negotiating on our behalf. I very much hope that there will be direct business involvement in the trade negotiations with the EU and other countries as it is key that future relationships are fully reciprocal and it is not just importing into the UK that is frictionless. For both parties in an FTA to fully benefit, it has to be accepted that trade is a two-way street.
Alastair MacMillan runs White House Products, a company which exports to over 100 countries around the world including to customers in every other EU state.