Brexit

[Witton Park]

As HH already pointed out, the EU already has free trade deals with these countries. So you could replace "allow" with "require".

Why require?

I just wonder why organisations like the BBC haven't put together a series of programmes about the issues around EU membership to try and educate us all in a way the layman can understand.
They are supposed to be the public service broadcaster and yet all they seem to do is put one of either side on platform and allow an audience to try and embarrass them.

It's embarrassing watching it.

I like to think I know something about traded goods. I've been involved in import/export since the 80s. Not for a mega sized organisation, although the biggest company I have worked for was turnover £400 million so not tiny either.

We hear on the one hand that departure from the EU will mean tariffs as they will not grant us free trade access to the EU.
Maybe - but that actually would probably help us.

Let me explain using the Car Trade as there has been much doom predicted for our car manufacturing if we leave.

UK Car Manufacturing and our Imports and Exports
Figures are 1st quarter 2016 and are from HMRC trade info figures for Chapter 87 Products (Vehicles). Amounts are £s Billions.
EU Imports = 11.9 UK Exports to EU = 4.3
RoW Imports = 2.3 UK Exports to RoW = 4.4
UK Sales in UK = 2.6
Ttl UK Market = 16.8 Ttl UK Manufactured = 11.3

You can see from this that we sold £4.3B UK manufactured cars to the EU in the period. So how would the imposition of a 10% WTO tariff (that is the actual rate) affect this figure?

It would mean a drop of course. How much is hard to say because exchange rate comes in to play and the prevailing market conditions going forward.

But let's keep it simple for the example and assume 10% price increase of our cars in the EU will lead to a 10% drop in sales in the EU.

That means that our car makers will lose £430M of Sales or 3.8% drop overall. The EU car buyers would still need cars of course so the EU and RoW manufacturers would see a boost to sales in the EU and share that £430M between them.

Doom?

No, of course not. It's an adjustment that the companies would get used to.

But there's a flip side.

The tariffs are both ways (unless we have a very stupid government) and so let's have a look at how the same treatment would work in reverse.

The EU sells £11.9B in the same period in to the UK. 10% duty, 10% drop of sales = £1.19B

That £1.19B would be shared out in the UK market by the RoW and the UK manufacturers and based on a 50/50 split that would give the UK manufacturers a boost of £595 Million.

So in a tariff environment the UK could make a net gain of £165 Million in Sales and the EU would lose sales overall.
The biggest gainer would be the RoW that would pick up sales in both markets.

It's not that surprising as that's what low level tariffs do, they correct a trade imbalance.

It's funny how "trade tariffs" are used by commentators in a negative light and yet "anti-dumping duties" are used in a positive light.

They are the same thing. the ADD is just a temporary measure used to deal with issues such as Chinese steel.

Now whilst on the subject of steel, on the HMRC website you can see the trade figures for steel. The UK doesn't really have a problem with Chinese steel.
The UK has a problem with EU steel. Chapter 73 Iron and Steel figures show we

• import 4 times more from the EU than RoW.
• Have a huge trade deficit with the EU.
• Have a trade surplus with RoW.

The issue for the UK is not Chinese steel imports, it is EU steel imports mainly because they subsidise the energy supply.
So the EU anti-dumping measures do little for our steel industry unless we are in a position to impose our own on the EU.