LILLEY WRONG ON TRADE

Peter Lilley has a piece in Brexit Central (HERE) where he argues we will be better off even if we revert to WTO rules. Because we import more from the EU that we export to it he claims:

"the Treasury would collect £12.3 billion in tariffs on imports from the EU whereas our exporters would pay only £6.5 billion tariffs to continental governments"

This is in my opinion, to misunderstand the way tariffs work. Exporters in the EU may well pay £12.3 billion to our treasury but they will collect it (or a lot of it) from the UK buyer. In other words the money is akin to a tax that we will pay ourselves. Mr Lilley seems to believe that European exporters will all bear the tariffs themselves - without increasing prices - which seems a bit naive. They may have to absorb some of the cost but my guess is most of it will be passed on and they will probably lose a little market share.

Depending on which market is affected this may be good news for home based manufacturers but in other areas there may be no home based supplier and so all prices will increase by the amount of the tariff. We will certainly be the loser.

WTO - ARGENTINA RULES?

The Independent (HERE) has a sobering report about our potential membership of the WTO.  To get a new schedule of tariffs at the WTO would need the unanimous agreement of all 160 existing members including Argentina and Spain (and the EU). 

These and other countries that are not well disposed to the UK would use the opportunity to block our membership to exact a high price. The Falklands and Gibraltar better look out!

NISSAN PLANT TO BUILD NEW QASHQAI

Nissan has announced the new Quasqai is to be built in Sunderland (HERE) which is fantastic news for the worker and the country.  However, questions are being asked about how the government did it and Nissan are saying they haven't got a special deal (HERE).

But newspapers think there is something here because the business minister refused to answer the question six times on The World at One (HERE) and this morning The Times is claiming a last ditch deal was done to protect Nissan (HERE) from punitive tariffs and this has been promised in writing.  This seems to be right. Let's look at the timeline:  Nissan say no new investment unless they get tariff free access to Europe or compensation. Greg Clark flies to Japan to meet Nissan executives.  Nissan announce new investment.  Government say they have given "support and reassurance".

Now there is speculation that other car manufacturers will have to have the same reassurance and questions are being raised about how much this might cost (HERE).  Jonathan Portes at the NIESR Blog (HERE) has a long piece about this and quotes Reuters:

Britain has given Nissan a written commitment of extra support in the event that Brexit reduces the competitiveness of its Sunderland plant, in return for new production investments by the Japanese carmaker, a source with knowledge of the matter told Reuters. In addition to unconditional investment aid, Britain pledged in a letter to offer further relief if the terms of Britain's European Union exit ended up harming the plant's performance, the source said.

State aid is regulated under EU law and they would take a dim view even after Brexit about allowing the import of goods which are state subsidised - even the WTO rules forbid this kind of thing as Phillip Inman points out (HERE).

TARIFFS - WHO PAYS?

Civitas has produced a report apparently showing the EU would be worse off by £7.7bn (HERE) if they introduce tariffs according to the regime in place at the moment and using trading figures from 2015. Newspapers have picked this up and are reporting it as a potential own-goal for the EU.

However, I think it is simplistic and wrong. Here's why:

Firstly, it assumes there is no change - either to prices or the behaviour of buyers or sellers. The more likely outcome is a change in both to some degree.

Secondly, although it is right to say the government of the importing country gets the benefit of the tariff and this comes from the supplier in the exporting  country, it is more likely than not that the customer in the importing country bears the cost because the price will go up.  Civitas appears to make the error of thinking manufacturers pay VAT - of course they do but it is the customer who bears the cost.

So, to say the EU will pay £7.7bn is misleading. If European suppliers increase prices by the same amount as the tariff, it will be the UK customers who will pay.  And if we are at the same time compensating Nissan (and others) for the tariffs applied to exports into the EU the UK will carry all of the costs of any tariffs (see HERE).

THE WTO OPTION - VERY VERY COMPLICATED

David Davis admitted in parliament this week that if we don't get a trade deal with the EU after two years we will face a cliff edge. He means we will be forced to trade under WTO rules, which some people, including Nigel Farage thinks will be just fine.  But this seems to be a highly optimistic view. If we are facing a cliff edge, the WTO option represents razor sharp rocks hundreds of feet down.

Read this for the International Centre for Trade and Sustainable Development (HERE).

A few key points:

The UK is already a WTO member, but its membership terms are bundled with the EU’s. Re-establishing the UK’s WTO status in its own right means both the UK and the EU would negotiate simultaneously with the rest of the WTO’s members [162] to extract their separate membership terms. Agreement on the UK’s terms is unlikely before those of the EU.

To be an independent WTO member, the UK would be creating its own rights and obligations out of the EU’s. That’s not as simple as it sounds. One reason is because other countries with different interests would want to ensure the balance is also right for them.

Now comes the surprise. We don’t know what most of the EU’s current commitments in the WTO are. The UK would be negotiating a share of key quantities that are unknown. The only confirmed commitments on tariffs, quotas, and farm subsidies are from before 2004 when the EU had 15 member states. The EU has expanded three times since then, but in 12 years it has been unable to agree with the WTO membership on revised commitments.

This looks like a Herculean task in itself and remember - this is plan B!

Update 27th October:  The Spectator has an article suggesting the head of the WTO Robert Azevado is back tracking on warnings he gave before the vote (HERE) but as far as I can see he is not saying anything different at all, simply stating the facts.