Today, Parliament will debate at second reading the Trade Bill. The bill can be found here. This bill comes as part of the Government’s overall approach to UK trade post-Brexit, after its Taxation (Cross-border) Trade Bill was debated at second reading on 8 January. Open Britain’s assessment of that bill can be found here.
The Trade bill, if passed, would allow the Government to sign trade agreements with existing third country trade partners on behalf of the UK. It would also establish a Trade Remedies Authority to address unfair trade practices in any future independent trade deals which the UK may enter into with third countries, post-Brexit. The bill had its first reading in the House of Commons on 7 November.
This briefing outlines Open Britain’s top lines on the bill, the passage of the bill and recent media reports on efforts by the International Trade Secretary to secure international trade deals, as well as a section highlighting the negative impact of leaving the Customs Union.
- It is clear that trade deals with other countries will take many years to negotiate, with huge trade-offs, and will not come close to making up for lost trade with Europe as a result of leaving the Single Market and Customs Union.
- Third countries will not be in a position to even start negotiations with the UK, until they are aware of what the UK’s future trading relationship with EU will be. This could take many years.
- The Government have failed to provide any evidence that new free trade agreements will in any way compensate for the economic impact of leaving the Single Market and Customs Union, the largest free trade area in the world.
- Acquiring an independent status at the WTO will in no way be straightforward. The US, Canada, Brazil amongst others have all raised concerns to block the UK and EU27 from dividing up agricultural trade schedules between them.
- The Government have repeatedly committed to deliver a trade relationship with the “exact same benefits” as we currently enjoy. The only way to achieve this is to remain in the Single Market and the Customs Union.
- It is unclear how much the new Trade Remedies Authority will cost to the taxpayer and indeed whether or not the relevant levels of staff exist in order to get it up and running on the first day of operations.
- This bill rides roughshod over the rights of the public and Parliament to scrutinise the Government’s trade policy after we leave the EU, allowing ministers to make regulations through use of statutory instruments. This does not amount to “taking back control.”
The EU’s trade deals:
The Government has failed to explain how the UK will replicate trade agreements the EU has with 65 countries around the world by March 2019. Britain currently does slightly less than half its trade with the EU, but a further 15% is done with these 65 countries, according to the UK Trade Policy Observatory.
Rolling over these FTAs will need to be done by March 2019 because their application to the UK lapses as the UK leaves the EU. But this will be complicated because of Rules of Origin, clauses tied to services sectors and investment flows, and because of issues to do with mutual recognition and tariff-rate quotas. For more information about this see this paper from the UK Trade Policy Observatory.
In the past week alone, the Secretary of State for International Trade has been accused of searching for trade deals in the “wrong countries” and was described by former Treasury minister Jim O’Neill as being “clueless about the economy”. Ministers have also been unable to name a single country that has requested a post-Brexit trade deal.
Impact of leaving the Customs Union:
Here we provide an overview of the impact and consequences of leaving the customs union on the economy, trade with non-EU countries, non-tariff issues, the UK borders as well as the Irish border.
Economic consequences of leaving the Customs Union:
- The UK’s current annual goods trade with countries within the Customs Union is £466 billion.
- Leaving the Customs Union could cost the UK an estimated £25 billion every year until 2030, according to the Brexit Secretary’s Special Adviser, Raoul Ruparel.
- The cost of new tariffs alone could be at least £4.5 billion per year for UK exporters, according to research conducted by The Independent.
- Analysis by HMRC from March 2017 suggests new customs checks could increase the cost of imported goods by up to 24%.
Impact of leaving the Customs Union on Trade with Non-EU Countries
- As a member of the Customs Union, the UK is party to preferential trade agreements with around 65 countries across the world.
- Outside the Customs Union, it is likely that the UK would need to renegotiate many, or possibly all, of its existing trade deals with third countries. Even the International Trade Secretary has admitted this is not as easy as just ‘rolling over’ the existing agreements.
- The UK will need to arrange new quotas through the WTO, but other countries have already raised potential objections to this.
Non-Tariff Costs created by leaving the Customs Union
- Leaving the Customs Union could see UK companies having to comply with high levels of new bureaucracy and additional costs. Meeting the EU’s requirements on Rules of Origin alone would add significant extra burdens to businesses in terms of time, effort and money.
- IT systems will need to be upgraded and improved and the UK will find itself in the position of having to deal with a huge increase in the number of traders making customs declarations, from the current 141,000 to 273,000. This would include approximately 132,000 traders making customs declarations for the first time.
- The National Audit Office estimates the number of customs declarations per year increasing from 55 million to 255 million if the UK leaves the Customs Union.
Border Impact of leaving the Customs Union: Ports, Airports and Rail Terminals
- Infrastructure improvements will be required at ports to deal with the potential increase in the number of vehicles carrying EU goods, which will need to be parked at ports to await clearance, rather than “driving straight through” as is currently the case.
- Britain’s ports are currently not equipped with the physical infrastructure or parking bays required to deal with this level of checks on freight entering and departing the UK. This could lead to gridlock around busy UK ports like Dover and Holyhead and could damage the trade in perishable goods.
- At some ports, including Dover, as much as 99% of traffic relates to trade with the EU.
- James Hookham, deputy chief executive of Britain’s Freight Transport Association, has said: “If you add an average of two minutes to customs processing, you get a 17-mile queue [from Dover] almost back to Ashford. Another four minutes takes the queue back to Maidstone, six minutes back to the M25, eight minutes and you are up to the Dartford crossing and Essex.”
- An example of the potential consequences of delay at ports was demonstrated in July 2015 when a strike by French ferry operators resulted in huge delays and traffic jams in Kent and the activation of ‘Operation Stack’.
- The IfG report notes that the requirement to implement Operation Stack in 2015 resulted in businesses losing £21 million in stock and the economy in Kent losing £1.5 million a day.
Border Impact of leaving the Customs Union: Northern Ireland and Republic of Ireland
- The UK’s membership of the Customs Union is essential for the maintenance of the currently invisible border between Northern Ireland and the Republic of Ireland. The lack of customs checks and border posts is crucial to the economy of Northern Ireland and the Republic alike, and has profound historical significance.
- The Irish Foreign Minister has said that leaving the Customs Union is “incompatible” with avoiding a return to a hard border on the island of Ireland.
- An estimated 177,000 lorries, 208,000 vans and 1.85 million cars now cross the border every month. Around 30,000 people cross the border each day.