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Post-Brexit Trade: forget tariffs, it’s the trade rules that count

by Sam Ashworth-Hayes | 08.06.2016

Vote Leave’s position on the single market is clear: it rejects the EU and all of its works. For the official Out campaign, quitting the EU would mean leaving the world’s biggest trading bloc.

UK membership of the single market allows our firms to sell their goods to the rest of the EU without paying tariffs – taxes on imports that countries spell out in excruciating detail for every product under the sun. Vote Leave is confident – some say complacently so – that it could negotiate a deal to preserve tariff-free trade post-Brexit.

But tariffs are only part of the story. Vote Leave’s much touted “European Free Trade Area” wouldn’t give us trade free of barriers. Exporters would still have to clamber over a host of  non-tariff barriers – non-tax rules and regulations, often designed to protect local producers – that throw sand in the gears of trade. Researchers have estimated that non-tariff barriers such as product standards and rules of origin add roughly as much as tariffs themselves to the cost of conducting trade.

Non-tariff barriers come in various guises. Countries adopt their own product and packaging standards: Japan used to keep foreign skis out of its market by maintaining that they were not suited to Japanese snow. Governments might set burdensome customs and administrative procedures: France used to require Japanese video recorders to clear customs through the central city of Poitiers, far from the usual points of entry. Health and sanitary requirements add to the tangle of red tape tying up importers. Many countries set quotas, for example for agricultural products and foods, limiting how much can be imported.

For Europe’s carmakers, Japanese emissions regulations are a perpetual headache, involving time-intensive testing in facilities approved by the Japanese government. The testing procedures are “often unique to Japan”, and cause “additional development and production costs for European exporters”.

Non-tariff barriers particularly hobble services, which make up almost 80% of the British economy. The EU allows very limited access for non-member states selling financial services; insurance for shipping and goods in transit, reinsurance and so on. To sell banking services, non-EU companies have to open European subsidiaries, obeying the rules of the country in which they set up shop.

For financial markets, British banks – and other financial firms – get a “passport”, allowing them to sell their products and set up branches anywhere in the European Economic Area (EEA). Canada’s trade deal with the EU, advocated as a model by some Brexiteers, notably fails to sweep away such non-tariff barriers.

The single market still has its own non-tariff barriers to trade. The EU should make swifter progress towards clearing away obstacles in the way of more trade in areas such as energy, digital services and capital markets. Doing so would boost growth, create jobs and cut consumers’ bills.

But the EU has removed many other non-tariff barriers. Product standards, for instance, are harmonised by EU technical committees; alternatively, countries agree to recognise each other’s standards as equally valid. If we left the EU, we would still have to comply with those standards if we wanted to sell into the single market. The difference would be that we’d have no say in how the rules are set.

Germany’s 400-year-old Reinheitsgebot (purity law) is a good example of how the EU has acted to prevent national standards from gumming up trade. The law, introduced by Bavaria in 1516, specified that beer could be brewed only from water, barley and hops. When Bismarck unified Germany in the 19th century, the law was taken up at a national level. While malted grain and yeast have since been added to the list of acceptable ingredients, the law is fundamentally the same today as it was when introduced.

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While this was great for Bavarian beer purists, it wasn’t so good for foreign brewers. Either they changed their production methods to meet German standards or they didn’t sell their beer in Germany.

In 1987, an EU court ruled that Germany was unfairly blocking imports, breaking common market rules. Germany had to exempt overseas brewers, allowing British beer to be sold in its market.

The challenge for the Out camp is to explain what it intends to do about non-tariff barriers to trade. Concentrating on a tariff-free trade deal misses half the picture.

Edited by Alan Wheatley and Geert Linnebank.

This article was corrected immediately after publication; a line in paragraph 6 was altered to read “almost 80% of the British economy” rather than “80% of British exports”.

7 Responses to “Post-Brexit Trade: forget tariffs, it’s the trade rules that count”

  • Question : Can IMMIGRATION excesses be controlled while in the EU and WITHOUT breaching the FREE MOVEMENT of people rule of the EU? The answer is…YES!!!!! I tell you why (to put the leavers argument on immigration at rest): It can be done extending the scope of what had been done already with the GMC rules on EU doctors (and done similarly in all EU countries Medical bodies): To work in UK (or any EU country) you need certificate of adequate language proficiency. Now this can be extended simply in all levels of working environments (I guess with different language skills requirements: for non skilled, semi-skilled, skilled layers of employments prospects). The Uk can simply (without any EU regulation breaches – as already happening with GMC and similar Medical bodies in the EU) put the barrier lower or higher of language skills to allow a EU (but also non EU) worker to apply to work in UK (so no longer even discrimination between EU and non EU- potentially). Then: no possession of such certificate of language proficiency: no right to work benefit or social housing (therefore to avoid workers getting into the black market) and no rights for their children to a school place. If there is a need of workers in a specific area (layer) the language proficiency barrier can be lowered (or increased if excessive number of migrants arriving). The administraion costs of such tests to fall entirely on the potential migrant (obviously prices to reflect the background economy of the country). Therefore, yes, UK can operate controls on migration levels from within the EU (without hindering the principle of free movement) as it will be only with the barier required (and reasonable) of language skills (proficiency) adapted according to a possible one of 3 layers (non skilled, semi skilled or skilled working environments). NO requirement from the UK to ask EU permission on this (as from the requirement now added to GMC since 2013-2014).

  • If the eu put tariffs on our exports to them, part of the deal would be that they have to pay us the same tariffs to export to us.
    As we import more of there products than they do of ours they will end up paying far more than we will leaving us up on the deal, quids in, so what’s the problem?

  • Sorry to be picky but international stardards for Electrical goods trump EU stardards, it is just that is harder to harmonis huge numbers of countries so regional stardards are used.
    Standards contantly change so I suspect we could just work towards a global stardard instead of just Europe. Please check this view with the Institution of Engineering and Technology or British Stardards Institute.

    But the EU has removed many other non-tariff barriers. Product standards, for instance, are harmonised by EU technical committees; alternatively, countries agree to recognise each other’s standards as equally valid. If we left the EU, we would still have to comply with those standards if we wanted to sell into the single market. The difference would be that we’d have no say in how the rules are set.

  • ‘Product standards, for instance, are harmonised by EU technical committees; alternatively, countries agree to recognise each other’s standards as equally valid. If we left the EU, we would still have to comply with those standards if we wanted to sell into the single market. The difference would be that we’d have no say in how the rules are set.’

    No, the harmonised European standards relevant to products covered by New Approach product safety legislation are set by CEN, CENELEC, and ETSI, whose membership extends beyond the EU. We would certainly be able to stay in ETSI, almost certainly in CENELEC, and very probably in CEN – although in this latter case, it might take a little tweaking of the rules to allow BSI to remain part of the organisation.

    Andrew

    • Andrew: standards bodies such as those mentioned and UNECE set standards, but surely EU sets regulations and conformity assessment rules which are also very important, as your own work has shown.