Thread by @DmitryOpines

1/ There are shell games being played rhetorically around the potential trade benefits of Brexit resulting in leaving a Customs Union with the EU.

I wanted to dig into some of them.

I fear this will be a long and wonky thread. I'll do my best to keep things accessible.

2/ CLAIM: Once the UK is out of the Customs Union, it can drop all the tariffs protecting mainland EU interests. Everything will become cheaper for consumers.

This is normally supported by pointing to individual high EU tariff rates, most notably in some agricultural products.

3/ If not part of a Customs Union, the UK will absolutely be free to reduce those tariffs, even to zero. In fact, as Lawyers for Brexit argue, in some sectors it would be crazy not to because there aren't even British producers to protect.

But don't expect big price drops.

4/ First, looking at the EU's Most-Favored-Nation applied tariffs (as the chart above does) is misleading.

The EU doesn't trade under those rates with its FTA partners, the developing countries it provides preferential access to, or of course, internally within the EU.

5/ Second, this claim tends to focus on a few items where the EU has tariff peaks.

The trade weighted average tariffs of the EU are for agriculture 7.8% and 2.6% for everything else. Unless your diet is very American cheese centric, don't expect a radically reduced bill.

6/ Third, this claim tends to conveniently ignore currency fluctuations.

The pound has dropped 25% against the global reserve currency (the USD) over the last five years. That's ten times the 2.6% average weighted EU non-agricultural tariff.

xe.com/currencycharts…

7/ CLAIM: Freed from parochial mainland EU tariff interests, a UK outside the Customs Union will be able to trade away tariff concessions in areas where the EU is protectionist but the UK isn't for concessions from others.

8/ Maybe. But it's complicated.

First, note these two claims are mutually exclusive, despite often being uttered in the same breath.

If the UK liberalizes all the protectionist EU tariffs for everyone in the WTO, it can't then turn around and use them as bargaining chips.

9/ Second, consider the calculus of a potential FTA partner.

The UK negotiators offer to drop tariffs on oranges (something this potential FTA partner produces and UK doesn't) for a concession on something the UK wants.

Awesome, but here's how the partner might look at it:

10/ They know that politically this is a freebie for the UK to give away.

There's no big domestic industry lobbying to keep orange tariffs high, so dropping it doesn't require difficult conversations at home.

That cheapens the concession a bit.

11/ They also know this is likely to be something the UK will be looking to trade away in every FTA with an orange producer.

That means, every other FTA the UK signs with an orange producer is likely to dilute the advantage this concession offers, cheapening it again.

12/ They also know that their primary competition may be from countries covered under the preferential agreements the UK has indicated it plans to roll over. Cheaper still.

For example, oranges from South Africa enter the EU at a 0% tariff rate because of an EPA.

13/ None of this is to say orange producing negotiating partners won't want an FTA to deliver orange market access to the UK. They will.

However, it's important to be realistic in evaluating how much the UK will be able to secure for it.

14/ One last point on all this.

Discussions of liberalizing trade and getting rid of tariffs are easy to have in the abstract but get a lot thornier once there are domestic producers in the room.

Remember: no domestic producer ACTUALLY likes foreign competition.