THE REAL COST OF THE CUSTOMS UNION

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THE REAL COST OF THE CUSTOMS UNION

The whopping figure challenges the numbers reported in a study published earlier this week by the Institute for Fiscal Studies (IFS), which claimed the UK will only see a small reduction in prices after Brexit.

Macroeconomist Sir Patrick Minford, chair of the Economists for Free Trade group, dismissed the IFS numbers as “wrong” as he said they failed to consider crucial aspects related to the tariffs imposed by the EU.

Economists for Free Trade calculated the gain the UK will have from leaving the customs union will amount to four percent of the GDP – roughly £80billion.

According to Sir Patrick, the IFS report fails to consider two specific sectors with a huge impact on the British economy and UK households, the food and manufacturing industries, where the tariffs imposed are much higher, which makes the IFS assumptions “wrong”.

The EU customs union is costing Britons £80billion every year, economist Patrick Minford said
Sir Patrick’s estimation is supported by the work of economy experts Liam Halligan and Gerard Lyons, who in 2017 calculated that food in the UK is approximately 17 percent more expensive as a result of tariffs.Sir Patrick said: “The IFS also didn’t look carefully at the manufacturing industry.

“The tariff barriers for this sector are around 4 per cent, but the non-tariff barriers are at about 16 per cent, according to our estimates, so the IFS’ figure is about five times wrong”.

Non tariff barriers include anti-dumping duties, a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below the fair market values.

Lastly, the macroeconomist said the price of land and labour also have a huge impact on the amount of money spent by remaining in the UK.

Sir Patrick said: “The IFS missed one indirect effect caused by the removal of protections.

“When you tax the prices on food and manufacturers you create a direct effect on consumers’ prices, which leads to a greater competition in the markets, which in turn causes the costs of land and labour to rise.

“So as a consequence, if you reduce the protection on food, farmers will pay a different figure for land.

“The IFS underestimated this aspect hugely.”

The Common Agricultural Product also place tariffs on farming machinery and equipment such as tractors that are imported from outside of the EU, which obliges farmers to increase their prices and, as a consequence, raises the pressure on household budgets.

Economists for Free Trade calculated the gain the UK will have from leaving the customs union will amount to four percent of the GDP.

As the total GDP equals to two trillion pounds, four percent means a gain of £80billion.

The figure comes from a calculation speculating that the UK could get rid of half of the protections after Brexit.

Sir Patrick said: “Although we think that the other half of the protections might go away anyway due to trends in the EU, we based our numbers on just one half.

“Saving ten percent on food and manufactures means raising the GDP by four per cent.

“The prices will fall, creating more competition, which raises productivity across the economy.

The IFS paper pointed out that the average tariff levied by the EU is at around 2.8 percent.

It then estimated that, “under some quite optimistic assumptions about the price changes that are likely to follow tariff reductions”, the complete abolition of all tariffs would reduce prices faced by households by just about 0.7 – 1.2 percent.

The IFS states that, on average, EU tariffs stand at 2.8 percent.

Mr Minford believes that leaving the customs union will have a huge impact on manufactures
IFS director Paul Johnson said: “Of course we did include agricultural tariffs when working out the impact of tariffs on goods’ prices and of course we did look at tariffs on manufacturing and the effects of import quotas.”We didn’t include the effects of anti-dumping duties because it’s unlikely that any government would remove these and with good reason, since the whole point of them is to prevent unfair trade practices destroying British industry.”

He added: “In any case these had an estimated value of just less than 2 percent of the EU’s trade in 2013.”

Lastly, Mr Johnson argued against the £80 billion figure put forward.

He said: “Simple arithmetic shows that Professor Minford’s claim that consumers could gain 4 percent of GDP from tariff reductions is not credible.

“The average baseline EU tariff applied to the UK’s imports is less than 3 percent.

“These tariffs only directly affect goods prices in an economy which is 80 percent services.

“These figures are what ultimately determine what the maximum possible gains from tariff reductions can be.

“In addition, a sudden removal of all tariffs would have important costs for those employed in affected industries.”

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