The civil service is against Brexit and using all its wiles to oppose it. Not long ago, it issued its Cross-Whitehall Report on the humungous ‘cost of Brexit’- suggesting that GDP would be lost to the tune of 1.6%-7.7%.
The latest farrago was the evidence given by Jon Thompson to the Treasury Committee. He produced an estimate of £20 billion for the cost of customs procedures if we leave the EU Customs Union. This works out at about 5% for every pound exported and imported. He based it on the assumed paperwork of customs declaration of value and origin.
However, he knows very well that under modern customs procedures declarations are carried out on the computer in advance of arrival at the border, so there is no paperwork beyond the very first time the cargo type is entered into the computer, and 98 per cent of cargoes are unchecked because ‘the computer says yes’. This paperless and seamless procedure is mandated by WTO rules under the WTO Trade Facilitation Agreement.
As a result, estimates of customs costs between developed countries have fallen from a range of 1.5%-4% ten years ago to the latest estimate of 0.1% for current customs practice at the Swiss-EU border. This customs cost has nothing to do with the Swiss-EU agreements on standards that we would also have with the EU. Once it is agreed that goods meet standards they go through this computerised procedure. Of course, if they do not meet standards, they cannot go at all!
This estimate of customs costs is therefore 5% wrong. The Whitehall Report assumed 6% and it was therefore also similarly wrong. Both Jon Thompson and the rest of the civil service know these figures are both wrong and strictly disallowed by WTO rules under which we will be governed when we leave the EUcustoms union. Why have they clung to these figures?
The reason is that a 5-6% customs cost causes a fall in GDP of over 1% according to the model of world and UK trade that they are using. This loss then goes into their ‘cost of Brexit’ propaganda. But pure propaganda is what it is.
Matters do not end there. The civil service Report has made even more deliberately crazy assumptions about the ‘non-tariff barriers’ that will spring up between us and the EU if we leave the EU Customs Union. These are supposed to be because our standards will not be ‘compatible’. It assumes that even if we sign a Free Trade Agreement with the EU they will create a cost of 14% to our EU exports and imports. On the same logic as the customs cost, this creates a loss of GDP of over 3% of GDP.
Why is this crazy? Because it is strictly illegal under WTO rules of non-discrimination. Already our standards are compatible of course. Also, any self-respecting exporter or importer will make sure they stay that way because when you export to a market you ensure you obey the required standards. So on what possible grounds could we or the EU maintain that these goods did not obey the required standards?
To see just how absurd this is, these barriers on standards are about the same as the EU currently has with the US with which it has no trade agreement and has never agreed any sort of convergence on standards applied to traded goods. The US has its own standards that it applies in its markets, including to imports from the EU; and the EU also has its own rather different standards which it applies similarly. Yet our EUexports and imports conform perfectly to each other’s required standards.
Theoretically, we could change all our standards domestically and also apply these new ones to the EU; and the EU could do the same. But this would mean that the EU would have to change its standards across the whole EU market; otherwise, it would be discriminating against us. Similarly, we would have to change our standards across our whole market or we too would be discriminating against them. Why would either we or the EU be willing to inflict such costs on ourselves?
Even madder assumptions of yet higher trade barriers are made in the same vein by the civil service for the case where we leave under WTO rules and have no trade deal with the EU. But again the same argument applies: they are illegal. The only legal thing we and the EU can do if we have no trade deal is levy tariffs on each other. These tariffs average 4-5%; they cause a bit of damage but small, according to the trade model the Whitehall Report uses. This damage is far more than offset by the gains that come from free trade agreements with the rest of the world, using the very same trade model and agreed assumptions about the trade barriers currently in place against the rest of the world.
To read Patrick Minford’s piece for the Telegraph in full, click here.