Sunday, 9 October 2016

Are you free, Mr Fox?

Do you remember Liam Fox's bluster that he will make the UK a beacon of open and free trade?   I've clearly not forgotten because this is probably my 4th blog about it.  Yes, I know visitor numbers are falling off a cliff but this an itch I just need to keep scratching.  I believe top curmudgeonly comedian Stewart Lee calls this "refining the audience". The good news, if you're still here, is that you must have a hell of a lot of spare time on your hands.  Congratulations!

Anyway, back to the Foxmeister - he has been banging on and on and on that EU membership is a hindrance to free and open trade.  Is he right? Let's find out together.  Now, this is a very boring post so here is the answer to save you reading the rest:  he is as factually wrong as a factually wrong thing could ever be and there are solid WTO statistics to back up this assertion.

The good thing about organisations that are committed to openness and freedom is that they are typically open and free with their data.  Did you know that anyone with an internet connection can rock up to the WTO website and download all their data on trade tariffs to a range of formats?  Why has Liam Fox not done this? It is very easy to do if you have enough patience to look at spreadsheets.  Why did I do this?  Why haven't I got a more satisfying hobby like tattoooing my face or sticking pencils in my ear?  Well, I wanted to find out if the EU could be accused of protectionist or mercantile practices.  Let's find out what I found out.  Before we do that it's time for a pop video with a semi-approriate song title.  This time it is a pop song about data compatibility when choosing a mate.


I suppose one measure of free and open trade is the tariffs that are applied to imports.  This being the case, how does the EU compare with other nations?  This is not a simple question to answer because there are 97 principle categories of product at the WTO.   Within each category there are scores more sub-categories, such as "Vinegar and substitutes for vinegar obtained from acetic acid".  This is truly thrilling stuff, isn't it?  For each sub-category there are applied rates for 2014, 2015 and 2016.  On top of that it also lists the bound rate for each sub-category; that is, the maximum rate that can be legally applied to any other WTO nation.  To make matters worse some nations publish rates per kilogram rather than per unit value. Did you know that Switzerland applies duties to footwear by weight? You can keep that under your hat for small-talk at your next dinner party.   Anyway, to come up with an answer to my original question we need a method that makes the job a bit simpler.  In the interests of fairness, I shall tell you my method so you can replicate it if you wish or refute my findings by telling me that my method is nonsense. 
Imagine doing this for a living? Thankfully it is just a hobby for me.
Let's take a snapshot of a few countries and a few product categories.  For each we will list the bound rate (the maximum allowed rate) and the average applied rate for 2016 (the current rate applied at the border and must be less than or equal to the bound rate).  If I make a little table to present this data it should be fairly easy to determine if the EU is already a beacon of free trade or if it is applying mercantile practices.

What countries shall we choose?  I chose Australia, Canada, Brazil, EU and the US.  I wanted to find out how the EU fared against other developed countries but also to compare against a developing nation. Liam Fox probably wants the UK to be more like the US so it seems a good choice to include Uncle Sam.   There are many people in the UK who would like the UK to be more like Canada and Australia so these seem a good choice to add to the mix.  Brazil, on the other hand, is a developing nation but also a significant player in global trade. 

Which product lines?  I chose "Iron and Steel" because it is a political hot potato and it seemed like it might be a bellweather of national intentions.  After that, I chose "Footwear" because I need new shoes for the winter.  As a 3rd category I chose "Guitars, harps and other string musical instruments (excl. with keyboard and those played with a bow)" because I'm always salivating over potential ukulele purchases.  I think these represent a good spread of imports. They certainly affect my humble existence.

As I promised earlier, here is a table I made using OpenOffice, which is both open and free.

WTO tariffs for 2016 with bound rates listed in brackets.
Let's have a look at this data.  If you take a quick squizz at the table you can see applied and bound rates for all 3 categories and all five countries.   Now, the first thing that hit me was the gap between Brazil and the developed nations.  It is clear that Brazil applies much higher tariffs than any of the developed nations.  Brazil also has the highest difference between the bound rate and the applied rate.  For example, Brazil applies a rate of 10.5% to imported steel but has a bound rate of 34.3%.  This is very much expected because in general developed nations trade closer to the bound rate and are less prone to tariff fluctuations that might arise from political upheaval.   Having said that, Australia does have an unexpectedly large difference between applied and bound rate. It looks as though it struck a high bound rate some time ago but has since changed its mind.  What else can we learn? The EU and the US have very low steel tariffs but are beaten by Canada, which applies zero tariffs to imported steel.  If I wanted to import ukuleles I should probably move to Canada rather than the US.  I'm also guessing the hot Australian weather means they get through a lot of shoes and need to keep import costs to a minimum.  On the whole, though, there's not really much between Canada, the EU and the US.  Australia does seem to apply higher tariffs than the other developed nations, especially to steel.  The differences between the developed nations, however, start to seem quite insignificant as soon as you bring Brazil into the mix.

I would strongly argue that if the US is a beacon of free and open trade then so is the EU.  Leaving the EU will not turn the UK into a beacon of open and free trade because EU membership has ensured that it already is one.  We know this to be true because the EU trades with import tariffs very close to those of the US.  Every time Liam Fox bangs on about post-EU opportunities for free and open trade please remember that he is either a conniving liar or an incompetent fool who lacks the ability to read a simple spreadsheet.

What can Liam Fox actually do when the UK leaves the EU?  He does have the ability to reduce import duties to zero, if he wishes.  When he does that, however, he can wave Auf Wiedersehen to all those bi-lateral trade deals because he will given away his most valued negotiating position. Is he a conniving liar?  Is he an incompetent fool who lacks the ability to read a simple spreadsheet?  You decide.

Over and out,

Terry

PS I can't believe I just wrote 3 posts in a row about WTO tariff barriers. What is wrong with me?

PPS Guess what's coming next?  You guessed it - non-tariff barriers.  Nurse!




















https://www.wto.org/english/tratop_e/tariffs_e/database_explanation_e.htm

3 comments:

  1. Where to start?

    Well... If your numbers are falling off a cliff it's probably becasue Munguin hasn't got round to (or doesn't actually know how to) update his blog to include a blog roll!

    It will happen. Give him time. He has the whole of the IT department at Munguin Towers (a formidable force) working on it.

    I don't know whether Fox is a fool or a liar. Probably both, and a few other things too.

    Some people, perhaps him included, seriously believe that Britain is so important that none of the rules will apply to it. Fox seems to be of that opinion. I suspect he gets his information from the Daily Diana or Paul Dacre and Viscount Rothermere.

    Now I could be wrong, but I don't really think it is. Sure it's a market of 60 million +/-, and that is substantial. But an awful lot of these 60 million are people who just get by.

    Whilst it's still a sizeable market, it's nothing like as important as they want to make it out to be. The UK has some ridiculously rich people, but it also has vast numbers of incredibly poor people. And they don't buy much.

    Pakistan and Bangladesh (clothes for Primark) and China for supersized tvs and computers might be the best place to start sorting out trade deals, otherwise the minimum wage (living wage as they like to call it) will have to rise substantially!

    I'm not sure why May chose the disgraced Fox for high office. I assumed to begin with it was becasue if it all went belly up, he'd carry the can and go into history books as the man who finally put the coffin nails in the UK...along with a buffoon for foreign secretary and whatever it is that Davies does, I mean apart from putting his foot in his gob every time he opens it.

    But since then, despite distancing herself from their nuttier pronouncements, she has certainly come down on their xenophobic sides to an unbelievable extent, and got loonies like Hunt and Rudd on side too.

    If this is Fox's best shot at something he has long felt strongly about, all I can say is that I'm really glad he was never my GP when he was practising medicine.

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    1. The UK is certainly a substantial market for our closest geographic neighbours and vice versa. The madness, as you point out, is that it is not substantial where Liam Fox would like it to be eg Chinese imports from UK are only 1% of what it imports from Indonesia. Successful trade requires synergy and there is only so much of that on the planet. The UK being in the EU was a great example - it took advantage of locality, shared culture, boring stuff like everyone being in roughly the same time zone.

      I have a horrible feeling that the current crop will deliver Brexit, declare it an immediate success then bugger off before anything really bad happens. Mission accomplished. There is barely any press scrutiny to their bluster so why would it ever be declared a failure? That would be upatriotic. It took years for the public and the press to really turn against Tony Blair, despite the mounting evidence that Iraq was a total failure. Liam Fox is a political survivor. Sad to say, he'll probably survive this, too.

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  2. {C'mon! We are not that thick. We are just visiting both Tris.}

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