In Defence of Liberty

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Tariffs, WTO Rules and Dyson

Recently, the entrepreneur Sir James Dyson declared that he would be voting for the UK to leave the European Union.

In an article written by journalist and author Allison Pearson, Sir James Dyson explains his reasoning [1]:

He jabs at a graph. “If, as David Cameron suggested, they imposed a tariff of 10 per cent on us, we will do the same in return. We buy more from Europe than they buy from us, so we would be the net beneficiary and based on these numbers it would bring £10bn into the UK annually. Added to our net EU contribution, it would make us around £18.5bn better off each year if we left the EU,” he concludes with quiet triumph.

Sir James Dyson is incorrect.

Firstly, the net contribution following public and private sector receipts appears somewhat too high here. He says it is £8.5bn, but the UK Statistics Authority suggests it is £7.1bn (looking at 2010-14) [2], the Treasury Select Committee suggests it is £5.7bn (looking at 2014) [3], and the Institute for Fiscal Studies also gives this latter figure [4].

tariffs-and-wto-rules-ifs.PNG

Between 2010 and 2014, the net contribution has been 0.25-0.5% of UK GDP. (Source: IFS)

This figure is, including the rebate, around 0.3% of the UK’s GDP. It has been between 0.25% and 0.5% of national income in the period 2010-14.

This is a meaningful amount, but it is not the Cave of Wonders.

aladdins-cave

This quote is from Andrew Tyrie, the Chair of the Treasury Select Committee, to Dominic Cummings, the Vote Leave campaign director.

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Secondly, and more importantly, Sir James Dyson is applying a 10% tariff uniformally across all imports and exports.

We could not do this, and the EU could not do this either.

Under the rules established by the World Trade Organisation, a nation can only apply the lowest tariff on a good or service available to another WTO member with which it does not have a preferential trade agreement. This is called the most favoured nation tariff.

The 10% tariff, or more precisely, the 9.8% tariff, refers only to cars [5]:

These WTO tariffs range from 32 per cent on wine, to 4.1 per cent on liqufied natural gas, with items like cars (9.8 per cent) and wheat products (12.8 per cent) somewhere in between.

Roberto Azevedo, the WTO’s Director General, said the additional tariffs on imports would be £9bn and the extra tariffs on exports of £5bn. This is based on upon a WTO analysis of preferential trade arrangements [6].

Businesses for Britain, the campaigning chrysalis out of which Vote Leave sprung, estimates tariffs on exports would be “at worst” £7.4bn.

These calculations may be based on static assumptions, and the net fiscal effect is still much smaller than the expected consequences on national income through effects on trade flows, investment, migration, regulation and productivity.

non-economists-guide-to-brexit-models-ifs

There are a variety of different estimates on GDP by 2030, under different scenarios. (Source: IFS)

Lastly, Sir James Dyson says:

When the Remain campaign tells us no one will trade with us if we leave the EU, sorry, it’s absolute cobblers.

That is cobblers, because no one is suggesting a trade embargo: it is about the marginal reductions in trade and the economic effects that will have.

References

[1] Pearson, A., 2016. Sir James Dyson: ‘So if we leave the EU no one will trade with us? Cobblers…’ Telegraph. Available from: http://www.telegraph.co.uk/men/thinking-man/sir-james-dyson-so-if-we-leave-the-eu-no-one-will-trade-with-us/ [Accessed: 18th June 2016]

[2] UKSA, 2016. Letter to Norman Lamb MP 21/04/2016. Available from: https://www.statisticsauthority.gov.uk/wp-content/uploads/2016/04/Letter-from-Sir-Andrew-Dilnot-to-Norman-Lamb-MP-210416.pdf [Accessed: 18th June 2016]

[3] Treasury Select Committee, 2016. The economic and financial costs and benefits of the UK’s membership of the EU. Available from: http://www.publications.parliament.uk/pa/cm201617/cmselect/cmtreasy/122/122.pdf [Accessed: 18th June 2016]

[4] Emmerson, C., Johnson, P., Mitchell, I., and Phillips, D., 2016. Brexit and the UK’s Public Finances. Institute for Fiscal Studies. Available from: http://www.ifs.org.uk/uploads/publications/comms/r116.pdf [Accessed: 18th June 2016]

[5] Foster, P., and Kirkup, J., 2016. What would Brexit mean for British trade? Telegraph. Available from: http://www.telegraph.co.uk/news/2016/05/19/what-would-brexit-mean-for-british-trade/ [Accessed: 18th June 2016]

[6] Walker, A., 2016. Uncertainty for UK trade outside EU, says WTO chief. BBC. Available from: http://www.bbc.co.uk/news/business-36470809 [Accessed: 18th June 2016]

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This entry was posted on June 22, 2016 by in European Politics and tagged , , .
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