Tuesday, August 15, 2017

The UK government has published a document on future customs arrangements with the EU, in which two possible models are floated. The first of these involves a ‘highly streamlined’ system in which existing procedures are largely maintained alongside ‘technology-based solutions to make it easier to comply with customs procedures’.

The second involves the UK mirroring EU procedures when imports that will subsequently be exported to the EU enter the UK – thus allowing seamless movement of products between the UK and EU. Just how anybody will know which imports will later be exported is anyone’s guess. The government’s document refers to ‘simplifications for business, such as self-assessment’… which sounds a lot like complications for business.

The opportunities that will exist to strike trade deals with third party countries undoubtedly offer the UK some potential to benefit. This comes, however, at a cost – most notably bureaucracy. Clearly the UK should not be able to import products from a third country with a tariff that is lower than that applied by the EU, simply to export them to the EU without tariff. But it might be possible for UK businesses to process these products and sell their output to the EU at zero tariff. A call must then be made in determining how much processing or modification is needed in order to qualify a product for tariff-free export to the EU. Hence the need for rules of origin. Devising and subsequently implementing these rules is a huge undertaking – though technology (elsewhere in the document described as involving a ‘risk-based and intelligence-led’ approach) can certainly, albeit with imperfection, help.

The first option presented by the government’s document could be highly streamlined indeed if the UK were to be free to strike its own trade deals but did not take advantage of that freedom, and if it inherited all the trade arrangements already made by the EU (unlikely though this scenario might be). The existing customs union would then remain in all but name. A somewhat less streamlined mechanism would allow exceptions, albeit at cost that would need to be balanced against the benefits.

Whatever final arrangements are agreed, the UK government is proposing a transitional period. And – noting the British penchant for solving problems by changing the name – whatever it is called, at least the transitional arrangements should look very much like the customs union that currently exists.

Thursday, August 10, 2017

Industrial production in June of this year stands at 0.3% above the level a year earlier. Despite the fact that output in June was almost 0.6% above that achieved in May, the trend is still one of rather sluggish performance. Indeed, my neural network forecaster predicts a return to negative growth in this series over the coming months. This ties in with recent predictions of slower GDP growth over the coming two years. As ever, caution is needed in interpreting these forecasts, especially given the unusually uncertain environment presented by Brexit negotiations.

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