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to ask what are trade agreements for?

(15 Posts)
Maursh Sun 05-Jun-16 06:23:09

Serious question. DH and I were watching this youtube movie on Brexit last night. It is long - over an hour but gives a nice history of the EU if you are interested. Towards the end (last 20mins) there is a claim that UK already trades outside the EU without trade deals and the EU has very few trade agreements anyway.
So can someone in the know tell me what trade agreements are for and why we need them? I have already googled it without success

eurochick Sun 05-Jun-16 06:48:02

Generally they are to make international trade easier such as by harmonising standards. For example, if car seats have to meet different safety standards to be sold in the EU and US, a trade agreement could put in place a common standard so that manufacturers only have to design products to meet one standard rather than two, lowering their production costs. Trade deals could also lower import tariffs on types of good to make it cheaper to trade them. Those sorts of things.

Mistigri Sun 05-Jun-16 07:13:30

This seems to be an incredibly common area of confusion even among educated people - it makes me wonder whether the UK education system shouldn't include a compulsory module on business and economics for sixth formers, as is the case here in France.

You can trade with anyone you like, unless the country is subject to trade sanctions, as long as seller and buyer can reach a mutually acceptable agreement - the right price, the right product specifications (product must meet legal standards in buyers' country), and the right timescale.

How do trade agreements help with regards to these three factors?

- they reduce the price by reducing the cost of tariff and non-tariff barriers (dealing with customs procedures is expensive)

- they facilitate common standards between trading partners

- they reduce the timescale required to export goods notably by reducing the amount of time required on administration and customs clearance

MysteriesOfTheOrganism Sun 05-Jun-16 07:15:27

Most countries have rules and regulations around imported goods. For example, living here in the UK I cannot buy some guns in the USA and import them - I would need a licence from the government to do that. I cannot under any circumstances import heroin or cocaine. Where I can import goods they may be subject to an import tariff; this is basically a tax levied on imports, generally aimed at protecting domestic manufacturers.

A trade agreement is where two countries (or groups of countries) agree on what goods they can and cannot import/export between them, what regulations will apply (quantities, standards, etc) and what import tariffs will apply. When no tariffs apply, it's called free trade.

EU member states have free trade between them. So I can import widgets from Germany without being charged an import tariff. Similarly I can export the widgets I make to Germany without my customer being charged German import duty. It makes trade between countries easier and cheaper.

If we left the EU, the trade agreements that we have based on our EU membership would end. That means we would have to negotiate a trade agreement with the EU itself, and with non-EU countries that have trade agreements with the EU (e.g. USA).

Such negotiations would take a while to make. It is likely that there would be something of a mess while this was being done... The "Remain" camp are saying it would be economic Armageddon. The Brexiters say it wouldn't. What's the answer?

Fact: nobody knows.

The EU takes a lot of our imports. So we would want to negotiate a trade deal with them. The question is: what terms would we get? Norway, for example, is NOT an EU member, but has a free trade agreement with the EU. However, they have to follow most of the significant EU rules - and (I believe) pay EU membership fees! So they are not in the EU, but their trade agreement means that it they are not completely free agents.

So the knotty problem is what kind of trade deal would we get with the EU? The EU needs us (we take a lot of their exports) so they will want an agreement too. However, having just left the club they will not too happy with us and might play mean... What deal would be reached?

Fact: nobody knows.

This is an important subject, because our exports create our wealth. Wealth that we need to fund the NHS, education, etc. These social services move money around but do NOT create wealth.

Whatever either side may say, nobody knows what will happen. Economic armageddon or heaven on earth? It's anybody's guess.

My personal view is that there would be some chaos - perhaps even a mini-recession, but that things would have settled down after maybe 5 years and then we'd be fine.

It comes down to a simple question: do you think the UK has the skills, qualities and flair to succeed outside the EU?

The UK is the world's 5th largest economy. The EU as whole is 1st or 2nd.

So currently we're a big fish in a big pond. Would we be better off as a big fish in a huge pond?

EU membership benefits us - but could we benefit more outside?

There are no hard facts that can give an answer. It's a matter of belief.

Maursh Sun 05-Jun-16 07:48:59

MysteriesOfTheOrganism :^"If we left the EU, the trade agreements that we have based on our EU membership would end. That means we would have to negotiate a trade agreement with the EU itself, and with non-EU countries that have trade agreements with the EU (e.g. USA)."^

Isn't the whole point here that, in fact no, we wouldn't. Above is suggesting trade agreements make trade easier in terms of reducing tariffs and standardising etc, but trade can be done without them, inside or outside the EU.

MysteriesOfTheOrganism Sun 05-Jun-16 07:57:02

Maursh - true, you don't have to have a trade agreement. But as I said in my first para, every country has rules, regulations and (often) tariffs relating to imports.

If we left the EU we could export to the EU without a trade agreement - but our exports would be subject to EU import duty, so our goods would be more expensive.

So a German customer, for example, might find that they have to pay 6% duty on UK-built widgets - so they buy them from France instead.

Maursh Sun 05-Jun-16 08:03:53

Sorry, in case it wasn't clear - according to movie we already trade with a whole bunch of countries (US, South America, China) etc without a trade deal.

MysteriesOfTheOrganism Sun 05-Jun-16 08:20:06

Yes, we do. But where there is no trade deal, our goods are likely to be subject to the other countries' import duty. That adds to the cost of our goods for the foreign buyer.

MysteriesOfTheOrganism Sun 05-Jun-16 08:28:20

We export a lot to other EU states. If we leave the EU those exports will be subject to EU import duty. That might make their price uncompetitive compared to similar goods produced in other EU countries.

So the risk of leaving is that our trade with the EU suffers and our exporters have to find other markets. That's a big loss: the EU is the largest (or second-largest) economy in the world.

Some markets will become closed to us, others will become open.

The argument is whether the net result will be disaster or delight. Nobody can say.

lovelyupnorth Sun 05-Jun-16 08:31:08

We do but having worked for a courier company in exports. It is a mine field if you're shipping goods overseas you need to understand the local import duties and paperwork for each and every country. Russia used to change its import rules daily and was a nightmare to keep up with. The US will and does make it difficult for different products.

And if I were the EU and someone had just put too fingers up at me. I'd be making life very difficult for them in the short term at least.

How many larger Japanese and other intl companies will be pulling out of the U.K. If we leave the eu as they loose access to the free market.

MysteriesOfTheOrganism Sun 05-Jun-16 08:36:36

Good point, lovely.

What annoys me is that both sides give the impression that they are talking facts, while the truth is that it's all speculation.

MinistryofRevenge Sun 05-Jun-16 09:19:24

All speculation, except for the economic truth that the market hates uncertainty. So, in vote or out vote, there'll be some financial consequences if any uncertainty remains; if it's an in vote, and it's clear there won't be yet another referendum on this at the next verse end, then the uncertainty will be short-lived. If it's an out vote, and we have to start negotiating trade agreements (or the market has to get used to the idea that trade agreements won't be happening, and start factoring that into their trade models), then the uncertainty and consequent drag on the market could last years.

Maursh Sun 05-Jun-16 10:45:46

And if I were the EU and someone had just put too fingers up at me. I'd be making life very difficult for them in the short term at least.

The UK is a net importer (to the tune of £8-10bln each month) so the EU would be cutting off their nose to spite their face if they chose this course of action.

Maursh Sun 05-Jun-16 10:47:41

Sorry that should read that the UK is a net EU importer (ie we import more from the EU than we export). The same is true of the UK globally, but the figure applies to the EU net trade. Source of data is here

Mistigri Sun 05-Jun-16 11:01:33

I don't think it is a question of the EU cutting off its nose to spite its face. Without a trade deal, the UK is in the same position as any country that trades wih the EU under WTO terms. That's not a threat, it's a fact. And it will take more than 2 years to negotiate a bespoke trade deal, because that's how long it takes to negotiate trade deals.

Note that I don't think that a brexit without a trade deal is realistic - which means that an "off the shelf" deal will be struck ie EEA membership. The UK may be able to negotiate itself out of schenghen (all current EEA members are part of the Scheghen zone) but that is the only concession I think there is any chance of getting.

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