David Tyler, chairman of Sainsbury’s, told the Sunday Times at the weekend that “if we don’t get a deal (with the EU) and we move to WTO rules, we could face an average tariff of 22% on foodstuffs we import from Europe”.
Tyler’s scare story rivals the Philip Hammond threat that planes might not fly after Brexit.
There are two paths for the UK if we leave the EU without a deal and trade under WTO rules.
The first is to copy the current champions of free trade like Singapore, Macau, Hong Kong, New Zealand and Australia and charge almost no tariffs on imports, even if other countries charge tariffs to us — often called ‘unilateral free trade’.
This is the course advocated by “Economists for Free Trade”, among others.
If the UK government follows this route, which Wetherspoon believes it should, food costs for Sainsbury’s, Wetherspoon and the public will go down, not up, as Tyler misleadingly suggests.
This is because the EU is not really a free trade organisation at all. It’s a club whose members don’t charge tariffs to each other, but they do charge countries outside the EU, especially for food.
Therefore, Sainsbury’s pays tariffs today for imports from non-EU countries which do not have free-trade agreements with the EU. If the UK adopts unilateral free trade, as permitted by WTO rules, there will be no tariffs on EU imports post Brexit and the tariffs currently levied on non-EU imports, which are mostly remitted by the UK to Brussels, will fall away. Welcome to the brave new world of lower food prices, Tyler!
Wetherspoon has looked carefully at WTO rules, and at the countries of origin of the products we sell. We calculate that our own cost prices will reduce by 1.5 pence per pint or meal sold, on average, if the UK opts for unilateral free trade. Further savings are likely as a result of increased competition, a by-product of abolishing tariffs.
In addition, of course, the UK will save at least the £20 billion it has already offered the EU as an inducement for an unnecessary ‘deal’.
The alternative course the government could adopt, a seriously retrograde step in our view, would be to impose tariffs on EU imports at current EU rates. We calculate that this would mean an average cost increase of about 2 pence for every pint or meal we sell- not great, but not the end of the world.
As an example of the benefits of the free trade option, Wetherspoon imports wine purchased from outside the EU, which is subject to tariffs. Our house wine is from Australia, and has a tariff of 11.7 pence per bottle, which will be abolished if the free trade route is chosen. Millions of voters will drink to that.
Another advantage of unilateral free trade is that it provides substantial encouragement to foreign businesses to invest in the UK, by reducing complexity and through its subliminal pro-business message.
By comparison with the painful slowness of free trade deals, especially with the EU, the unilateral approach has great advantages.
Free trade also facilitates customs clearance and therefore our ports, currently the subject of bloodcurdling stories about the need to turn half of Kent into a lorry park.
Provided our border checks continue to inhibit drugs and armaments, we need not worry about the smuggling of butter and cheese from New Zealand, for example, now subject to tariffs.
Wetherspoon’s calculations as to the impact of Brexit on our business will be similar to the 90% or more of UK companies which don’t trade directly with the EU.
Some export-orientated businesses, or businesses that compete with imported goods, such as farming, have anxieties. However, even farmers voted for Brexit and the government has committed to help — the financial benefits to UK businesses and consumers from unilateral free trade vastly outweigh the costs to exporters.
As a champion of free trade, UK businesses and consumers would benefit substantially. But this approach requires considerable governmental confidence, which would be significantly boosted by a realistic assessment of the impact of WTO rules — rather than the claptrap from Tyler and other diehard remainers. The government has talked the talk about free trade, so let’s encourage them to walk the walk.