9 September 2019

Unilateral tariff liberalisation & an ambitious trade policy

by IFT

The following is an extract from IFT’s podcast interview with Hosuk Lee-Makiyama, not included in the final cut. You can listen to the rest of the interview in the Soundcloud link below.

IFT: The UK government has published its temporary tariffs for a no deal scenario. Some trading partners, with whom we need to roll over agreements, have suggested that they would withhold that rollover if these no-deal tariffs came into force […] thinking particularly of CETA. Do you think that’s what’s going on? Basically if the UK were to unilaterally liberalise tariffs do you think Canada would look to it for a trade agreement?

Hosuk: I’m not sure if it actually matters if the UK has or has not unilaterally liberalised or has a high or low applied tariff post-Brexit. If that was the case, then no-one would do a deal with Singapore or Japan and that’s obviously not the case. From the perspective of a third country, tariffs are maybe one major reason - especially considering the strong market integration between the UK and the single market - I don’t think that’s the only reason you would negotiate with the UK. You have, of course, the services market: there are still some nuanced barriers in the area of services, or you may just want an insurance to make sure the UK stays open. It could be investment and it could also entail business mobility. So, there is a cross-range of issues that you could probably talk to the UK about. Where maybe the speaking points will be slightly different than talking to Brussels. I think the prime reason that you negotiate with the UK, or any country for that matter, is because you have asymmetrical interests. You have different interests with neighbours than what you have in a multilateral deal.

IFT: Yes, and the UK fulfilling that interest prior to the negotiations by already having low tariffs doesn’t need to obstruct that.

Hosuk: Tariffs are important, TRQs [trade-rate quotas] are extremely important, and I know there is some friction between some of the agricultural exporting countries over the split of the TRQs. I think morally and legally they do have a point, but, putting that aside for a second, I think low tariffs are really not necessary the main reason. It’s one of the main reasons, but it’s not the reason. What a lot of people forget is that, in most trade negotiations that - at least the EU has engaged in (and by default also the UK) - tariffs go down to zero; it’s a very predictable outcome. Therefore, this is a known known - that they will actually go down to zero, is not necessarily negotiation leverage. I’m pretty sure that if UK or the EU would enter into negotiations saying “We’re not going to liberalise cars” - I’m not sure that that would be even seen as credible or if that would just kill off the negotiations from day one. So I think we tend to overemphasise that. There are certainly other interests that come into play and we shouldn’t forget about that.