What if UK exporters are “too lazy, and too fat” after all?
Some post-hoc justification for Dr Liam Fox, of sorts.
A few days ago Dr Liam Fox, the UK’s Secretary of State for International Trade, said:
“This country is not the free trading nation that it once was. We have become too lazy, and too fat on our successes in previous generations.
“What is the point of us reshaping global trade, what is the point of us going out and looking for new markets for the United Kingdom, if we don’t have the exporters to fill those markets?”
This seems a little unfair on UK exporters. Indeed, many are not best pleased with his comments.
However, in his defence, perhaps he was referring to the fact that some exporters do not even take advantage of existing preferential trading arrangements that the EU/UK painstakingly created for them. The lazy sods.
(I know, he obviously wasn’t, but please bear with me …)
According to a 2015 paper by Lars Nilsson, the Deputy Head of the Chief Economist and Trade Analysis Unit in the European Commission’s Directorate General for Trade, only 75% of eligible EU goods exports take advantage of preferential agreements.
(By preferential agreement I mean any agreement that allows an exporter/importer to pay a tariff that is lower than a given country’s WTO Most Favoured Nation (MFN) tariff rate.)
Disaggregating individual member state information from the EU as a whole is difficult, but the same paper provides information on the preference utilisation rate (PUR) for goods exported to seven countries.
As you can see below, at 81.4%, UK exporter PUR is just below the average (83.4%). This is well behind free trading giants such as Slovenia (93.5%), the Czech Republic (92.0%) and a few others (yeah, including Germany, obviously (90.8%)):
Perhaps Dr Liam Fox is right. Perhaps this is further evidence that UK exporters are too lazy and fat to take advantage of the amazing deals government has hammered out for them? Are executives spending too much time on the golf course?
Sure, maybe. UK productivity certainly isn’t looking great.
However, in this case, more generous explanations do exist:
- The savings on offer aren’t big enough. For example: If I want to sell just one bit of machinery, and the preferential tariff rate is 5%, and the WTO rate is 6.5% … the extra paperwork just isn’t worth it for me or the importer.
- In order to take advantage of the preferential rate, I need to prove that my good, or at least a significant chunk of its value, originates here in the UK. This can be expensive — sometimes so expensive that, along with other fixed costs (see: paperwork), it wipes out the potential savings of paying a lower tariff.
- Exporters/importers don’t know a preferential agreement exists. It sounds ridiculous, but it’s a well documented problem.
Of course, UK exporters selling goods to other EU countries don’t currently have to worry about any of this, what with the UK being a full member of the EU single market and customs area. All of their exports benefit from the best possible terms available on earth. And, more to the point, no one has to give any of this nonsense a second thought.
Yet, if Brexit is to mean Brexit - and particularly if Brexit is to mean leaving the EU customs union and replacing it with a UK-EU FTA or even a Norway type agreement - this would all change, resulting in more red tape, more regulatory friction and more paperwork.
With an estimated 46.9% of all UK goods exports going to the EU — way more than any other market, including the US (17%) — perhaps a more plausible explanation for why UK exporters aren’t overtly enamoured by Dr Liam Fox’s vision of a post-Brexit, free trading, fantasy island is that the evidence suggests it will only ever exist in one place: his head.