TARIFFS IN BRIEF

TARIFFS ARE COMPLICATED

What are Tariffs?

Chapter One – Tariffs: The Smuggler’s Friend

What are tariffs and why do we have them?

Tariffs are as old as man and woman-kind. From the very first simple swapping of goods and services, damned bureaucrats have added on tariffs, or duties or taxes or tolls – to be paid to the Pharaoh, Monarch, Emperor, Empress or Dictator, in fact paid to whoever is at the top of the military tree, in your neck of the woods.

To enrich such bosses, legions of intrusive scribes have recorded all imports and exports from the beginning of time. Red-tape was invented and created many millennia ago.

There are as many reasons, good and bad, for adding tariffs as there are types of goods crossing borders. Great Britain lists 70,000 (seventy-thousand) different types of traded goods.

Captain Jack Sparrow, earning an honest living as a Caribbean pirate, privateer or simply as an ocean-going thief, relies utterly on governments imposing taxes and rules on trade. His victims might be honest traders, risking their lives to ship cancerous tobacco to Liverpool; or manacled slaves from Africa to sugar plantations in Barbados; or they could be armed battleships “for King and Country” stealing gold, silver and jewels from indigenous natives; or, like Jack Sparrow, they could be other lawless pirates and smugglers, intent on stealing, then selling to, say, London, while evading the tariffs.

They all have in common a strong desire to offload the goods they are carrying, in a safe port, with a safe bank that will pay them, in good coin (currency guaranteed by big-government), with minimum taxes being siphoned off by those same governments. And it gets much more complicated. This ‘No-Tax’ shared ambition binds all importers and exporters together in an unholy covenant, which makes their trade-routes and timetables predictable; which pirates can use to intercept the traders’ cargoes.

Their self-contradiction or dichotomy is, as you will have noted above, that all traders, pirates and smugglers are really keen to avoid the government. Red-Tape Is a Nightmare! Taxes Drain Us – After All Our Risks and Our Hard Work!

(Existing free-market trade deals that eliminate or reduce tariffs for the UK as a member of the EU. Signed ...Pending - South America. Each of these have taken 20 years or more to negotiate. They are the largest free-trade bloc ever to have existed - more than 700 million cooperative souls. China, 1.2 billion customers, is the next deal to do - and this is an example of how complicated the issues are.) 

BUT, without Monarchs, Presidents, Emperors (and Empresses) and the like – without government – without all that loathed red-tape – how would traders get paid? IN GOD WE TRUST – declaims the almighty dollar. I PROMISE TO PAY THE BEARER (in gold coins) boasts the Bank of England on the British Pound Note. Currency is an IOU that is transferable with no questions asked. It is merely cunningly and artfully designed, beautifully printed, valuable ‘bits-of-paper.’ Government stands behind the promises. Without strong & stable government – currency is worthless. So, we put up with that part of their interference. We can swap our cargo of fish, for money that works anywhere in the world.

BUT, unless the cargo is good; unless it is fully certified by an independent authority, The Banks, won’t cough-up. Bankers are a suspicious lot. Before they’ll enable your rapidly deteriorating cargo of smelly fish to be swapped for an Unlimited American Express Card, respected at all the best hotels and super-stores and on cruise-ships and intergalactic-flights – the bankers insist on knowing that the fish are really yours; that they are fresh, not contaminated; that they are saleable in their region; in short – that the fish comply with the very highest standards. Who sets the standards? Of course, it is The Government. More and more red-tape.

If you don’t like the rules in that region – you are perfectly free to sail away with your fish – and sell it anywhere in the free-market-world; without certification, without taxes or tariffs, without all that awful red-tape. And get your money. Surely, now we are free, now we are buccaneering and swash-buckling world traders (hoorah!) someone, somewhere, will buy the fish. And surely the buyers will pay us in a currency that all banks will honour. To the devil with the paperwork. We have real goods to trade.

But, it gets very tiring, tedious and worrying to swash-buckle with every cargo you trade. As you age and look for a safe haven, a familiar routine, it makes sense to negotiate a Trade Agreement with, say Sweden. The Swedes like fish. It will take many months, even years, to convince Sweden that our fish is edible. They will certainly ask for our quality control documents, with details and science tests that their Viking ancestors would have spurned. Ancient Vikings would have eaten the sea-trout raw – sea-lice and all. And …the Swedes are worried that we will put their own fishing boats out of business; so we sign guarantees and quotas. But eventually we make a trade deal – and are paid for this cargo in Swedish Krona – which is internationally bankable.

Phew! What a relief. Its good to have settled trading terms. So we set about making deals with other countries – one by one. This could take decades. There is however a more efficient way to do it.

We could join trading a bloc. A whole set of countries that already have their rules and regulations in place. There is such a group nearby of 27 nations – 500 million hungry souls who like fish and have all the red-tape sorted. It’s called The European Union. And it’s very bureaucratic – almost socialist. Too many damned rules.

  

But, say our exporters – there is a much larger trading bloc, over 100 years old. Many more millions of customers. All the red-tape is tried and tested and sorted. It’s the World Trade Organisation – WTO; which is 164 friendly nations that we can join immediately, opening up the whole world to our goods and services. So we join the WTO. Hurrah! Free Trade, Free Markets at last.

2 BREXITS - THE REAL WTO & A GLOBAL RANT

BUT, as we join and sign up to WTO Membership Rules, a bit of a glitch occurs in Sweden. Captain Bird’s Eye, one of our biggest fishers and sellers is offshore in the North Sea, waiting permission to land a huge cargo of fish – good clean fish. What is holding up the deal is some fiddle-faddling red-tape. As WTO members via their membership of the EU, Sweden has to apply the WTO tariff on fish they import from non-EU members. This protects their own and Europe’s fishing industry from dumping. The tariff is 40%. When the fish wholesalers sell Captain Birdseye’s fish to Swedish shops and families – they have to add a 40% tax. That makes UK fish a tad more expensive; so the Swedes want a price reduction.

Oh dear! Yes, very dear. Whatever shall we do?

Chapter Two – Who pays and who gets the money from the tariffs?

Well, what a question. Where indeed does the 40% fish tariff go? It is of course paid by the Swedish consumers who happen to prefer British fish, even at 40% more than their own fish, or French fish, or any other European Union fish – British is Best. The anglophile Swedes buy our fish in a shop – pay the shopkeeper, who separates off the 40% WTO tariff /duty /tax /impost element; and sends it to the Swedish Treasury. The tariff money goes from the shoppers to the government. It does not get paid to Captain Birds Eye, who risked life and limb to wrest the fish from The North Sea. He gets the usual market price. The Swedish Treasury is very pleased to effortlessly collect an extra tax.

An entrepreneurial pirate would of course sneak into a Swedish port, at dead of night, and sell the fish to a middleman, without the WTO tariff. But …would the middleman pay-up without all the usual paperwork?

FREEDOM AT LAST!

The reason that Sweden imposes the tariff, is that as a Member of The European Union, which has signed numerous agreements with the World Trade Organisation, by law, Sweden must apply the WTO tariff to the fish being imported from a non-EU country.  

This also automatically applies to whichever of the 164 WTO member-states where Captain Birds Eye might want to sell his fish. The 27 member-states of the European Union apply the tariffs and 164 WTO member-states apply the tariffs. You might think it is a conspiracy against free-trade and The Free Markets. It isn’t. All these countries have thrashed out mutually beneficial trade agreements, in the WTO case over the past hundred years or so, and the agreements enable free-trade.

Britain is of course at liberty to go to, say, Patagonia, and negotiate a trade-agreement. But, if Patagonia is in the WTO, all 164 members have to approve the variations in the existing deals. All 164 have a veto. It functions on mutual-agreement. If there is a disagreement, it goes to the WTO Court in Geneva. It usually takes five to ten years for a court decision to be approved by them all. Will Captain Birds Eye’s cargo still be saleable in another five years? He could try for a Kwick-Deal in America – Donald Trump will always do a deal. But, America has many trade agreements around the world – including ones with Europe and the WTO. Even the mighty USA will have to consult its existing trading partners, before signing a new deal with Britain.  And, they have plenty of fish of their own. Maybe the fish will have to be sold tariff and regulation free, in Britain, – free, apart that is, from the UK’s own Health & Safety laws. Its complicated.

Chapter Three – What about tariffs on stuff we import?

The United Kingdom, Great Britain, as a sovereign nation – if/when freed from the shackles of Brussels bureaucrats – and spurning the even more entwining maze of WTO red-tape, does not have to impose and collect tariffs on goods and services that we import from beyond our borders. If France wants to sell us cheese and frogs’ legs – we can buy them. France might have to comply with some European, EU, rules on trading with us – but that is their problem. If we agree to buy, say, £100 million of food from France – that’s the price. Tariff free. And – the French products will comply with all the quality controls we could wish for.

If that food usually has an EU members’ tariff of, say, 5%; it is no longer our problem. It is an SEP – Somebody Else’s Problem. We do not have to impose the 5% as the goods enter Britain – even across the Northern Ireland border – and then pay that tariff to HM Treasury. Lower taxes – cheaper food in our shops. We are free! Life is cheaper – or at least some cheese and frogs-legs are cheaper.

Ditto for Italian and Spanish wine – and champagne. They tell us their price – we buy at that price – they ship it, we drink it. All tariff free. We can do the same for all goods entering the UK. No tariffs – lower cost of living! Who is to complain about that?

HM Treasury, who normally gets the import tariffs, might raise a murmur. British farmers and food manufacturers could complain, along the lines of “dumping” as every nation on earth queues up to sell us their stuff – tariff free. Those damned Health & Safety quality controllers would of course demand certification – Frogs Legs can be diseased; wine can be adulterated; chickens can be washed in chlorine; meat could be stuffed with growth-hormones and pumped up with water – and fish might have been taken from our own waters by unscrupulous foreigners - damned pirates.

If we overdo this tariff free import bonanza, it could affect our Balance of Trade. The goods might be tariff-free, but they are not price-free. We still have to pay for them. And …due to the WTO tariffs on our exports making it more difficult to sell abroad – we could run up a mighty trade deficit.

So:– for the moment. There it is. Tariffs in less than 2,000 words. We've dealt with 3 trade items: Fish, Cheese and Frogs' Legs - only another 69,997 items to go. 

THE DISCUSSION WILL FOLLOW.