August 20, 2018
The current Brexit conversation seems to be revolving around whether or not the UK government’s coming 70 technical papers to prepare the country for a possible hard Brexit are alarmist, propaganda or a continuation of Project Fear. The one topic that is dominating this debate is whether or not there should be stockpiling of food and blood supplies.
Whenever I hear or read that, I wonder to myself, how long can a stockpile reasonably prepare an entire country for? This is 65 million people. That is a lot of food!
So, shall we try and find out?
What we do know is that the UK would revert to WTO rules. My understanding of WTO rules is not great, but growing by the week. As an EU member since 1st January 1973, the UK no longer has any pre-existing trading agreements. Therefore, all UK trade agreements exist within EU membership. In July, the UK and EU began the formal process to split their memberships.
Let’s take a few lines from that Reuters piece:
“It seeks to replicate the concessions and commitments applicable to the UK as part of the EU today.”
““WTO members will have three months to review the schedule, which will be considered to be approved if there are no objections from other members,” the WTO said in a statement.”
“Seven agricultural suppliers – including the United States, Canada and Australia – have already said they disapprove of the terms of the divorce, since they will lose flexibility to switch exports between Britain and the rest of the EU.”
So, any one of the 164 current WTO members can object to the UK’s move and seven have already stated an intention to do so. Of those seven, one is the USA, so it is reasonable to presume that the UK is not going to be able to push the other sides around to get their way.
This only suggests that the UK will be unable to replicate the EU’s terms immediately. It is worth pointing out though that the EU terms were not negotiated to help the UK, but the whole EU. Therefore, there will be all sorts of products and services that have terms that will be meaningless to the UK economy, such as Portugese Port, or French Champagne, to come up with two possible examples. How long it might take to be able to find agreement to replicate those terms is not known.
For the sake of argument, let’s presume that these issues can be settled quickly, within six months. Given the speed of decision making in the UK relating to Brexit so far, I have seen nothing that should provide any confidence in this, but let’s set that aside and hope.
In these early days, there should be customs checks on both sides of a UK border. There have been many claims about the impact of a two minute customs check. Who knows what may happen? What I do know, is that I have never managed to be checked at Dover in a car and it only took two minutes. The reality for a lorry will surely be longer, which means that the delays will be longer as well.
These delays will undoubtedly cause havoc on the UK’s just-in-time supply chain. This relates most urgently to food and produce, but will also impact a wide range of businesses and sectors. In fact, some research suggests that Brexit could kill off Britain’s JIT supply chain. That’s your fresh fruit and veg gone from the supermarkets.
Quite clearly, nobody can stockpile fresh lettuce and tomatoes, meaning that if these warnings come true, there are going to be changes to supermarket shelves and the UK’s national diet.
Falling Back Solely Onto WTO Trading Rules
Let’s imagine that on 29th March 2019 there is no deal and the UK is exiting the EU and Single Market that day AND has not had it’s request to the WTO to split from and essentially copy the existing arrangement with the EU approved. Then what? There will be an unknown period of time in which the UK literally falls back to trading solely on WTO rules without any sort of negotiated position or any other existing trade deal. In other words, the UK will be in a very unusual position.
How unusual? Are there any other countries that currently trade with no deals whatsoever? It turns out that that research has already been done: Mauritania. Seriously. Mauritania.
All those Brexiters that are so keen to defend their position that any outcome is better than being in the EU want to reduce the UK to the same trading position as Mauritania! For real.
If the UK can do a deal to replicate the EU framework, that is great. If it can’t then it will it will need to begin negotiating it’s own full entry. What might that take?
Negotiating Accession To The WTO
This is where it starts to get interesting. There are a number of countries that are currently in the process of negotiating their entry to the WTO. You can find the full list here.
Quite clearly, when trying to ascertain the likely length of time that it will take to negotiate an entry, there are countries on that list that we cannot compare the UK to – for example, Iran, Iraq, Libya and Somalia. I’m not sure that we can glean much from that page.
However, if we look at two of the most recent entrants into the WTO fold, we can pick up a few clues. Liberia became the 163rd member on 14th July 2016, and Afghanistan became the 164th member on 29th July 2016. Liberia’s accession process took eight and a half years. Afghanistan’s accession process took twelve years. When Russia joined, the whole process took nineteen years!
I don’t know what specific factors were involved in their negotiation, nor whether their processes were easy or difficult, but eight years and twelve years do not sound like a short or fast process.
In contrast, the Leaver rhetoric seems to mostly revolve around the UK “switching” to WTO rules and everyone seems to think that it will be fast, painless and automatic. People much smarter than I think they are wrong.
I think what we have discovered is that it is very unclear how long the UK might need to prepare a food and blood stockpile for. The British government seems to be quite clear that there will be major changes to the UK supply chain and that will have serious implications. Those implications will impact many business sectors, but most visibly the food chain. What also seems to be clear is that if the UK cannot immediately take up the EU’s rules within the WTO – and remember seven countries have already stated an opposition to them – then the time limit will be counted in years, not months. Britain is going to need to stockpile a lot of food!
I don’t think I want to be there for that. If you have the means, it might be best to get out now while planes can still take off!Author : financialguy