YESTERDAY the Irish politician, Neale Richmond TD, said while being interviewed on BBC Radio 4’s Today program that without a trade agreement, the UK’s future trading relationship with the EU should be compared to that of Somalia or ‘Outer Mongolia’ rather than to Australia. For someone who is shrilly purporting the UK could not survive without an EU trade deal (presumably one that includes EU access to UK fishing grounds and submission to EU State Aid rules), Richmond appears to know very little about EU trade – or even geography.

For a start there is no country called ‘Outer Mongolia’ – he was probably referring to Mongolia. There is a region of China known as Inner Mongolia but that is not a country. While Richmond is correct that Mongolia does not have a trade deal with the EU, he is wrong about Somalia. Being one of the least developed counties in the world, Somalia ‘benefits’ from the EU’s “Everything But Arms” trade initiative. However, they are a good example of how trade agreements do not seem to be especially important when it comes to actually trading with the EU.

According to Eurostat’s ‘Client and Supplier Countries of the EU27 in Merchandise trade in 2019’: while neither Mongolia or Somalia featured very high up on the list of EU trading partners, the EU bought over three times as much from Mongolia, €76 million worth of goods, without a trade agreement, than it did from Somalia with one, €23 million. In this case, having a trade agreement doesn’t appear to have benefited Somalia, at least compared to Mongolia. So maybe this was not the best example to use.

Nor did the lack of a trade agreement make much difference to EU exports to Mongolia or Somalia: the EU exported €486 million to Mongolia but only €129 million to Somalia – but no doubt this is a reflection of the countries relative ability to purchase the EU’s expensive manufactured goods. An attribute that neither Somalia or Mongolia share with the UK – a wealthy country that can definitely afford to buy the EU’s expensive goods and bought €318 billion worth of them in 2019, making the UK the EU’s second largest customer.

The EU’s largest customer was of course, the US, even though like Mongolia and Australia and China, the US does not have a trade agreement with the EU. So, should we worry if the UK is soon in the same situation?

China is still the EU’s largest supplier of imported goods without a trade agreement. While Australia was the EU’s 14th largest export market and its 35th largest import supplier, selling over €8 billion worth of goods to the EU without a trade agreement - that is over 80 times more than Somalia and Mongolia added together. So maybe Neale Richmond should have picked on two different countries for his illustration of how the UK would be left out in the cold without an EU trade agreement.

But the lack of UK-EU trade knowledge being spouted on the BBC did not end with Richmond’s interview. In a later interview with George Eustice, the UK Secretary of State for the Environment, Food and Rural affairs, who calmly explained that without an agreement the UK would be adding tariffs to EU imported goods. The Radio 4 presenter, Nick Robinson, another EU useful idiot, tried to flip the discussion to UK exports by insisting that the EU would reciprocate with ‘tariffs on our exports of a similar sort’.

It never ceases to amaze me how little media presenters know about UK trade. But as a rule of thumb, they should always assume, especially when talking about agricultural trade, that the UK is a net importer not an exporter. This should be done almost irrespective of the commodity under discussion. The UK is only a net exporter of whisky, milk, salmon, lamb and breakfast cereals but only the whisky trade surplus is measured in billions and most UK whisky exports go outside the EU. However, so many commentators would like us to believe that the UK is a major exporter of agricultural products – it just isn’t. Maybe commentators believe that exporters will get more public sympathy than importers and emphasising the impact on exporters will cause their audience to complain to the Government about the lack of an EU trade agreement. However, it is their audience who will have the most to benefit from trading outside the EU block.

However, back to Radio 4. Having got away with inverting the conversation from tariffs on Imports to worrying about the very few UK agricultural exports to the EU, Robinson then went on to tell his audience that the cost of beef would increase by 40% without an EU trade agreement. He did this massive piece of mental arithmetic based on the information that the EU beef tariffs were 40%, but even though he was feigning concern for UK beef exporters only a few minutes earlier, his miscalculation exposed his core belief – that the UK imports 100% of its beef and all of it from the EU.

Although this is mind-bogglingly stupid, what made it worse was that the Minister in charge of UK agriculture let him get away with it. Instead Eustice should have corrected Robinson and quoted some numbers that he ought to know by heart, and that can be found in his own department’s annual survey of Agriculture in the UK, 20191 , on page 83. That the UK produced 86% of the beef it consumed in 2019 and over the last 5 years the percentage of home-grown beef consumed in the UK has never been below 80%. Even if all of the 14% of the beef the UK imported last year, had had a 40% tariff added to its import price, that would only have increased average beef prices by 5.6%.

But the craziest element of this conversation was Robinson’s obvious Stockholm syndrome: why would he assume that the UK would continue to buy EU beef once it is outside the EU’s tariff regime?

Beef is not exclusively produced in the EU – it is not Champagne. Beef is produced in many countries and is generally produced at a lower cost outside the EU. The UK could buy the additional beef that it consumes each year from Australia, or Brazil, or Argentina, or Uruguay or the US. Sure, without a trade agreement imports from these countries would also incur tariffs, but as they are all more efficient producers than Ireland, their base prices would be lower before any tariff is added.

This should be worrying the Irish, if not the EU. If the UK signs a trade deal with Australia or the US or rolls over the EU’s deal with the Mercosur countries, then Irish beef will lose a lot, if not all, of its UK market share and UK consumers could find the price of beef in the UK goes down, not up.

Neale Richmond may have been hoping to scare the ill-informed Radio 4 listeners into pressuring the Government to accept the EU’s preposterous demands about access to UK fishing waters and compliance with EU State Aid rules, but the boot is most definitely on the other foot when it comes to trade. Because one thing the UK does have in common with Australia when it comes to EU trade, is a large trade deficit in goods. Although Australia’s trade deficit with the EU, at €22.6 billion is the EU’s 5th largest, it is a fraction of the UK’s trade deficit of €124 billion.

UK-EU Trade will not stop without a trade agreement, but EU companies and farmers will find suddenly they must compete with the rest of the world for UK customers. This is unlikely to end well for the EU. My advice to the EU would be to stop arguing about fishing and state aid and grab whatever trade agreement they can get from the UK. Otherwise they will be the ones who find themselves in ‘Outer Mongolia’.

By: Catherine McBride is an experienced economist, working in corporate governance, competition economics, global trade, financial regulation and public policy. Catherine gained her bachelor’s degree from the University of Sydney in the mid 80s, was a trader in equities, derivatives and commodities during the 90s and noughties, and following the EU referendum worked for the Financial Services Negotiation Forum, Legatum Institute and the Institute of Economic Affairs, before becoming freelance.

Published Date:2020-09-09