The Freeconomist

The Simple Way to Avoid any Disruptions to the Flow of Imports to Britain after a No-Deal-Brexit

The deal negotiated by Theresa May is dead. The EU is not going to yield so there will not be a new deal. Hence, many now see a No-Deal Brexit as the most likely outcome. And it seems that much of the British political establishment and the population at large is suffering from a severe panic at the thought of the impact of such a No-Deal Brexit on the flow of imports to Britain.

The important thing to understand is that, when it comes to the flow of British imports, the big distinction is not between Brexit with a deal and Brexit without a deal but between

1. a deal that would keep Britain in the European customs union
  and
2. a No-Deal Brexit or a deal that would not keep the customs union intact.

Let us for a moment imagine that Britain had achieved a complete free-trade deal (i.e. zero tariffs) with the remaining EU. Would such a free-trade agreement avoid any disruptions to the flow of imports to Britain after its exit from the EU? The answer is “No” – if the British government did not also commit to zero tariffs on imports from the rest of the world.

Here’s why: the EU is not a free trade agreement like NAFTA; it’s a customs union, setting common external tariffs, which means that once you’re in, you’re in: once goods are unloaded at, say, Hamburg they can be shipped on to anywhere within the customs union without further customs checks.

In the case of Britain leaving the EU with a free-trade agreement EU products could enter Britain tariff-free. But if Britain charged tariffs on products from (all or some) non-EU member countries, this would mean that EU goods entering Britain would still have to face a customs inspection in order to make sure that they were actually produced in an EU member country rather than, say, Chinese goods unloaded in Rotterdam or Hamburg and shipped across the border to bypass British tariffs. So there would be much more friction compared to today.

And frictions, not tariffs, constitute the greatest concern for British businesses relying on supplies from the EU. The risk of customs delays would make “just-in-time” production infeasible for British companies currently relying on prompt arrival of parts from Europe. They would have to maintain higher inventories, which would substantially raise costs.

Furthermore, in the short run things may turn quite ugly. After almost half a century in the customs union Britain does not have in place the infrastructure needed for the customs inspections mentioned above. Hence the fear of massive delays and of shortages.

However, there is a simple way to avoid any disruptions to the flow of imports to Britain after Brexit with or without a deal: unilateral free trade.

In this case the tariff would be the same for all imports regardless of where they come from: zero. Customs inspections would be unnecessary. Brexit – with or without a deal – would not lead to any friction regarding imports.

Anti-Corn_Law_League_Meeting A meeting of the Anti-Corn Law League in Exeter Hall in 1846

Liechtenstein – the country with the most advanced constitution in the world

Imagine you are living in a country where an internet provider claims a de jure territorial monopoly wherein all inhabitants must be customers. The price-performance ratio is dismal. There are two proposals to fix the problem:

- First proposal: Democracy … the CEO of the service provider shall be elected by the country’s citizens every four years.
- Second proposal: Competition … the monopoly of the internet service provider shall be abolished and the market be opened for competitors.

Which solution would you prefer?

I, just like basically all sane persons, would prefer the second over the first proposal. “Democratizing” the internet provider may (or may not) improve things somewhat. But only competition can deliver the best possible price-performance ratio. I don’t care how the CEO of my internet provider gets appointed. He/she can be chosen by shareholders, through “democratic elections” or by rolling the dice. As long as I’m happy with the service, I couldn’t care less.

What does this have to do with Liechtenstein?

Liechtenstein is, so far, the only country in the world where the provider of governance services does no longer have a de jure territorial monopoly over the country’s inhabitants.

In the words of Prince Hans-Adam:

The State should treat its citizens like an enterprise treats its customers. For this to work, the State also needs competition. We therefore support the right of self-determination at the municipal level, in order to end the monopoly of the State over its territory.

Therefore, since the constitutional reform of 2003, every commune in Liechtenstein has had the right to secede. Even tiny Planken (with roughly 280 voters) could have its independence recognized following a local vote.

The root of bad governance is lack of competition. Incorporating this key insight into its constitution has made Liechtenstein the country with the most advanced constitution in the world.

It’s a catastrophe that in other countries there has, thus far, been so little understanding of the fundamental importance of the right to secession.

A humble Suggestion to the State of Bavaria

Since 2015, the State of Bavaria has spent between 102 854.22 € and 178 645.61 € for the “care” of each unaccompanied underage refugee.

… Here’s a humble suggestion: next time just give every unaccompanied underage refugee 100 000 € in cash.

With that money each underage refugee could get himself/herself whatever “care” he/she desires in the free market at a far superior quality (e.g. an Ivy League education + a long “de-stress holiday” in a wellness-retreat of the rich and the beautiful) AND the government would save money!

Yanis Varoufakis on the EMU

I just watched an interesting talk by Yanis Varoufakis on the topic of the European Monetary Union (EMU).

I part ways with him regarding the best way forward. (I would prefer a gradual dissolution of the EMU with the introduction of parallel currencies as a first step.) … But regarding the “crisis management” by the European establishment, in particular Angela Merkel, I completely agree: it has been utter and complete idiocy.

First, bad debt held by private investors was shifted to European taxpayers (why would anybody think this was a good idea?), then readjustment of wages and prices between Germany and the South was made unnecessarily costly by German austerity.

Expansionary fiscal policy in Germany, driving up wages and prices in Germany, would have reduced the amount of “internal devaluation” Greece and other countries had to go through. Instead, Germany was even running budget surpluses .

Today, after a decade of economic crisis, unemployment in Greece is still above 20%.

Tom W. Bell on Polycentric Law and Competitive Governance

Tom W. Bell was on the Society and the State Podcast where he talked about Polycentric Law and Competitive Governance. The podcast episode is highly recommendable and can be listened to here:

For more information on Competitive Governance you can also check out the website of the Institute for Competitive Governance, which has recently been founded and whose Academic Director is Tom W. Bell. In particular, the reading list provided on the website is interesting.

To dive even deeper into the topic you can read Bell’s book Your Next Government? – From the Nation State to Stateless Nations.