Peter Foster, who has either escaped or been fired from the Telegraph where he annoyed the readership for writing sense about Brexit for several years after the referendum, has
an interesting story today. it seems like a perfect example of why trade deals are hard.
I'm going to attempt to summarise it here because that will force me to check my own understanding, and I'm sure y'all will correct me if I get things wrong.
Let's imagine that the UK can import flour from the US under some future trade deal, while the EU continues to impose tariffs on American flour. A UK cake manufacturer could import flour from the US and makes it into cakes to export to the EU. This would (probably; I don't know that actual details for cakes) get them an exemption from tariffs (or a reduction) because they have substantially transformed the product. On the other hand, a UK factory that just imported US flour, then added baking powder and called it "British self-raising flour", probably wouldn't get the exemption, because they haven't done much to it. Trade deals and arbitration are all about questions such as whether making a cake is a substantial transformation but adding baking powder isn't.
Next, consider a company like Danone that makes yoghurts in France with English-language labels to send to the UK and Irish market. They put 24 yoghurts in each box, half strawberry flavour and half banana, and send 200,000 boxes to their distribution centre just outside Felixstowe. (I have invented all the details here for illustrative purposes). Now, perhaps Irish consumers like banana yoghurt a bit more than Brits, and strawberry a bit less, so imagine that part of the job at the distribution centre is to unpack the boxes and put 100,000 banana yoghurts and 50,000 strawberry ones on a truck and send it to Holyhead (or Liverpool, to go to Belfast, also in the EU, ha ha).
Now, when those goods arrive at Dublin, the EU customs people will ask two questions:
1) Was this product imported to the UK? (Yes, it was)
2) Was this product substantially transformed in the UK? (No, it wasn't - they just unpacked the boxes and adjusted the product mix a bit).
It turns out that 1-Yes, 2-No means "Congratulations! Tariffs apply!". And this is apparently true
even if the untransformed product was imported to the UK from the EU.
(Again, all this assumes I've read and understood this properly. You can mentally insert this caveat at any point in this post.)
According to Foster, the EU's response is basically "Well, we could make an exception for goods that have entered the UK from the EU and are being sent out unmodified, but we're not going to". Which in turn implies that Danone are going to have to start shipping their yoghurts to Ireland directly, either via sealed trucks from Calais that don't enter the UK customs-wise, or on the new super-ferries. Either way, I presume that will slightly increase costs for Irish consumers, which seems a little unfair even if the other possible consequence (i.e., Danone shutting down part of their Felixstowe operation because they no longer need to take some of the strawberry yoghurts out of the boxes, costing UK jobs) is a "reasonable" consequence of Brexit.
Even from a strong Remainer point of view, this seems a little unfair, even Kafkaesque. It also has the potential to hurt Ireland, who have been very well protected by the EU up to now. Some of the other tweets in Peter Foster's thread, and some of the replies, address this.
