The Civil Service has recently produced a ‘Cross-Whitehall Brexit Analysis’ arguing that a Brexit in which the UK leaves the EU Customs Union and establishes Free Trade Agreements with the EU and around the world will damage the UK economy by between 1.2% and 6.2% over the next decade and a half (this excludes the assumed effects of migration and regulation changes which do not concern trade). To generate these estimates it used a well-known World Trade Model, the GTAP model based at Purdue University Indiana, which is used regularly by analysts all around the world to produce estimates of substantial gains from Free Trade Agreements. Why is it that this model is now producing decidedly negative results for our Civil Service? In what follows, I will show that the Civil Service has used assumptions in the GTAP model that are incredible and unsustainable in order to produce these negative results for Brexit. When credible and sensible assumptions for these Free Trade policies are fed into this model, the results are substantial and positive, as anyone would expect from policies that extend free trade. Using credible and sensible assumptions turns the Civil Service analysis on its head. Where the Civil Service analysis says a Customs Union with the EU will be beneficial to the UK, to the tune of 1.2-6.2% of GDP, and so we should not leave it, the report – if based on correct assumptions – would say that remaining in the Customs Union is damaging to the UK, to the tune of 3-4% of GDP, and we should leave it. This would allow us to pursue general free trade with the whole world and not merely the EU within a protectionist Customs Union. The maximum discrepancy in these two assessments of the EU Customs Union is 10.2% of GDP. No wonder so many people in our national debate are confused. Thus, the Civil Service effectively is arguing for the reversal of Brexit in one major dimension, namely the EU Customs Union. This argument has gone hand in hand with the argument that senior civil servants have apparently made for a New Customs Partnership that, in practice, amounts to the EU Customs Union in all but name. Phantom UK-EU trade barriers if we leave the EU Customs Union The Civil Service report implicitly assumes, if we leave the EU Customs Union, UK-EU trade barriers will rise to the equivalent of tariffs ranging between 8.1% and 30.6%, depending on which exit option is analysed (this is a consequence of how the GTAP model works). The bottom end of this range occurs if we stay in the EEA like Norway, inside the Single Market and so subject to full EU Single Market rules, including on free migration. The top end occurs if we leave under WTO rules without a trade deal and assumes we do actually levy mutual tariffs. These incredibly high trade barriers are supposed to arise for two main reasons. First, it is argued the necessary existence of customs posts and the need to establish the origin of goods for purposes of computing the right tariffs will be expensive. These customs costs are estimated by the Civil Service at about 6% in tariff equivalent terms – i.e. their effect is the same as tariffs of this magnitude. Second, it is assumed both the UK and the EU would raise ‘non-tariff barriers’ (NTBs) by being awkward on whether exports from the other met required standards. These NTBs are estimated at around 2% for the EEA and around 20% under WTO rules. The difficulty with these assumptions is twofold. First, modern customs procedures are mandated by the WTO to be ‘seamless’, which means that customs clearance is carried out by computer entry before and after port transfer in conjunction with various ‘trusted trader’ schemes: this means they are essentially costless. For example, Switzerland operates such a scheme today. Even though it is bordered on all sides by the EU and is not a member of the EU Customs Union, they inspect only 1% of goods crossing the border and they have calculated empirically that the ‘frictional border costs’ are only 0.1% of the value of the goods – including regulative NTBs which are negligible as Switzerland largely conforms to the Single Market. This figure equates to a de-minimis cost to the UK of only 0.02% of GDP – compared to the absurdly high customs costs described above. Secondly, the NTBs assumed as new trade barriers are contrary to international WTO law, under which UK and EU commercial transactions will be regulated after Brexit. Modern WTO law on technical standards and service regulations mandates that they be non-discriminatory between both domestic producers and foreign exporters and between different foreign exporters. Therefore, such NTBs cannot be introduced. This is doubly plain when you consider that all UK exporters at the moment of Brexit will conform to EU standards, and all EU exporters will conform to UK standards. Furthermore, even if there is UK ‘regulatory divergence’ afterwards, exporters to the EU will not diverge, since they must continue to conform in order to export – just as they do today for exports to the US and China. They may diverge on products for other markets, as indeed may the majority of UK companies that do not export to the EU at all as UK regulations diverge, but that is entirely separate and cannot by law justify an NTB on UK-EU export trade. Neglected gains from UK worldwide Free Trade Agreements The other fallacy at the heart of the Civil Service report is the assumption that UK FTAs have only a small effect on UK trade barriers. The report assumes that FTAs will be signed with a few unspecified non-EU trade partners – only the US is mentioned. In total, these assumed FTAs – when the Civil Service inputs them into the GTAP model – generate only a 0.3-0.6% gain in UK GDP. We know this is far too small from other published reports using the GTAP model. One such report found that a 4% UK tariff reduction on food and manufactures arising from FTAs with the rest of the world, without counting the effect of any extra access the UK would get to new markets, would raise UK GDP by 0.8%. We know that existing EU trade barriers including NTBs are 20%: were the UK to eliminate this 20% trade barrier it would inherit from the EU, the gain would become 4% of GDP. Similarly-sized gains to GDP are found if we use the Cardiff-developed World Trade Model, which has been tested and shown to model UK trade behaviour well. The picture as a whole Let us now put together both sides of the Civil Service report calculation, on the one hand the gross overestimate of the UK-EU trade barriers arising from us leaving the Customs Union and, on the other, the diminishing of the gains from us doing Free Trade Agreements with the rest of the world. Let us do it simply for the main case at issue, where we sign a Free Trade Agreement with the EU. The Civil Service calculation on its own model swings from a loss from leaving the Customs Union of 4.3% of GDP to a gain of 4% of GDP – a total swing of more than 8% of GDP. On the WTO case of ‘no deal’, the swing is from -6.2% to +3%, no less than 9% of GDP. If the Cardiff model is used, the swing rises to 10% of GDP. The enormity of this effort by the Civil Service to mislead can hardly be exaggerated. It is no wonder that it has confused Parliament, the people at large, and even some members of the Cabinet. It has led to a foolish effort by a small group to push for a New Customs Partnership as a close approximation to the EU Customs Union when, in fact, a fully facilitated and normally cooperative customs system on both sides of the EU-UK border (such as currently used by Switzerland and all other developed countries) can virtually eliminate border cost. There is no requirement for an unprecedented, undeveloped, and untested New Customs Partnership. It is time for the facts to be appreciated and the debate to focus on an FTA with the EU that preserves existing free trade.