‘Friction’ is the latest word to have entered Brexit terminology and, with its negative connotations, into the mythology of those who would like to prevent Brexit altogether (or at least thwart a clean version of Brexit). And like many myths, it should be debunked. Over the past 35 years, I’ve been a director of over 50 companies, both British and international (from Houston to Sydney to Shanghai), public and private, trading domestically and around the world, in manufacturing, media and services. The experience has made me a huge fan of the ingenuity and success of British businesses and I have seen the respect in which overseas companies hold the UK, its institutions and our democracy. Along the way I spent six years in Sydney in the 1980s and retain many close friendships and connections in London with Australian businessmen and diplomats. At the time I was there, Australia made a significant political decision to turn outwards, embrace a global free trade stance and abandon a protectionist economy relying upon restricting foreign investment and agricultural subsidies. It is no coincidence that Australia has enjoyed thirty years of continuous GDP growth since. All these businesses encountered and usually overcame many obstacles to business and trade, all of which could be described as ‘friction’. But I never heard the word used in the boardroom in the way it now dominates the politics of Brexit. The normal use of the word is to describe what happens when two bodies come into contact which any engineer will tell you converts their kinetic energy into heat (rather than light) or the conflict or animosity caused by a clash of opinions. Both seem worth bearing in mind in the current febrile debate. So, I would first contend that the word ‘frictionless trade’ is a misleading way of diverting attention from what we are really talking about, which is how can we manage the changes necessary to our trade with the EU which will flow across a customs border after Brexit – or to use a better phrase, coined by David Davis, ‘manageable friction’. For make no mistake, any Brexit which keeps the UK in the Customs Union or as an EU rule-taker really will put us ‘at the back of the line’ with the US and China and of the queue with our Commonwealth allies (including Australia, Canada, New Zealand and India) and all other countries which the potential of global free trade offers us. Diplomacy and its close relationship with the UK preclude my friends at Australia House from criticising Chequers. But there is no such constraint upon former Trade and High Commissioners and global trade experts such as those on the International Trade Advisory Council at the IEA who simply cannot believe how we have surrendered ground to the EU by aligning ourselves with a trading partner in a way which will inhibit, if not prevent, the signing of trade deals with the growing economies of the world. The Department for International Trade must know that. Manageable friction should be looked at in the context of business and our economy as a whole over the long-term – not just the narrow context of what happens next March at the border, and Dover especially, which is what the anti-Brexit lobby want us to dwell upon. So, to debunk this latest anti-Brexit myth, here are a few inconvenient business truths. The share of UK trade into the EU has been steadily declining and is now significantly less (at 45%) than our 55% (and growing) share to the 194 countries of the world outside the EU. This is due in no small part to the fact that the EU for the past decade has been the worst performing economic grouping, by region or economic stage of development, in the world. Global Finance magazine calculated EU GDP growth over this period at 1.0% per annum (and the Eurozone even worse at 0.7%) compared to other advanced economies (excluding the G7) at 3.0% and the world at 3.8%. As a continent only Antarctica (population 4,000) performed worse than Europe. For the 94% of British companies which do not trade with the EU at all, accounting for 87% of our economy, the unmanageable friction of complying with EU directives and regulations – which they see as barriers to trade and often irrelevant – is significant and was calculated at £36 billion annually by Open Europe. Yet we pay, after the rebate and EU grants and subsidies over which we have no effective control, some £9 billion each year for belonging to the EU. Looked at another way, this is a hidden tariff on our EU exports of just under 6% and becomes a Brexit dividend available to help with the cost of manageable friction if the Government chooses. For goods coming into the UK from the EU, whether it is at Dover or any of the other British ports, the extent and implementation timescales for additional physical checks at the border is a UK policy decision. We can therefore choose to avoid a ‘cliff edge’ on 30th March 2019. This doomsday scenario peddled by anti-Brexiteers is therefore a (slightly early) April Fool. James Cooper, who until June was CEO of Associated British Ports which operates 21 ports across mainland UK including Immingham, our busiest port, and Southampton, our second largest, confirms that we currently inspect only 1.3% of containers imported from WTO countries. Of these, 80% are for health and food compliance and the rest for security and crime (primarily smuggling and trafficking) reasons. And we already inspect EU goods for the latter reason because crime is not confined to the rest of the world. He sees no reason why an increase of regulatory checks should be needed for EU goods on Day One when we will still be aligned, as we know they already comply. So, the inspection rate could be as low as 0.25%. He recognises that problems and delays could occur if the EU27 took a more aggressive stance but also points out that these decisions will be delegated competencies – so national decisions. Will France want to see its competitive advantage eroded as the obvious border for much of the UK’s seaborne trade to the EU? Dover attracts most of the hysterical headlines about lorry parks tailing back up the M20 into leafy Kent. And there is no doubt that with a 30% share of UK-EU trade (up from 14% twenty years ago) the Dover-Calais link has both the scope to remain a funnel through which trade can pour or a bottleneck which exporters and importers will want to avoid like the plague. Contributing factors to Dover’s growth have included the intense competition between ferry companies and Eurotunnel, the availability of cheap lorry drivers (especially from Eastern Europe) and the relatively cheaper cost (both in freight rates and time) of road compared to sea transport. Whilst it is only 21 miles from the French coast, in all other logistical aspects you would not choose Dover as you would want container imports to take place much closer in the UK to their end user – especially as the cost advantage of road transport is now eroding and the environmental damage of larger lorries more apparent. UK exporters have already shown during the Calais port strikes and immigrant crisis that other alternatives can be used and are making plans to do so again rather than send their lorries up and down a congested M20. I have already dealt with the approach the UK Government could take to imports. 80% of lorry drivers using Dover are EU nationals and 50% of the trailers returning to France contain fresh air (because of our £95 billion goods deficit). Antwerp, Zeebrugge and Rotterdam, among others, would jump at the chance to take business away from Calais, as would other UK ports which have the capacity to absorb 30% of Dover’s trailer volumes. Compliance checks already take place in advance away from the border using increasingly efficient technology. President Macron may decide to shoot France’s economy in the foot by ensuring Calais becomes that bottleneck, but in the long-term he will have to answer not only to dock workers in Calais and other French ports who lose their jobs, but also to many other EU countries and companies who see their lorries and drivers trapped by French intransigence. Belgium, the Netherlands and Denmark have already declared themselves ready, willing and able to make sure trade can flow and grow freely with manageable friction. Felixstowe is the UK’s largest container port and, like them all, it is privately owned (in its case by a Hong Kong group) and therefore highly competitive. Unsurprisingly a high proportion of containers through Felixstowe come from China. Yet, as a regular user, I rarely see or hear of lorry tailbacks along the A14. Stephen Britt is managing director of Anchor Storage, a Suffolk-based logistics company, founded over 30 years ago in partnership with his father, which transports and stores goods on behalf of internet fulfilment importers. Like most SMEs he does not see the CBI as representing his interests and sees tariffs and much regulation as anti-competitive and working very much in favour of big business. For example, he cites high tariffs on bicycle imports from Taiwan and punitive anti-dumping levies from China as making one of our fast-increasing leisure activities (along with food and basic goods) more expensive than it needs to be for ordinary families. He deals with the importation paperwork and advance tariff payments as part and parcel of doing business and sees Brexit as the shot in the arm needed to make the UK customs system less bureaucratic and more focused on issues such as law-breaking and maintaining trading standards. “This is all about a state of mind,” is his verdict. His business is all about forward planning, but he acknowledges that lead times for containers from the Far East gives him more notice than just in time importers and exporters. So, I asked Philip Cullimore, former Managing Director Europe for Eastman Kodak, based in Switzerland, for his views on friction. With digital images taking over from photographs, Kodak has had to adapt its business dramatically and survived a painful restructuring from 2011-2013. Next-day delivery of all its more than 3,000 standard printing and imaging products is expected throughout Europe. Many of Kodak’s parts come into the EU and flow freely through trusted trader arrangements, as any reputable company knows that their business depends on equally reputable third-party suppliers and partners. Philip sees friction as the addition of cost through longer processes or requirement for increased inventory but, more importantly, the Brexit solution being in the hands of government which can compensate affected international business in other ways. If tariff and/or inspection delays were introduced, then a company like Kodak would almost certainly need buffer stocks held in the UK. However, fiscal incentives to reintroduce activity back into the UK would not only make up cost shortfall but also create jobs. He observed that the reason why Kodak and Procter & Gamble migrated to Switzerland in 2000 before it effectively became part of the EU in all but name was because there were corporation tax incentives. Remember we gain a Brexit saving of about 6% of our total exports by leaving. So even if you do not believe a lower corporation tax rate leads to a higher tax take, the UK Government has plenty to play with before UK companies are worse off through Brexit. The Irish border problem is not about trade or even manageable friction because the value of goods passing across the border (between £1bn-£2bn) pales into insignificance compared to total EU imports. And knowing that compliance formalities and tariff collection take place away from a customs border elsewhere in the EU using technology and trusted trader schemes, the notion that the border becomes a gaping hole in the EU’s trade protection barriers is fanciful so it should only be about all the same issues of law-breaking that apply elsewhere. If there was a will there would be a way to find a scheme through cooperation between customs officials. The Irish border is all about the politics of Brexit because it is the last card the EU can play and my last point to make is that I believe the whole negotiation with the EU is about politics and not about trade. My research for this article started with looking at the websites for the EU and the WTO. The WTO goal is remarkably short and simple: ‘to ensure trade flows as smoothly, predictably and freely as possible’ and ‘its primary purpose is to open trade for the benefit of all’. Whereas the goals of the EU do not mention the word trade once. The only reference to trade is relegated to a small paragraph explaining (my underlining) that the EU is the ‘largest trading block in the world’ and ‘free trade among its members is a founding principle’. This is after many paragraphs telling us about EU ‘values’, its objective of moving from economic to political union and paeans to the euro as a single currency, freedom of movement and its transparent and democratic institutions. In many respects, this says it all…