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Uncertainties of leaving

Post-Brexit uncertainties are fairly clear, since it has been in the interest of the Government to identify and reiterate them over many years. As the referendum approaches, it has multiplied and enlarged on them apparently to frighten voters, and suggest the risks of independence are too great.


1. What kind of future trade relationship with the EU?

Unquestionably, this is the number one issue for any British government following a vote to leave. The way it is resolved will have repercussions on other post-Brexit uncertainties. Some of those who hope the UK will remain a member have suggested that our former partners, keen to discourage any further defections will be vindictive and difficult negotiators. Others take the view that ‘rationality will prevail’, and that they will act in their own self-interest, and therefore be willing to conclude an agreement that provokes as little disturbance to existing patterns of trade as possible.

Some reassurance may be found in the OECD and UNComtrade data reported in this handbook, since it has repeatedly demonstrated that the benefits of membership have, for many years, been much exaggerated in the UK. The exports to the EU of many non-members, including many with no agreements with the EU, have grown faster than those of the UK and those of other members over the life of the Single Market, despite the tariff and non-tariff barriers they face. The idea that a country has to ‘sit at the table and help to make the rules’ to export successfully to the EU is plainly absurd, as therefore is the idea that it would be necessary to pay substantial membership fees or to allow free movement of labour to all EU citizens to export to it.

2. Can the UK replace EU trade agreements with other countries

None of the trade agreements that the EU has negotiated with other countries will be automatically transferred to the UK as an independent country. It will be a matter of negotiation in each and every case, which depend in some respects on the outcome of the negotiations with the EU. This is sometimes presented as a daunting task extending over many years.

However, the UNComtrade and WTO data reported in this handbook has also shown that the benefits of these agreements have also been exaggerated. While there are a large number of agreements their scope in terms of UK exports is limited. Aside from the EEA and EFTA agreements, they cover 6% of UK goods exports and 1.8% of services exports, and the tariffs on exports to those goods markets for all WTO members is low, on average 5%. Second, the evidence that we have suggests that a majority of these agreements have not been effective in increasing UK goods exports. The post-agreement rate of growth of UK goods exports has increased in four of the fourteen in which data allowed a pre-and post-agreement comparison: Chile, Lebanon, Korea and Papua New Guinea.

The agreements with Korea and Chile have been the spectacular success stories of the past 42 years of EU trade negotiations, (together 1.5% of all UK goods exports in 2014) but most of the other agreements would probably not be a post-Brexit UK priority. They are with small countries, often do not include services, and have slighted the Commonwealth over many years.

Hence, Brexit provides an opportunity for the UK to adopt a trade agreement strategy geared to its own comparative advantages and interests. Many small independent countries have shown that it is possible to conclude agreements with large economies, which include services. This must be counted one of the main economic opportunities of Brexit.

3. What sort of immigration system?

If there is an agreement with the EU, which entails freedom of movement for all EU citizens, then there will be little change from the present unpredictable flows. If there is no such agreement, immigration will be managed, in all likelihood become qualification-based and equally open to immigrants from all countries rather than restricted to the EU, plus such provision for refugees as the government of the day considers appropriate, and UK public services and communities seem able to manage.

The financial and scientific research communities will be the most deeply affected by the outcome of the agreement with the EU. However, once immigration is under control, and the public backlash removed, it will be easy for a post-Brexit government to ensure not only that immigration from the EU to their workplaces continues, but that they have exactly the same freedom to recruit equally freely from around the world. Some Remain campaigners suggest that Brexit campaigners are xenophobic or anti-European, but there does not appear to be any significant body of opinion that wishes to restrict free movement of scientific research labour, nor even financial experts.

4. FDI

Supporters of continued membership have often predicted that foreign investors will leave the UK, if it votes to leave the EU, and that new investors will decline to come. The evidence does not support these confident claims. The EU itself has long since abandoned the claim that the Single Market is or has been a magnet for FDI. However, the post-Brexit government will have to consider how to ensure that the UK continues to be attractive for foreign investors, and the outturn of the preceding three questions will therefore be important. It will be even more important to continue the present policy of reducing corporation tax.

5. The scope and scale of de-regulation

One of the trickier issues of a post-Brexit government will be to decide how what regulation is no longer considered necessary. Expectations on this score run very high, since even the Prime Ministers and many others who wish to remain members of the EU are among those who think there is much to be gained by reducing EU regulation, even more so at times than those who wish to leave. There are therefore bound to be disappointments. Many of these regulations, as has often been pointed out, stem from global regulations which the EU has merely transposed. Others have considerable support in the UK, and would have been adopted, even if the UK were not a member. No doubt there will be many expectations that will not be fulfilled.

Open Europe conducted a detailed analysis of eight distinctive types of regulation from the EU and found that the likely UK response of a post-Brexit government to each type differed.[1] Some, bearing in mind their domestic political support, it would probably prefer to leave alone. Others it would repeal and make considerable savings, while in a few cases it might consider amending or even strengthening. In short, it would not be a bonfire, but a deliberate and considered choice of the regulations that are most appropriate and effective in the UK.

The estimated total savings in their ‘politically feasible’ scenario would be £12.8b while under an ‘extremely liberal’ one they would be £24.4b. Under the former they estimate no savings at all from regulation in consumer protection, competition and public procurement, product standards, and life sciences, while the biggest savings under both scenarios are amending regulations of employment health and safety and in environmental and climate change.

6. Will the UK be less influential in the world?

Tony Blair has argued that ‘the case for the EU today… is that, in this new world, to leverage power, you need the heft of the EU. This is true in economics, in trade, in defence, foreign policy and global challenges such as climate change. It gives us a weight collectively that on our own we lack. It enables the UK to perform what he called ‘our global leadership role’, our meaning the UK, not the EU. The first major disadvantage of leaving the EU, in his view, is therefore that we would be unable to perform this role.

In a similar vein, the former Deputy Prime Minister, Nick Clegg, has often claimed that EU membership enables Britain ‘to walk tall in Beijing, New Delhi and Washington’. And presumably outside the EU, Britain would walk more diffidently in these cities.

President Obama has now added his voice to this argument by saying ‘the European Union doesn’t moderate British influence it magnifies it….it enhances Britain’s global leadership.’

One problem with this argument is that there is no acceptable index of influence in the world. It seems to depend on a variety of ill-assorted, incommensurate factors. The size and strength of an economy, nuclear weapons and/or conventional military resources which can be deployed across the globe, representation on significant global bodies, and the English language itself seems to be a powerful influence. The present UK government, like many others, thinks that foreign aid increases influence. How, alongside all these things, and membership of NATO and numerous global bodies, should we assess the impact of EU membership?

The second, more important, problem is that it is uncertain whether the British people want to play ‘a global leadership role’, or want their global leadership ‘enhanced’ as President Obama puts it.

Putting these questions aside, surrendering as the UK has done, the right to speak for itself in the WTO, and other global bodies, and allow EU representatives to speak on its behalf, while simultaneously speaking on behalf of the other 27 members, seems, on the face of things, a curious way of ‘magnifying’ or ‘enhancing’ the UK’s influence. Inevitably, it must often require that the UK qualify or amend its initial position to reach an EU consensus. How could this magnify Britain’s influence in the world?

The logic of this argument is that Britain should also surrender its seat on the board of the IMF to an EU representative, as has been discussed at EU Ministers of Finance, and then go on to surrender, as has also occasionally been suggested, its permanent seat on the UN Security Council, since this will still further increase the UK’s influence in the world.[2]

Meanwhile Norway, that has not chosen the more conventional method of increasing its influence in the world, by energetically speaking up for itself on all the issues that matter most to it (fishing and shipping, oil rigs, food exports and climate change) at all the relevant global bodies, including the WTO, the WHO codex alimentarius, the FAO, the ILO, the High North & Arctic Council. Not infrequently, it plays a leading role upstream, not merely of EU member countries, but of the EU itself.[3] Might not post-Brexit UK do the same?

Notes

[1] Annex 3, Stephen Booth, Open Europe, What if…? The Consequences, challenges & opportunities facing Britain outside EU, Report March 2015 http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/

[2] p. 318, op.cit.

[3] pp. 30-40, Jonathan Lindsell, The Norwegian Way, A case study for Britain’s future relationship with the EU, Civitas, London 2015


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