“Let’s make sure that we go on doing trade with our biggest export market. Otherwise withdrawing from the single market will be the biggest single act of protectionism in the history of the United Kingdom. And no amount of trade deals with New Zealand are going to replace what we do at the moment with our big European neighbours.”
– George Osborne
This statement, delivered to the British Chambers of Commerce earlier today, crystallises some of the most persistent myths about the UK’s opportunities and challenges as a result of Brexit. These statements come on the back of a speech by former PM, Tony Blair, and yesterday by former PM, John Major. The most recent salvo came from former Chancellor, George Osborne. It is vital that we get beyond these simplistic and binary views of Britain’s approach to Europe and the world.
The first issue we need to overcome is the conflation of membership of the single market and access to it. These are different things. No right thinking person is suggesting that the UK does not want access to the single market. In fact, all countries have access to it and free trade agreements with the EU, such as the one proposed by the Prime Minister would deliver even greater levels of access. While membership in the single market currently provides the UK with the opportunity to trade goods at a zero-tariff rate across the EU, free trade agreements provide the same benefits. EEA membership also allows the easy sale of services across borders. It is in both parties’ interests to agree suitable interim measures which might include a zero for zero tariff deal, as well as specific measures in financial services, mutual recognition of standards and so forth. The Prime Minister has clearly stated at Lancaster House that it is the intention of the government to negotiate a comprehensive free trade agreement with the EU so that these preferential tariff rates can be maintained post-Brexit. She also clearly stated the need for interim measures. Even if a zero-for-zero interim tariff deal cannot be achieved, British goods will not be stopped at the border – they will enter the EU on the same WTO terms which China, the United States, and Australia currently use, and the UK can, if it chooses, unilaterally reduce some tariffs to combat inflationary effects.
Framing post-Brexit trade as a binary choice (rest of world vs. EU) is equally wrongheaded. The government has given no indication to date that it intends to choose certain trading partners over others; quite the contrary. It has embraced a non-zero sum approach to trade. The Legatum Institute Special Trade Commission has advocated a four pillar approach to Brexit which would allow for a simultaneous increase in UK-EU and UK-rest of world trade.
The first pillar is unilateral – lowering some tariffs and improving domestic competitiveness. Instead of the government picking winners and losers, an improved regulatory promulgation process would increase competition and enable insurgent and challenger firms to compete fairly with incumbents.
The second pillar is bilateral – negotiating free trade agreements with other countries on a one-to-one basis. While bilateral agreements are useful with countries prepared to do them, what we can do with a larger group of like-minded countries is even more important because the gains are so much larger.
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Hence, the third pillar is plurilateral – crafting a prosperity zone with likeminded partners which is capable of delivering more services access (achieved by deeper regulatory reform) than is available in traditional FTAs or in the WTO. For twenty years, countries have tried and failed to reduce the behind the border barriers that plague modern trade and distort supply chains. A like-minded group with leadership from one of the biggest services economies in the world might serve to crack this seemingly intractable problem and would deliver huge potential gains for Britain’s services sector.
The fourth and final pillar is multilateral – what we do to first of all rectify our own WTO schedules (we are already a WTO member of course), and then to deepen liberalization in this multilateral and other global bodies.
Yes, it is important not to be glib about the opportunities while neglecting the challenges. Nobody doubts the magnitude of the task before us. But it is equally important, when one considers the global context of stalled economic growth, and weak measures of wealth creation such as industrial output and productivity, not to miss the fact that this is an inflection point, and that if Britain advances on all four tracks outlined above, including a comprehensive FTA with the EU, the potential economic gains for Britain, Europe and the world are very real. The challenge we face is that by not understanding what is actually on offer, or throwing up straw man arguments based on a zero sum view of the world, we will fail because our hesitancy will constrain our ambition. It is a pity that leaders from Britain’s past continue to confuse the issues that are actually before us now. Fortunately, the Prime Minister seems to have a firmer grasp on these issues, and more of a global vision for the future than her predecessors.