Five
Brexit challenges as Britain leaps into the unknown
In
all, UK trade may shrink by up to a quarter in both services and
goods
Martin Wolf
YESTERDAY by: Martin
Wolf
The UK government’s
proposed legislation on its planned exit from the EU contains an
extraordinary statement: “Whilst Parliament has remained sovereign
throughout our membership of the EU, it has not always felt like
that.” The government is correct, as I argued during the referendum
campaign: the UK parliament has always been sovereign, as is being
proved by its ability to trigger Brexit. What sane country would
sever its ties to its most important trading partners and its
strategic position in its continent’s councils over a feeling that
its own government agrees is erroneous?
Yet this is what the
government seeks. Rightly, it wants an amicable divorce: “We want
to continue to trade with the EU as freely as possible, to co-operate
to keep our countries safe, to promote the values the UK and EU share
— respect for human rights and dignity, democracy and the rule of
law both within Europe and across the wider world, to support a
strong European voice on the world stage, and to continue to
encourage travel between the UK and EU.” Yet, driven by its desire
to control immigration and free itself from the European Court of
Justice, both presumed to reflect the “will of the people”, the
government plans to leave the single market and the customs union.
So is it likely to
be able to reach a deal? Furthermore, what might be the result? In
trying to reach any deal, the UK has to cope with five daunting
challenges.
First, lack of time.
Article 50 states: “The treaties shall cease to apply to the state
in question from the date of entry into force of the withdrawal
agreement or, failing that, two years after the notification . . . ,
unless the European Council, in agreement with the member state
concerned, unanimously decides to extend this period.” The chances
of securing an extension are slim. Thus the limit is two years. In
fact, it is less than this. Indeed, businesses will need clarity a
good year before the end. As a result, the UK’s leverage will
rapidly dwindle.
Second, divergent
interests. As noted by the great Prussian general Helmuth von Moltke,
no battle plan survives contact with the enemy. This will certainly
apply to the UK’s plans. It is negotiating with the European
Commission, 27 countries and the European Parliament, all of which
will have different red lines. Their need to reach an agreement is
less urgent than Britain’s. Many will want to show that exit is
costly. Many will feel that the longer the talks drag on, the greater
the chance of having UK-based business fall into their laps.
Third, divergent
negotiating priorities. The commission, the lead negotiator, wants to
start with the terms of the divorce before starting talks on a future
framework and the transition towards it. The UK believes that nothing
is agreed until everything is agreed. It will, perfectly sensibly,
not agree to a divorce unless the outlines of a subsequent
arrangement and the transition to it are also agreed. Disagreement on
how to negotiate might halt progress quickly.
Fourth, money. This
has always been a sticking point for the UK. But the commission
calculates that Britain owes €60bn. As a paper for the Centre for
European Reform notes, this is “a far cry from the £350m-a-week
bounty promised by Brexit campaigners during the referendum
campaign”. This demand could prove to be the decisive stumbling
block.
Fifth, complexity.
In addition to the issue of money, the divorce will cover outstanding
commitments (such as to scientific research), citizens’ rights and
housekeeping issues (outstanding competition cases, for example).
London has also decided on the most complex possible post-Brexit
trading arrangement — a bespoke free-trade agreement (FTA), with
the possible addition of sectoral customs unions and “enhanced
equivalence” for finance, which are illegal under World Trade
Organization rules. The ensuing complexity could prove overwhelming.
In all, the chances
that a deal will not be reached in time must be high. Indeed Article
50 was presumably designed to be unworkable. Yet suppose a deal in
line with the UK government’s desires could be reached. What would
it mean for the UK, particularly on trade?
Two points are
crucial. First, empirical work demonstrates what Angus Armstrong of
the National Institute for Economic and Social Research calls the
iron law of trade models: “Trade between two countries
approximately halves as distance between them doubles.” Second,
tariffs are much less significant barriers to trade than regulations.
This is clearly true of services but it is also true of
manufacturing.
That is why a
careful empirical study indicates that a move from membership of the
European Economic Area to a mere FTA could lead to a huge reduction
in the affected trade. In all, UK trade may shrink by up to a quarter
in both services and goods. Because of distance and regulatory
barriers, agreements with the US, other “Anglosphere countries”
and leading emerging countries would not offset this: according to
the NIESR’s Monique Ebell, these might increase overall UK trade by
only 5 per cent. This is because the countries are distant and
regulatory barriers are likely to remain high. Also, if regulations
were lowered, complex questions of harmonisation and compatibility of
regimes would emerge. (See charts.)
The UK has committed
itself to becoming “global Britain”. Getting there successfully
will be a big challenge. True, the short term economic effect has
been far less than many supposed. But exit has not yet begun. In her
preface to the white paper, Theresa May claims that Britain is coming
together. The prime minister is right that the majority of Remainers
hope her form of Brexit will work: this is our country, too. Yet most
of us still believe that the path on which the UK is launched is
deeply against its interests. We must hope we are wrong.
Sem comentários:
Enviar um comentário