Taking control? The trade policy consequences of Brexit

Gabriel Siles-Brügge - Lecturer in Politics at the University of Manchester

The only consistent thing about the trade policy case for Brexit has been the refrain of ‘taking control’.  One meme during the referendum campaign (coined by the parody site Newsthump in 2014) was that of ‘Schrödinger’s immigrant’, ‘who ‘lazes around on benefits whilst simultaneously stealing your job’’.  Here we have Schrödinger’s trade policy: where Britain ‘takes control’ by throwing off the shackles of Brussels, where Brussels is both simultaneously ‘protectionist’ as well as the advocate of further marketisation (of public services) and neoliberalisation.

I am under no illusions as to the neoliberal orientation of EU trade policy (see, for example, on TTIP or on the EU’s trade policy prior).  This makes me a little more sympathetic to the genuine (if misguided) arguments of the ‘Lexiteers’ than those of the Vote Leave and Leave.EU campaigns.  But ultimately Brexit fails to satisfy the only consistent element of Brexiteer/Lexiteer discourse: control.

Britain has yet to negotiate an exit from the EU – and leading ‘Leave’ figures seem in no hurry to do so.  It has therefore yet to reclaim its trade and investment negotiating competence.  Will other countries want to start meaningful preliminary discussions before Britain’s relationship with the EU is clarified?  What about formal negotiations once Brexit finally occurs, given that negotiating a successor UK-EU agreement may not start until this formally occurs and may also take years?

Let us now fast forward to that point.  In leaving and negotiating its own, new trade policy would Britain have reasserted control?  The exact implications depend on the nature of Britain’s relationship with the EU at that point.  I have had to write on the basis of existing precedents.  Whether Britain would even be able to negotiate on this basis is still uncertain.

Were it to go for what was referred to during the referendum campaign as the ‘World Trade Organisation (WTO) option’ it would ostensibly have the greatest freedom to negotiate its own trade agreements.  In this scenario, it would rely purely on the ‘most-favoured nation’ trade concessions that come with membership of the WTO.  However, British participation in this organisation exists on the basis of its EU membership.  A Brexit means that Britain would likely have to renegotiate its entire membership of the WTO, notably its liberalisation commitments, with the 161 other members – opening a proverbial can of worms.  Moreover, the cost of losing preferential access to the European market may be considerable, given that this accounts for roughly half of UK trade.

Other options are therefore considered more likely post-referendum.  Leading ‘Leavers’ have begun to suggest that they would seek continued access to the EU Single Market, while others find the free trade agreement (FTA) option most likely.

The former is what Switzerland and Norway currently enjoy under, respectively, a series of bilateral agreements or membership of the European Economic Area (EEA).  These entail accepting large swathes of EU regulation (in the case of the EEA, you can see the details here), continued budget contributions (around 80 per cent of the UK’s current net per capita public sector contributions in Norway’s case) and free movement of people – all in exchange for (partial, especially in Switzerland’s case) access to the EU Single Market.

A UK-EU FTA is what is being referred to as the ‘Canada option’, after the FTA negotiated between the EU and Canada (an agreement not yet ratified, let alone implemented).  This covers tariff elimination, some liberalisation of procurement and services and investor protection – but does not involve the deep economic integration implied by the Single Market, where goods and services can generally be traded freely across EU Member States without tariff or non-tariff/regulatory restrictions.

As neither the FTA nor EEA/Swiss option implies membership of the EU customs union (which sets a common external tariff), both would allow Britain to negotiate its own deals covering tariffs.  However, its leverage as a negotiator would be diminished – both because of its reduced size and because the attractiveness of the British market (now outside of the EU) may well have been negatively affected.  Outside of the customs union, any goods being exported from Britain to the EU would likely be subject to ‘rules of origin’ in order to benefit from duty-free access: they would have to contain a certain percentage of domestic content.  Britain would also need to build the necessary negotiating expertise in an area in which it has not exercised its competence for around 40 years (aside from investment policy, which until 2009 was a national competence).  And it would also likely be hobbled by the renegotiation of its WTO membership.

In the case of the EEA/Swiss option, Britain would also be constrained in terms of not being able to negotiate on regulatory issues covered by the EEA or a custom agreement.  It would just have to accept the EU’s regulatory regime.

I have not yet directly spoken to the case made by the Lexiteers that a Brexit will facilitate the move to a more progressive British trade policy.  But a look at the options spelled out above leads me to be equally pessimistic on this front.

As I argued in another post, leading Brexiteers likely to be involved in a future UK government are right-wing libertarians interested in freeing Britain from the shackles of ‘protectionist’ Brussels.  According to Alan Finlayson, the drivers of the Leave campaign(s) ‘see the EU as intervening far too much in the economy (regulating standards, sustaining some employment rights)’.  If anything, Finlayson tells us, ‘they must, surely, think this a victory beyond all measure.’  Brexit does not represent a challenge to free market ideas, but rather their likely reification.

We may therefore be facing the prospect of a UK-US trade deal likely to contain far worse provisions on issues such as the controversial investor-to-state dispute settlement than in an EU-US deal.  If TTIP materialises, it will have been tempered by a Europe-wide civil society campaign.  This has already had influence on several potential veto points that are more amenable to left-wing politics than Westminster: other Member States in the Council (notably Germany); the European Parliament as well as national parliaments (who have to ratify trade agreements if these are found to be of ‘shared competence’).  Brexit has meant that British progressives may therefore be losing allies in the EU.

The EEA option in many ways represents the least bad outcome from a progressive perspective.  It would protect Britain from deregulation in a number of areas, including some aspects of environmental and social policy.  However, it is also worse from a progressive perspective than remaining an EU member.  Britain would have to accept the impact that an agreement such as TTIP would have on regulation covered by the EEA agreement but without having a say.  And while a Brexit may slow down the TTIP negotiations, it may well strengthen the drive of those negotiating it, in the interest of preserving European unity.

So, has Britain taken control?  Sadly, it looks like we will need to redouble our efforts in the fight for a progressive trade policy.