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The EU strikes trade deals with countries all over the world on behalf of its 28 members. The Brexiters in the UK talk about the freedom to strike trade deals once the UK leaves the EU. But what do they mean given that the UK already trades with countries all over the world?

For the Brexiters to make sense, it must be that some important trade deals the EU has struck, and which the UK has to abide by currently, are somehow bad for the UK (and presumably good for other EU countries instead). Do they give any examples of such significant trade deals which they want to be free of but can't be unless the UK leaves the EU?

Or is that the EU simply doesn't have trade deals at all with some countries or with respect to some goods or services and the Brexiters are desparate for the UK to have such deals. If so, do they give any examples of these?

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  • The deals the EU makes need approval from its members (UK included). For example the EU-Canada deal almost failed because Belgium wanted more protection to its dairy industry (which Canada also wants). Eventually the issue was solved but staying in the EU implies that whatever deal is made it needs to be positive for all its members. By going hard brexit the UK would be able to make unilateral decisions. But obviously only for a market of 70 million (as opposed to EU 500). Also they could drop a few or all EU regulations (see UK-US post-brexit trade deal, chlorine washing food). – armatita Jul 10 '18 at 10:18
  • @armatita I see but are there any concrete examples that the Brexiters give of a significant new deal they want that they can't have with the UK in EU? Or regulations they want to drop which would have a significant economic effect that they can't drop currently? – Anush Jul 10 '18 at 10:20
  • The US is the major brexit hardliner target. Trump has promised a "big and exciting deal" but he has its own agenda and has already asked the UK to drop EU regulations (which would probably not be very well seen by UK citizens). He also seems keen on the dissolution of the EU (for reasons that are not fully clear to me; perhaps some nationalist agenda?). In fact he put pressure on Theresa May just yesterday in an attempt to sway her out of the "Checkers" soft-brexit. Canada has also showed a lot of interest in a trade deal with the UK. – armatita Jul 10 '18 at 10:36
  • @armatita I understand that the UK could trade with the US and Canada post Brexit but they can also trade with them now (in fact Canada has a new free trade with the EU). I am looking for specific examples for how the Brexiters believe this trade will or could be significantly economically better than what the UK has now through the EU. – Anush Jul 10 '18 at 10:39
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    @armatita OK but if the Brexiters said "We can't sell our potatoes to the Canadians because of this terrible EU trade deal" I would understand them. We can estimate how many potatoes we could plausibly produce so could then also give some concrete figures for what the UK would like to achieve through Brexit. As it is, I have yet to hear a single concrete example even neglecting the numbers part. – Anush Jul 10 '18 at 11:25
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What do the Brexiters want when they talk about striking new trade deals?

Trade is an “exclusive competence” of the EU. This means that EU members like the UK must delegate decisions on trade policy to people in Belgium. Members of the European Union are prohibited from making trade deals.

When talking about striking new trade deals, Brexiters are describing how they would use the return of this competency to the national government when the UK leaves the EU, to improve the trade of goods and services between the UK and the world.

The EU strikes trade deals with countries all over the world on behalf of its 28 members. The Brexiters in the UK talk about the freedom to strike trade deals once the UK leaves the EU. But what do they mean given that the UK already trades with countries all over the world?

They mean that there is an opportunity to trade on better terms with countries in the fast-growing 85% of the global economy that sits outside the EU while retaining similar (but possibly worse) terms with the slowing-diminishing (in share) 15% of the global economy that remains inside the EU after the UK has left.

In other words: although the terms with the EU bloc might be worse, they believe this will be offset by the opportunities in the larger and faster-growing remainder of the global economy.

For the Brexiters to make sense, it must be that some important trade deals the EU has struck, and which the UK has to abide by currently, are somehow bad for the UK (and presumably good for other EU countries instead).

No, that is not the case. For the Brexiters to make sense (in the area of trade) they need to be able to show through evidence and reason that trade in goods and services could be better or equivalent with the UK outside the EU.

This does not mean any of the deals struck by the EU are “bad for the UK”. It simply means that Brexiters believe, based on an interpretation of the available data and precedent, that the UK can continue to be a successful trading nation outside the EU.

Do they give any examples of such significant trade deals which they want to be free of but can't be unless the UK leaves the EU? [my emphasis]

No, because, per the above, Brexiters are not arguing that the existing free trade deals, made by the EU, are “bad for the UK”.

Or is that the EU simply doesn't have trade deals at all with some countries or with respect to some goods or services and the Brexiters are desparate for the UK to have such deals. If so, do they give any examples of these?

Partly, yes. The EU does have a rather modest list of Free Trade Agreements [20], and most of the markets on this list are small. Furthermore, many are very basic agreements sometimes not even covering agricultural goods or any services. Examples of markets that Brexiters would like to form bilateral free trade deals with include the US, China, advanced economies like those within the Commonwealth (the EU has a Canada deal), and developing economies like those of Brazil, India and Africa.

Iceland, Switzerland, Mexico, Australia and Canada have shown this can be done.

...are there any concrete examples that the Brexiters give of a significant new deal they want that they can't have with the UK in EU?

The markets I list above.

Or regulations they want to drop which would have a significant economic effect that they can't drop currently?

I am not sure if you mean regulation in the narrow or wide sense of the word. “Regulation” has a specific meaning in EU law. Here are some rules that Brexiters would like to change:

  1. Customs Union tariffs,
  2. The prohibition of the UK seeking and negotiating bilateral deals tailored for the UK economy and,
  3. The prohibition of the UK deciding whether to permit the import of goods meeting different but equivalent regulatory regimes to enhance competition and lower prices for consumers
  4. The application of specific regulations on financial services
  5. The application of specific energy regulations

I am looking for specific examples for how the Brexiters believe this trade will or could be significantly economically better than what the UK has now through the EU.

I am really looking for specific concrete examples for trade deals the Brexiters think would be significantly economically better than what the UK has now.

As it is, I have yet to hear a single concrete example even neglecting the numbers part.

My example was just to say that the Brexiters could point to particular aspects of EU trade deals and say we could do those better on our own. But I just have yet to hear such a concrete example.

I have already given concrete examples of trade deals that Brexiters would like to strike, but I’d like to present some of the reasoning, along with some numbers as to why Brexiters believe these deals will lead to a superior outcome.

UK/EU Trade is not Going Away

UK/EU trade will not stop when we leave the EU. So in a world where the UK is outside of the EU, the value gained by the UK from this trade is not lost. Depending on the negotiated outcome it may or may not be reduced. But because the UK imports a great deal more than they export to the EU, the terms are likely to be not too unfavourable.

In fact, the terms cannot be any worse than those offered to other so-called “3rd countries”. Given that we export relatively few goods to the EU together with a large trade deficit with the EU, this worst case scenario is mitigated.

Scale and Potential

The following chart shows the European Union’s declining share in global gross domestic product based on purchasing-power-parity from 2012 to 2022 [17]:

European Union: share in global gross domestic product based on purchasing-power-parity from 2012 to 2022

The following graph shows the EU’s falling share of global wealth [18]:

The EU’s falling share of global wealth

Excluding the UK (note the charts and graphs here include the UK), the EU comprises only around ~15% [7][15] of the global economy. Furthermore the relative size of the EU economy is diminishing every year, with 90% [8] of the global economic growth expected to occur outside the EU in the next 15 years. The scale of the opportunity for reducing the cost to trade (and therefore the cost to UK consumers for goods and services) is therefore large in comparison to the possible benefits derived from the European Single Market.

Furthermore, most of the UK’s exports are delivered outside the EU - and this gap is widening. By leaving the EU, the UK can focus on the terms of trade for the majority of exports, and for the 85% of the global market not in the EU.

The following graph shows the declining share of UK exports delivered to the EU:

Declining share of UK exports delivered to the EU

The UK economy is an advanced service-based economy. By negotiating direct bilateral deals, the UK has the opportunity to negotiate more service-based agreements [6]. The European Single Market is mostly focussed on goods.

Smaller States Operating Bilaterally Are More Nimble

The EU is slow to negotiate trade deals with important blocs. The EU has few big trade deals [3], especially given its age. The exclusive competence of the EU on trade prohibits the UK from pursuing similar trade deals directly.

Brexiters believe trade agreements with the world's largest [1] and fastest-growing [2] economies will lead to reduced prices in the UK by promoting competition.

Markets like Iceland [4], Switzerland [5], Mexico, Australia [14][19] and Canada have shown that bilateral deals with the largest markets in the world can be made faster than the EU can move.

Opportunity to Lower Import Costs

The Common External Tariff (CET) is part of the Customs Union and is a “wall of tax” built by the EU to surround the bloc and “protect” national industries (for example, orange farms in Valencia, Spain) from competition from other non-EU countries. This policy is known as protectionism, and it places a tax on many common imports (mainly food and drink, but many other goods too) that importers - and ultimately UK shoppers - have to pay.

As a short term measure, tariffs can (debatably) help - for example, against other blocs attempting to destroy the strategic capability of other nations by undercutting them (eg China dumping steel to remove long-term competition). But the CET is a long-term structure and the EU is not quick to respond with creation and removal of tariffs. This leads to overall higher prices in shops and reduced competition. The CET was designed to protect industries that mainly exist on the continent, not those in the UK (because the UK has a different economic profile) - so UK shoppers end up subsidising companies on the continent for no benefit to themselves.

The CET tax wall is an outdated model as the world outside moves towards zero tariff trade. Meanwhile the UK is compelled to operate at a competitive disadvantage as its imports cost more.

Furthermore, the CET is regressive. It tends to increase the cost of items that are purchased disproportionately by the UK’s poorest citizens [13].

The Single Market erects non-tariff trade barriers (NTTBs) that, in addition to the CET, protect industry on the continent, but impose costs on the UK. For example, the dieselification strategy pursued by the EU was based upon NTTBs that gave EU car manufacturers an advantage in supplying the EU market. This led to companies like Mercedes and Audi and Volkswagen facing less competition from other car manufacturing nations like the US, China and South Korea: the net result is more expensive cars for UK drivers.

Most Standards are Global

The EU Single Market acts as a regulatory bloc, imposing rules on nation states and preventing the import of goods from outside the bloc built to meet other equivalent regulatory regimes.

But most standards - for example those covering automobile parts (UNECE [21]), are international standards made at the level of the United Nations (ie. truly global). The EU typically copies these rules into its own rulebook. Leaving the EU is an opportunity to cut out the middleman.

Opportunity to Grow Exports

Because the EU has been slow to negotiate Free Trade Agreements, UK exports are expensive in big markets like the US and China due to import taxes. Leaving gives the UK the ability to negotiate to reduce these tariffs and therefore develop exports.

The Democratic Deficit

While inside the EU, the UK sits within the Customs Union (zero-tariffs inside EU, but tariffs with rest of world) and the European Single Market (the four freedoms of movement: goods, capital, services, labour). It is a requirement of EU membership that trade becomes the “exclusive competence” of the EU. The upshot is that states inside the EU bloc do not make trade deals for themselves - they delegate this responsibility to people in Belgium.

Brexiters do not like this because in the EU law-proposing political leaders are not elected directly by the people - they are appointed by other political leaders. In short: political leaders who propose and negotiate new law (eg the Trade Commissioner) cannot be removed by the people of Europe (ie voted out) if they do not like what they are doing.

Chlorine Chicken

Someone mentioned chlorinated chicken. Those on the Remain side of the argument talk about chlorinated chicken as being a “risk” of negotiating a trade deal with the US because it sounds scary and unhealthy. It implies that standards will be lower if we leave the EU. But:

  1. Chicken from the worlds largest market, the US, is cheaper [9]. Those that wish to spend less on food and who are happy to purchase US chicken can do so, save money, and exercise economic freedom.

  2. Those who do not wish to eat chicken from the US will not be forced to do so. Labelling rules for the origin of the meat in food will ensure this [10].

  3. Other food in the EU is currently washed in chlorine (eg vegetables and pre-packed salads [11][16]) and people do not seem bothered by that. But doing the same for chicken is uniquely problematic?

References

[1] https://www.statista.com/statistics/268173/countries-with-the-largest-gross-domestic-product-gdp/

[2] https://www.statista.com/statistics/240666/rapid-economic-growth-by-country/

[3] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017DC0654&from=EN#page23

[4] http://fta.mofcom.gov.cn/topic/eniceland.shtml

[5] https://www.eda.admin.ch/countries/china/de/home/vertretungen/botschaft/aufgaben/wirtschaft-finanzen/china-switzerland-free-trade-agreement.html

[6] “In practice, the single market is still far more developed for goods than it is for services” https://www.ft.com/content/1688d0e4-15ef-11e6-b197-a4af20d5575e

[7] https://www.statista.com/statistics/253512/share-of-the-eu-in-the-inflation-adjusted-global-gross-domestic-product/

[8] http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdf

[9] “Why is chicken cheap in the US, but expensive in Britain?” https://www.quora.com/Why-is-chicken-cheap-in-the-U-S-but-expensive-in-Britain

[10] https://www.gov.uk/guidance/food-labelling-country-of-origin

[11] “Pre-packed salads are often washed in a low-chlorine solution to kill off the bugs, according Ms Schneideman, so eating straight from the bag is unlikely to harm you.” https://www.bbc.co.uk/news/uk-36822962

[12] https://en.m.wikipedia.org/wiki/Democratic_deficit_in_the_European_Union

[13] “The EU’s Thousands of Senseless Tariffs Punish the Poor” https://iea.org.uk/the-eus-thousands-of-senseless-tariffs-punish-the-poor/

[14] http://dfat.gov.au/trade/agreements/in-force/chafta/Pages/australia-china-fta.aspx

[15] https://www.statista.com/statistics/270452/united-kingdoms-share-of-global-gross-domestic-product-gdp/

[16] http://www.butchersnews.com/a-fox-among-the-chickens-what-chlorine-washing-really-means/

[17] https://www.statista.com/statistics/253512/share-of-the-eu-in-the-inflation-adjusted-global-gross-domestic-product/

[18] https://fullfact.org/europe/eu-has-shrunk-percentage-world-economy/

[19] https://en.m.wikipedia.org/wiki/Australia–United_States_Free_Trade_Agreement

[20] Canada, South Korea, Peru, Colombia, Panama, Guatemala, Honduras, Ukraine, Moldova, Georgia, South Africa. Plus the following countries have more limited FTAs: Faroe Islands, Mexico, Chile, Iceland, Norway, Turkey, Switzerland. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017DC0654&from=EN#page23

[21] http://www.unece.org/trans/main/welcwp29.html

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    Comments are not for extended discussion; this conversation has been moved to chat. – Sam I am says Reinstate Monica Jul 11 '18 at 3:02
  • Downvoter, please explain? – 52d6c6af Jul 11 '18 at 15:43
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    I gave an upvote because it answers the question concerning the opinions of the Brexiters. Note that those opinions do not have to be correct - this is not a question of correctness, but simply of the arguments that are brought to the table. – Thern Jul 11 '18 at 16:36
  • If anything I have stated is not factually correct, I welcome correction. – 52d6c6af Jul 11 '18 at 20:53
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    This is the most even-handed and level-headed outline of the pro-brexit economic arguments that I've seen – Gramatik Jul 12 '18 at 18:05

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