... though the case for Remain is stronger
Leavers do not seem to know why they think that trade agreements would work better under Brexit – so let’s explain it for them. London4Europe Committee Member and retired HM Treasury senior civil servant Michael Romberg sets out both sides of the argument.
Part of the Brexit case is that we would be able to negotiate new or better trade deals than the EU can. More trade means more competition and so more pressure for economic growth and higher prosperity. So more trade deals would be good.
But why could we do better on our own? Leavers do not say.
Ignore the bad arguments
We can discount specious arguments.
There is no reason to believe that we are just inherently better at negotiating trade agreements than the European Commission – not least because we have not done it for 45 years.
Nor do Commonwealth States hold us in such affection that they will give us a good deal. Former colonies where a white minority stole the land and ruled over native populations do not have the same warm feelings towards the Empire as we do. The former "settler" colonies like Canada, Australia and New Zealand do have a positive view of Britain, but they have grown up and are more concerned with their regional neighbours. When they look to Europe they see the much larger EU27 market not just the UK. Our affection towards the USA is not really reciprocated – they see us as a follower or at best junior partner.
Nor is the world crying out for our leadership on trade. The big players are the USA, China and the EU. The UK has a useful voice by the standards of a second tier country; but that voice is diminished by Brexit because we can no longer claim to bring the EU with us.
The case for Brexit
We have to look at the structural arguments for why post-Brexit trade agreements would be better:
First, trade negotiations would be simpler. Our negotiators would only have to have regard to UK interests. They would not need to worry about the interests of Greek tobacco farmers or Spanish olive oil growers.
That is not an unmixed blessing – there would not be the opportunity to yield on those areas in order to make gains on matters that concern us. But still, Brexiters have a point.
Second, the approvals process would be simpler. While the Commission has an exclusive competence on trade deals narrowly defined, mixed deals require member state approval. Some member states require regional assemblies to agree: remember how the Walloon Parliament nearly derailed the EU/ Canada agreement. The UK, with a much more limited rôle for Parliament, would be able to deliver what it agrees. That would make us a more attractive negotiating partner.
And that’s about it, folks.
The case against Brexit
Against that we have to remember that trade negotiations are not the coming together of two countries that believe in free trade. Rather, they are exercises of raw power as countries try to appease domestic lobby groups at the expense of the country on the other side of the negotiating table. Who has more power: the EU as the largest consumer market in the world, or the UK? The UK with 3½% of World GDP (2016) or the EU28 with 22%? The Swiss experience of negotiating a free trade agreement with China is instructive here.
The UK’s power would be even weaker in the years after Brexit. We would be new to the game. Worse, we would be desperate. Desperate to get a deal for the sake of the economy and desperate to get a deal so that the Government can show that it has fulfilled the promise of the Leave campaign. Desperate is not a good look. Needing to strike a deal, any deal, is not a good way to enter a negotiation. Leavers make that point about the EU Withdrawal agreement – it applies in spades to post-Brexit trade deals.
Nor need a trade negotiation only cover trade. There are lots of things other countries want from us: greater immigration, rights over a colony, money. What would we have to pay to be allowed to trade?
Further, what the UK is good at is services. We run a trade surplus on services, a trade deficit on goods. Free trade agreements do not do much for services trade – neither World Trade Organisation rules nor the Canada/ EU trade agreement do much for services. So we would weaken our position where we are weak without strengthening it where we are strong.
Then we have to remember that on Day 1 we lose all the trade agreements that the EU has negotiated for us. Perhaps they will be rolled over; perhaps the other countries will seize the opportunity to negotiate what they see as improvements.
We lose our membership of the EU single market and the customs union. Around half of our trade is with the EU (2016: 43% of exports, 54% of imports). If you include countries where the EU has some preferential trade agreement you get to 60% of UK trade. That figure would rise to about 85% if all the EU trade negotiations under way were completed (though for example the EU/USA FTA is unlikely to make progress). Much of the trade where there is no EU FTA – including some trade with the USA - is helped by technical or sector agreements. What is the chance that new trade flows could replace what we lose?
And what will we do with our regulations? Will we continue to match the EU in order to facilitate access to EU markets? Or will we have different rules in order to strike trade deals with countries with lower or different standards? If the latter, internationally trading UK firms would have to choose between following multiple rules or sticking to EU rules anyway. And the EU would require more barriers to trade if we allowed products that were not made to EU standards into the UK.
There are always arguments on both sides. On trade agreements the Brexiters do have some. That they do not use them should be a clue as to how flimsy they are.