Tories trash trade and we’re getting a pounding

Our future trade relations are the major battleground in the Brexit process. Unfortunately the public debate on trade remains poor, fuelled by the Brexiteers’ misleading, if not self-delusional, narrative of how the global world trading system works.

Brexiteers tell us the EU is more dependent upon us because we import their cars, cheeses and wines so we shall secure a good deal. When Brexiteers are reminded about our large trade deficit, International Trade Minister Fox blames our “fat and lazy” businessmen. Brexiteers argue we shall be free to conclude our own trade deals. However, a free trade deal with the EU will afford less market access than what we enjoy now as part of the Single European Market. It is no wonder why business organisations have responded with an open letter asking the Government to ensure we retain full Single Market access.

The UK will not have the upper hand in trade negotiations because 44% of our trade is with the EU whereas we account for only 17% of EU trade. With only 2% of world GDP compared with the EU’s 22% of world GDP, it is no wonder why US Trade Representative Mike Froman stated in the Financial Times on 30th October 2015:

Washington is not particularly in the market for a trade agreement with a single nation like the UK … it is absolutely clear that Britain has a greater voice at the trade table being part of the EU (and) part of a larger economic entity.

The Brexiteers’ free trade narrative appears deliberately reminiscent of schoolbooks. However, tariffs are hardly the issue they were before 1948 as they are now largely eliminated on goods. Today trade liberalisation efforts centre on approximating domestic regulatory rules which are equivalent up to 30% of deliverable costs (OECD). Instead of 28 different sets of national rules, the EU, spearheaded by an UK initiative, provides a single framework making it easier and cheaper for us to export throughout the EU. EU laws ensure the quality and safety of the products, food and services we purchase. The same supposedly onerous EU regulations have not held back Germany’s successful export economy or even our own. Yet instead of acknowledging the Single Market’s contribution to our greater prosperity, Brexiteers misleadingly portray the Single Market as rules imposed by Brussels.

It is astonishing that any country would want to turn its back on its major export market. Outside the Single Market, supply chains for our large and small businesses alike will be disrupted. Business and consumer prices will rise. Leaving also creates considerable uncertainty. As Boris Johnson argued in the Daily Telegraph on 7 February this year:

leaving would mean embroiling the Government for several years in a fiddly process of negotiating new arrangements (thus) diverting energy from the real problems of this country.

No country will conclude a trade deal with us until our new relationship with the EU is finalised. President Obama stated early this year “(the UK) would go to the back of the queue”. Canada’s CETA deal with the EU has so far taken 7 years to negotiate and could still be vetoed by a Belgian regional parliament. The UK outside the EU risks a similar fate, unless we settle for a bad deal. The much-heralded Commonwealth is not a unified trading bloc. Its members, such as Australia, constitute only 1% of UK trade, so their market will not make much difference. Australia is focused on high growth Asian markets and in Europe it too will give priority to trade relations with the EU 27. Canada is similarly focused on big markets, notably the US and EU. Whilst we take a decade finalising new trade deals, we risk losing export markets which will become even harder to enter as global protectionist sentiment grows.

Brexiteers erroneously champion ‘regaining’ our World Trade Organisation (WTO) seat. Yet having one of the WTO’s 164 seats doesn’t count for much other than granting Most Favoured Trading Nation (MFN) status (often referred to as “least favoured nation”). WTO rules largely cover trade in goods while its rules on services, which account for 80% of our economy, are relatively weak. Furthermore, rejoining the WTO is not a certainty, as just one of its members could block us.

The fewer trade barriers a country wants, the more it has to accept budget contributions, and supranational arrangements such as those of the EU, WTO and NAFTA. We have the best British trade deal as part of the Single European Market. Are we really going to trash our trade on the altar of reduced immigration? Brexiteers already admit leaving the EU will not reduce overall immigration substantially, so what’s the point? As the feasibility of Brexit unravels, we should not hesitate to expose the serious threat this Brexit Government poses to our trade relations and economic prosperity.

* Nick Hopkinson is chair of the Liberal Democrat European Group (LDEG) and former Director, Wilton Park, Foreign and Commonwealth Office.

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11 Comments

  • Slightly off-topic but the Lib Dems need to try to turn the Witney by-election into a referendum on hard-Brexit. A win would then be on the cards and it could do us all a favour and put the cat well and truly amongst the pigeons!

  • It will be interesting to see the Witney results.

    A hackneyed rehash of Project Fear would make no difference to my vote.

  • Looking on the bright side, perhaps the talk of a “hard brexit” is just a pre-negotiatting strategy by the Tory government – only to be actually played as a last resort – or is this just wishful thinking? We may be at risk of moving from Brexit to Wrexit.

  • “Brexiteers tell us the EU is more dependent upon us because we import their cars, cheeses and wines so we shall secure a good deal.”
    I am not so sure about the cheeses but China is a very good market for cars and wine.

  • Christopher Haigh 10th Oct '16 - 11:10pm

    The majority Tory funding backers are the City financial institutions. Do they really want to trash their own business interests by leaving the single market ? Or will they simply decamp to the continent ?

  • Philip Knowles 11th Oct '16 - 8:31am

    Something that seems to have escaped everyone’s notice was the effective closure notice of the Nissan factory in Sunderland last month. Nissan is part-owned by Renault and the plant has to bid for investment against other Renault continental factories. Nissan said that they would not invest more in the plant unless the Government compensated them for any tariffs imposed after the departure from the Single European Market. If they don’t get new cars to build eventually the plant will close – not this year or next year but within 5-6 years.
    Carlos Ghosn said Nissan ‘would like to stay’ in the UK but would have to consider leaving the UK ‘if the conditions do not justify that we stay’. Toyota have also said the introduction of tariffs after Britain’s exit from the EU would make it ‘very, very tough’ to run its UK plant.
    This isn’t Project Fear but real businesses making real decisions which affect jobs and exports something that the Westminster bubble doesn’t seem to comprehend.

  • Simon Banks 11th Oct '16 - 9:41am

    In the not so long term, the EU and the US will be more interested in trade with India, Brazil and Indonesia (plus Russia if it moves in the right direction) than in trade with the UK, which might be minus Scotland anyway. China is already a much higher priority. South Korea and Ghana should also become proportionately more important. That’s nothing to do with any decline in the UK economy, simply with a shift in economic power from the old industrialised countries to newer ones. The share of the EU itself will decline for the same reason, but the EU has much more to offer in dealing with these emerging powers.

  • Shaun Young 11th Oct '16 - 1:42pm

    Companies are already starting to report the effects of Sterling weakness affecting their bottom lines – EasyJet on October 7 reported that since the 23rd June they will see and adverse effect of £35 million in the 6 months to the end of December, and are assuming a further adverse decline of £90 million for 2017, and that was based on X/R of $1.27 – They stated that a +/- 1cent move would see an additional +/- £3 million impact. Other British exporters have also raised concerns, that even with the cost of exports being cheaper, this will not mitigate in full the cost of the raw materials that they have to import, much of which are priced in $’s.

    There is also the ‘lag’ factor in commodity prices we import, which I suspect will be seen in the next month or so. The ‘Futures’ market is something that is being dismissed, and would appear not being taken seriously as a potential issue as we start to ‘import’ inflationary pressure – Currently ‘futures’ priced oil for Dec/Jan is around $52.83 pb, and even with some ‘hedges’ for currency fluctuation, what would have cost approx £35.32pb just prior to the 23 June is now approx $43.10pb. As a ‘Net’ importer of many $ denominated commodities; Oil, Copper, Coffee, Wheat, Gold/Silver/Lithium (for electronic/Tech) people are going to see their cost of living increase in the next 2 to 3 months, and that is going to be further compounded for anyone taking a holiday as they need to spend more on exchange rates.

    This not me talking ‘down’ the economy, just being pragmatic over just how much business can mitigate increased costs, before passing some of these on to the consumer.

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