A Clean Brexit

If re-elected, the Prime Minister has promised that Britain will leave the EU’s Single Market (SM) and Customs Union (CU). Some call this a “Hard” Brexit, others call it a “Clean” Brexit; the former raises concerns for the future of our trade, but are these fears exaggerated? Whilst the minutiae of a post hard-Brexit look bad we should see them in proportion, the export of goods to the SM represents a small (and diminishing) part of our service-oriented economy. Hard Brexit-1

Suppose, for example, we left the Single Market with “access” on WTO terms (like most other countries). This would no doubt create many problems of the kind described by Richard North in his Flexit proposal, hurting our exports to that market, assuming the EU-SM still exists in 2019. But if we joined NAFTA (North American Free Trade Agreement) in place of the SM we would be in a bigger free-trade group with a slightly larger population than the 27 and a slightly larger GDP per capita. Furthermore we have a positive trade balance with most of NAFTA, i.e. the USA (Canada and Mexico are far smaller trade partners at present but Mexico could become a major economy by mid-century). The USA is already our second largest export market, it is growing faster than the SM and it is more open to our services exports, which are by far the greater part of our economy and which the SM scarcely covers. Add the possibility of agreements with China, India, Australia, and others (not possible while we are in the CU) and you have to wonder whether we could gain more than we stand to lose if we get no EU deal. Maybe it would take a few years but there’s every chance we could be better off out, free to do our own deals. And, if it quickly becomes clear that no free trade deal is likely to be agreed, we can be sure that Britain would, just as quickly, open negotiations with other economies, despite EU regulations that forbid this. It would be in Britain’s interest to avoid being screwed further by the EU and we should act as though exit is, under these conditions, just a formality (see Law or Order?). NAFTA-1

Also it is looking like we would be welcomed by these other countries and groups, not “at the back of the queue” (as President Obama put it before the Referendum). However, an option to join NAFTA assumes that President Trump does not follow through on his promise to withdraw the USA from the agreement. And if the UK joined NAFTA it would have to change its name to North Atlantic Free Trade Agreement, except that doesn’t quite work for Mexico (but then neither does ‘North American’).

Of course a NAFTA deal would horrify many, especially on Britain’s political left with its ingrained dislike of American capitalism and its politics. To be fair there are some issues: would we have to accept meat from livestock fed on antibiotics, or GM foods? The latter frighten some people, perhaps irrationally, and are banned by the EU, which thinks it has the highest regulatory standards in the world. Actually the CAP (Common Agricultural Policy) makes our food much more expensive than world prices due, above all, to protectionist policies rather than high standards. Why is the Common External Tariff (CET) so complex that, for example, micro-categories of processed diary products within the agricultural-products sector has such enormous variations? Is there a rationale behind this or is it the result of successful lobbying by lots of producers, at the expense of consumers? Guess which it is! Lower food prices for UK shoppers would mean more money to be spent on other things, growing our economy and enriching our citizens.

We show just parts of a long table from the UK’s Agriculture and Horticulture Development Board, which itself doesn’t give all the variety of products and their different tariffs: 

Cheese-1a

Cheese-2a

As the UK election campaign begins, the Labour Party is struggling to clarify its position on leaving the EU with Sir Keir Starmer, the Shadow Brexit Minister, proposing that the SM and CU should both be “left on the table” during negotiations. They wish to achieve a “Soft” Brexit which would scarcely be a Brexit at all given the EU’s insistence on free movement and ECJ oversight. This position is shared, more or less, by the SNP, the Green Party, Plaid Cymru and perhaps the Liberal Democrats (though they want a second referendum in the hope of achieving a No Brexit result).

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