Philippe Legrain
Philippe Legrain, a former economic
adviser to the president of the European Commission, is a visiting
senior fellow at the London School of Economics’ European Institute and
the author of European Spring: Why Our Economies and Politics are in a Mess – and How to Put Them Right.
LONDON
– British Prime Minister Theresa May is leading the United Kingdom
toward a very “hard” Brexit in 2019 – and potentially off a cliff, if
the UK leaves the European Union without an exit or trade deal. In her
January 17 speech, May outlined her objectives for negotiating with the
EU, and made it clear that she will prioritize hardline Brexiteers’
demands over the country’s economic interests.
It isn’t surprising
that May would choose a Brexit variant whereby Britain leaves both the
EU’s single market and its customs union: she knows little, and cares
even less, about economics. Her ultimate objective is to survive as
Prime Minister, and she believes that controlling immigration – a
longtime personal obsession – will endear her to “Leave” voters, and
that ending the European Court of Justice’s jurisdiction in Britain will
pacify the nationalists in her Conservative Party.
This stance rules out
continued membership in the single market. Until now, Brexiteers had
denied the existence of any political tradeoff between rejecting free
movement and maintaining free trade with the EU. As Foreign Secretary
Boris Johnson fatuously claimed, Britons could have their cake and eat
it. May has now belatedly admitted that this is impossible.
Economically, this is
a lose-lose proposition for the UK, which will now forego the benefits
of free exchange with the rest of the EU, as well as the contributions
of hard-working, tax-paying EU migrants. UK-based services providers,
notably financial firms, will lose the “passporting” privileges that
allow them to operate freely within the EU.
May was less honest
about the implications of leaving the customs union. She wants Britain
to set its own tariffs and other trade commitments at the World Trade
Organization, and then independently negotiate preferential arrangements
– misleadingly called “free-trade agreements” – with some countries.
But this will entail
customs controls on trade between Britain and the EU, including goods
and services crossing the border between Northern Ireland and the
Republic of Ireland. A new border bureaucracy will have to check customs
compliance, calculate import duties depending on where goods are deemed
to have originated, ensure payments, verify that goods comply with EU
standards, and so forth. This will be particularly costly and disruptive
for manufacturers with complex, just-in-time supply chains: cars that
are “made in Britain” actually include many components that cross
borders repeatedly during the manufacturing process.
Rather than come
clean about this, May is seeking “frictionless” trade through “associate
membership” in the customs union, even though this directly contradicts
her assertion that Britain does not want to be “half-in, half-out” of
the EU. Either way, such an arrangement is politically implausible,
logistically impossible, and illegal under WTO rules.
May’s promise to
pursue an exit deal and a trade deal simultaneously – and both within
two years of the formal start of the withdrawal process (which she aims
to initiate by the end of March) – is similarly unrealistic. For
starters, the EU insists on settling the divorce terms before discussing
any future relationship. This is no mere formality: While both sides
could agree that EU citizens already in the UK, and Britons in the EU,
can remain, an attempt by either side to use these people’s status as a
bargaining chip could backfire. What’s more, the EU is seeking up to €60
billion ($64 billion) from the UK to settle outstanding liabilities.
May’s threat to walk
away from a bad deal may be credible, because she could blame the EU for
the resulting chaos. But the same cannot be said for her threat to hit
back at the EU by slashing UK taxes and regulations. There is little
political support for such a move, and stripping away financial
regulations would breach Britain’s international commitments. Moreover,
May has pledged to help the working class, strengthen labor rights, and
ensure that global businesses pay their fair share of UK taxes.
Even if May can
strike an exit deal, it is impossible to negotiate and ratify a
sector-by-sector trade agreement in under two years. The EU-Canada
Comprehensive Economic and Trade Agreement, for example, took seven
years to hash out – and was almost scotched by the parliament of
Belgium’s Wallonia region. There can be no “phased implementation” of a
trade deal that has not been finalized, so UK-based car companies,
financial institutions, and other businesses that export to the EU now
should start preparing for the “cliff edge” that May wants to avoid.
May has no electoral
mandate to pursue a hard Brexit. Many of the 52% of Britons who voted
for Leave want to stay in the single market, as do all of those who
voted for Remain. Furthermore, elected parliamentarians have been given
no say in setting the government’s negotiating agenda. While May has
promised them a vote on the final deal, Britain will still leave the EU
if they reject it.
This makes a mockery
of democracy. And with US President Donald Trump threatening to start
trade wars and abandon Europe to Russian President Vladimir Putin’s
revanchist predations, this is an especially dangerous time for the UK
to go it alone.
May claims that
Brexit will enable Britain to strike better trade deals with non-EU
countries, and she is pinning her hopes on a quick deal with Trump’s
America. But with Britain in such a desperate negotiating position, even
an administration headed by Hillary Clinton would have driven a hard
bargain on behalf of American industry. US pharmaceutical companies, for
example, want the UK’s cash-strapped National Health Service to pay
more for drugs.
The Trump
administration will drive an even harder bargain. Like China and
Germany, Britain exports much more to America than it imports from the
US. Trump hates such “unfair” trade deficits, and has pledged to
eliminate them. Be careful what you wish for, Prime Minister.
No comments:
Post a Comment