How bright are the prospects for UK trade and prosperity post-Brexit?
The EU is fundamentally protectionist. Big businesses lobby Brussels for more regulation, making it..
The EU is fundamentally protectionist.
Big businesses lobby Brussels for more regulation, making it more difficult for small companies to enter the market and compete. The customs union has more than 13,000 common external tariffs and EU consumers pay 17 per cent above world prices on food and drink as a result.
The Single Market is not a free trade area, but a single protectionist zone where regulations are standardised. Only six per cent of UK companies trade with the EU, accounting for 12 per cent of GDP, but 100 per cent of UK regulations are dictated by Brussels.
The Single Market has done little for our trade with the EU, which has fallen from 60 per cent to 43 per cent since its introduction. UK trade with the rest of the world has grown three times faster. Services account for 80 per cent of our economy, but only 40 per cent of service exports go to the EU.
The result? A £82bn trade deficit in 2016: a £96bn goods deficit, offset by just a £14bn services surplus.
The EU’s serious misallocation of resources means that a whopping 40 per cent of the EU budget goes to farmers, despite agriculture accounting for only one per cent of the bloc’s GDP.
What’s more, the Common Agricultural Policy encourages overproduction, leading to wine lakes, butter mountains and the dumping of tinned tomatoes in Africa – ruining local economies.
The EU is also fundamentally anti-democratic. Jean Monnet, the founding father of the EU, said that: “Europe's nations should be guided towards the super-state without their people understanding what is happening”, while today’s arch-federalist, Jean Claude-Juncker says that “there can be no democratic choice against the European Treaties”.
There is supposed to be "double democracy" – represented by the European Council and European Parliament. However, the reality is that the EU is run by the bureaucrats of the European Commission who run rings around elected ministers from national governments.
Then there is the folly of the single currency. Germany has built up a huge balance of payments surplus and matching credit in Target2, the Eurozone payments system, with corresponding deficits in countries such as Spain and Italy. Since these deficits are so large that they can never be repaid, it is very likely that the Eurozone will implode – sooner rather than later.
Why leaving the EU should be smoother than most commentators suggest
Leaving the EU will be similar to "state succession" whereby an existing state splits and the component parts wish to continue existing treaty relationships with other states, as in the case of the Czech Republic and Slovakia.
The UK can roll-over all EU trade agreements with third countries using the "principle of continuity" under international law. All major economies have legally-binding commitments under World Trade Organisation (WTO) rules not to raise tariffs and can only reverse these measures if they compensate other WTO members. The EU has a legal obligation to allow timely customs clearance of inwards goods from the UK under the WTO Trade Facilitation Agreement, with very little physical inspection needed.
The EU's financial claims against the UK – with estimates up to €100bn – are legally very weak. The EU’s principal claim that the UK is obliged to contribute to the EU’s budget, including forward commitments to ongoing programmes, has no binding force in law once the UK leaves the EU.
Trading opportunities post-Brexit
Some 90 per cent of growth in global GDP will be outside EU. The Anglosphere (US, Canada, Australia, and NZ) accounts for 33 per cent of global GDP. The global economic centre of gravity is moving to the Pacific Rim and China’s new Silk Road – the "one belt-one road" trade network between Europe and Asia – covers 65 countries with 29 per cent of global GDP and 64 per cent of the world’s population. The Australian High Commissioner, the US Commerce Secretary and China’s ambassador to the UK have all said that they want to strike a free trade agreement with the UK.
Even the worst-case scenario – trading under the WTO’s most favoured nation tariffs with average tariffs at 3 per cent – is not that bad, as all the countries that trade with the EU on these terms know.
Lowering tariffs on imports would be even better. Professor Patrick Minford’s estimates of the cost of EU membership indicate that EU trade barriers raise prices by 8 per cent and reduces GDP by 7 per cent or by £135bn per annum (due to lower productivity, 4 per cent of GDP, and the cost of EU regulations, 2 per cent of GDP).
By removing these trade barriers, the UK will be able to recover this loss in GDP. Yes, UK companies will have to become more competitive and increase investment in both physical and human capital in order to increase productivity, but there are limits to protectionism – UK manufacturing accounted for 35 per cent of GDP when we joined EU, it is now below 10 per cent.
To conclude, the UK’s prospects for trade and prosperity after Brexit will be inversely related to the size of the tariffs on international trade that the UK itself sets. The lower the tariff barriers, the brighter the prospects will be. But the real risk is not leaving the EU, but remaining in it.
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