Making a success of Brexit, but for whom?

brexit reality
Our new Prime-Minister, Theresa May has promised to make a success of Brexit. I am sure she can do it. I am less certain it will be a success for the people of Britain though. The following expands on my recent post in The Conversation on the trade consequences of Brexit.

There is strong evidence to suggest that Brexit, if it also means loss of access to the EU’s single market imperils the fortunes of a nation who exports half its output to the EU. Brexit with access to the single market on the other hand entails significant costs of compliance and continuation of freedom of movement (which presumably is a source of great anxiety to Leavers) . This leads to a Norwegian of Swiss model of having all the burdens of membership without the benefit of influencing decisions as a full member. Could it be that the allure of a brave new world of international deals and worldwide trade expansion, outside the confines of EU rules and negotiators can compensate for the above? The following briefly examines the veracity of such claims and reflects on the future of the Transatlantic Trade and Investment Partnership (TTIP) with Britain outside the EU.

The country, presumably under its brand new leadership, is rapidly having to consider, plan and (if we believe the new PM) implement a British exit from the European Union. With all that this entails we are now forced by the decision of the people to address seriously the hopes of the Leave campaign as to the reality of a post-Brexit world.One of the key themes of the Leave campaign was the return of Britain as a global trading power, negotiating and concluding agreements under its own steam. This hope seems to rest on a number of foundations. Firstly, it assumes that the European Union is not in a position to achieve terms in trade deals preferable to those that any single member state could achieve. Secondly, it rests on the premise that other nations would be willing to offer equal or even better terms to the UK, as opposed to the entire Union.

Foreign investment and to a large degree trade are facilitated via Bilateral Investment Treaties (BITs). The UK has 96 BITs (in force) some of which are with (the newest) EU member states. It does not have BITs with the United States, Japan and the major European nations. The reason for the lack of intra-EU BITs is the Lisbon Treaty which gave the EU exclusive competence on foreign direct investment. This allows the EU to conclude comprehensive investment agreements such as the one with Canada in 2014. The EU is currently negotiating the TTIP with the USA and a deal with Japan.  Leaving the EU means that the UK will no longer be covered by multilateral agreements between the EU and other states and will seek to negotiate alternative bilateral ones. The UK will not be able to pursue new bilateral agreements with any EU member state. To link this with trade, in terms of WTO membership, the UK is a member, both through its membership of the EU and in its own right. WTO membership offers an avenue to the reduction of tariffs and a mechanism for resolving trade disputes, but does not constitute a free trade area agreement, nor does it contain provisions for significant aspects of investment.

Can Britain become a trade superpower away from the stifling clutches of the EU as it is often claimed? This is extremely unlikely for the following reasons. Firstly, trade deals take a lot of time to negotiate. The EU is having such a hard time concluding deals not because it is bureaucratic and sclerotic, but because it has to negotiate a long series of contentious issues. To take the example of the TTIP, negotiations have been bogged down by recognition and protection of agricultural products. It sounds trivial but it is not; trade in agricultural products is a major issue for negotiators trying to satisfy say on the one hand, French wine and cheese producers and on the other hand American GM crop growers and enhanced meat producers. Secondly, one could argue that the UK currently lacks the manpower to set up experienced negotiating teams and that it will take some time anyway before deals can even begin to be discussed. Further, arguing that any one country on its own (regardless of relative economic size) can fare better outside the largest trade group in the world is like arguing that a single employee can achieve better terms of employment negotiating directly with management, than through an organised union. It could happen, but in all probability it won’t. Last but not least, we are assuming that if other countries wanted to do great deals with the UK they will have the capacity to do so. During a new global recession sparked by the consequences of Brexit, even those who do want to do business with Britain may be unable to respond.

Returning to the TTIP, one has to wonder whether Brexit makes the UK safer or more liable to accept unwanted terms. It is widely acknowledged that the main driver for TTIP has been the UK. Without the British push towards liberalisation the deal risks dying a quick death, despite proclamations from both the EU and the US that a deal is expected by the end of 2016. If the UK seeks an investment and trade deal with the US, how likely is it that it will differ the TTIP? Considering the British desire for openness and liberalisation and the diminished negotiating power of a post-Brexit UK who can seriously argue that the environment and small farmers will be a negotiating priority? As regards other aspects of the negotiations such as access to courts and Investor State Dispute Settlement (ISDS) who has any hope that the UK will resist attempts to solidify a pro-investor status quo?

Assuming Britain could even get its foot in the door (President Obama showed no desire to prioritise a lonesome UK over other nations), could we avoid a lowering of standards and ISDS? Do we have more in common with the USA in our method of doing business than with the EU? An illustrative example is consumer arbitration clauses. In the US, if your computer malfunctions after a defective installation of some software, you may well be bound to take any resulting dispute to an arbitrator because you clicked ‘accept’ on a licence agreement that appeared on your screen. Currently in the UK, losing access to the courts for consumer disputes is prevented by European legislation. Were the UK to negotiate deals with the USA directly, could it avoid the import of these practices? It would be extremely unlikely considering its relegation to junior trading partner status.

It seems that are heading for TTIP on steroids. Will the post-Brexit world be one where the UK sails away under its own steam? It could, but on someone else’s terms. The silver lining of Brexit may turn out just to be tin.
brexit cartoon

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