How to jeopardise UK economy’s 3 crown jewels

If the UK quits the EU, it would damage three of its main assets: its services industries, foreign direct investment and the City. The leave camp says otherwise on the grounds that, because the UK buys more from EU countries than they buy from us, they will be keen to do a free trade deal fast. As InFacts has already pointed out, this argument is flawed: Britain needs the EU more than it needs us.

So let’s look at how the negotiation process might actually unfold. The UK would have to begin by setting out its requests. Most likely it would ask for maximum access to the markets for goods and services, alongside withdrawal from the free movement of labour, and selective repeal of various technical regulations it does not like. One could call this a process of selective subtraction from the status quo.

The EU would then reply, “if you want to subtract from the free movement of labour, we have our own ‘subtraction’ agenda. You won’t get free access for your services industries”.

The EU’s present regime for trade in services with non-member states sees a huge number of restrictions, as can be seen in the EU’s latest free trade agreement with Canada, which Brexiteers sometimes quote as a model case without having looked at the small print.

If the UK also started selectively repealing various technical regulations and product standards, the EU would subtract access to other parts of its market. At the very least, many businesses would be uncertain whether their products would be automatically accepted on the continent, or subject to bureaucratic checks and tests.

Back to the big picture, what would really be in the minds of the EU member states? Commercial competition within Europe, as in the world at large, is ferocious. Various member states, starting with France, would be eyeing the opportunity to gain market share for both goods and services from the UK.

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For financial services, the UK would have thrown away all the safeguards for the City negotiated by David Cameron. The door would be wide open instead for measures to ensure progressively that the financial centre of the eurozone gravitated onto its own territory.

For the manufacturing industry, uncertainty over the extent of the UK’s continuing access to the internal market would be used as a trump card by all those member states competing ferociously for foreign direct investment, where today the UK has a bigger share than anyone else.

So actually three crown jewels of the British economy – the City, service sectors in general, and foreign direct investment – would be at risk. Observers from the rest of the EU would be puzzled: “They can’t be that crazy”. But apparently they could be.

Michael Emerson is Associate Senior Research Fellow at the Centre for European Policy Studies (CEPS), Brussels.

Edited by Hugo Dixon