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Analysis

PM guilty of doublespeak on free trade

by David Hannay | 01.03.2017

There is plenty of double speak in almost every aspect of the Brexit debate. Think only of the Brexiters’ claim to take back control through re-asserting Britain’s parliamentary sovereignty, followed by months of unavailing attempts by the government to prevent parliament having any real say in the initiation, pursuit and conclusion of the Brexit negotiations, attempts which continue to this day.

Free trade is another victim of double speak. In her Lancaster House speech the prime minister described the government, in a phrase welcome to anyone who believes freer trade brings Britain greater overall prosperity, as “one of the firmest advocates for free trade anywhere in the world”. But how well did the rest of that speech and the government’s emerging strategy match up to that bold claim?

One clearly has to start with Britain’s trade with the rest of the EU, since this accounts for close to half of our exports and imports of goods and services. These massive trade flows currently attract no tariffs, escape non-tariff barriers and avoid customs bureaucracy. They are “frictionless” in the government’s own jargon, that is to say they are about as free as trade can get.

By spurning the single market or the customs union, the government has already sacrificed much of the frictionless nature of those trade flows. By stating in that most shopworn of all negotiating ploys, that no deal is better than a bad deal, the government has made clear that it could contemplate the restoration of tariffs, sometimes quite steep tariffs, of non-tariff barriers and of customs bureaucracy on those trade flows  That would be a massive step away from free trade.

Then the government is also ditching the EU’s free trade agreements with third countries: agreements with Norway and Switzerland, with South Korea, South Africa and Canada, with Turkey, Ukraine and Georgia, with Egypt and the countries of the Maghreb, with fifty or more African, Caribbean and Pacific developing countries. Clearly restoring free trade with these countries will be a high priority for the new Department of International Trade. But that will just be running in order to stand still.

And this does not take account of missing out on future free trade agreements the EU of 27 may conclude, some of them quite soon – with Japan, with India, with the Mercosur countries in Latin America. Some of these countries may give a higher priority to negotiating access to the relatively much smaller market of the UK, but some will almost certainly give us a lower priority, particularly if our attitude towards the movement of people becomes even more restrictive. Will the trading behemoth, China, give us a high priority? And, if so, at what price?              

At this point Brexiters will point proudly to the US, misleadingly described as our largest market – misleadingly because the EU, which is a single market not 27 separate ones, is more than three times as large for us. They will also point to Donald Trump’s warm words about negotiating a bilateral agreement with the UK. That may indeed materialise in due course and it could lead to a welcome freeing up of trade.

But it would be wise not to count those particular chickens, likely to be washed in chlorine, just yet. After all the Trump administration wears protectionism as a badge of honour and believes that bilateral trade deficits are there to be eliminated – and the UK has a substantial surplus in its trade with the US. So it is not at all  clear that a UK/ US trade deal negotiated by this administration will bring major benefits .

There are certainly some countries with whom new free trade deals probably will be able to be struck – Australia, New Zealand, Argentina and Brazil are often mentioned in that context. But they will want access to our markets for their, often highly competitive, agricultural products. That could be good news for British consumers but not for British farmers, many of them in the three devolved administrations.

There could be gain but there will also certainly be pain. And none of these third country markets is likely, even remotely and in the quite distant future, to make up for the losses of frictionless access to the EU’s single market.

So there is much to debate here. And plenty of need to exercise our critical faculties when claims are made about Britain outside the EU becoming a free trade champion.

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Edited by Hugo Dixon