Brexit means we'll find out how much the EU needs Britain's trade

Simon Lambert for Thisismoney.co.uk

It would have been nice to have a plan.

As Britain digested the implications of the Brexit vote, that nicely-defined economic outline on where now wouldn’t have gone amiss.

Instead, we were left scratching our heads and wondering what next.

Set to one side the argument over the referendum result – to my mind democracy only works if you abide by the actual vote – and it’s clear that we need answers on where we go from here.

Will Britain's BMW-buying habit be one of the factors that swings favourable trade negotiations with the EU

Will Britain’s BMW-buying habit be one of the factors that swings favourable trade negotiations with the EU

The plan needs to bring some clarity to the situation with some realistic options for the UK’s life outside the EU.

This will hinge around the seemingly incompatible desires of keeping free trade with the EU but also controlling immigration from the area.

One suggestion that has been put forward is that Britain leaves the EU but remains a member of the European Economic Area.

Yet, as our article on the EEA explains, the principles of the single market make it clear that one of the prices of access to it is free movement of citizens and workers.

Can Britain push for the rules to be bent? 

Many in the EU argue no, but in an interesting interview this week, an influential member of Angela Merkel’s CDU party, Michael Fuchs hinted perhaps access to the single market and some restrictions might be possible.

Speaking to Radio 4’s Today programme he was questioned about us joining the EEA and said the UK could but there would be a price of admission both in terms of a fee to pay and freedom of movement. But he conceded that could involve more control.

He said: ‘It will not be free movement but it will definitely be different from what somebody is expecting with no movement. But there will definitely be some movement.’

This was followed last night by comments from the French finance Minister Michel Sapin taken to mean there may be some wriggle room, saying there would be no ‘red lines’ in talks over the single market.

HMRC shows Britain's biggest trade with Germany, US, France, Switzerland and China

HMRC shows Britain’s biggest trade with Germany, US, France, Switzerland and China

Sapin told BBC Newsnight: ‘When we negotiate with a country, a third party, Norway, Switzerland, to take countries that are very close, we discuss all subjects: under what conditions there is freedom of movement of people; freedom of movement of goods; of capital. That is something that is very important for the UK, with all the questions about financial services. So we discuss everything.

He added: ‘Everything will be on the table because Britain will make proposals, and we will negotiate all these aspects with a desire to come to an agreement. But we’re not there yet, until we have an official decision from the UK.’

But Angela Merkel herself made a speech on Tuesday saying the Britain would not get a ‘cherry-picking exercise’ on Brexit.  

This is likely to become a matter of fierce negotiation.

 I said before the vote that for many who chose Leave – both on the left and right – it wouldn’t be a question of economics but of sovereignty and immigration.

They will not be happy if claims on these are given away.

Yet, for many Britons freedom of movement is also something to be prized and not given away lightly. 

We want to have the opportunity to freely live and work on the continent and do not want our European friends, family, neighbours and colleagues not to be able to work here.

A key part of the argument that we can combine both elements is that the EU needs our trade more than we need to trade with it.

If you look at the numbers this is true to an extent. UK trade with the EU is dominated by goods, explains the ONS. 

Latest figures show that in 2015 we imported £88.7billion more in goods from the EU than we exported, whereas we exported £20.1bn more in services than we imported.

Some 44 per cent of our exports in goods and services go to the EU, but 53 per cent of our imports of the same come from the bloc.

Britain’s balance of payments problem might for once be to our advantage here.

But break things down to an individual country level and Britain’s importance varies. For example, keeping free trade with Britain is much more important to Germany, which sells us lots more goods than we sell to it, than it is to France or Italy – where the deficit is smaller.

The EEA is the Norway option that keeps getting mentioned, but it brings with it the disadvantage that we would have to abide by many EU rules yet have no say over them.

If it’s freedom from being told how powerful our hoovers can be that you’re looking for, this isn’t the answer. 

Although for an explanation of why these common standards exist, this piece from FullFact that discussed noisy lawnmowers is well worth a read.

Outside of the EEA, we could go it alone. The suggestion is that we could negotiate individual trade deals, or at the worst go for the World Trade Organisation most favoured nation backstop.

The problem is that trade negotiations take a very long time and we don’t have a lot of trade negotiators.

These are the kind of issues that need to be tackled in the months ahead.

We will be doing our best to explain the things that matter and bring some clarity to the situation – hopefully our politicians will do the same.

HOW MUCH DOES THE UK BUY? IMPORTS FROM EU COUNTRIES
  2012 2013 2014 2015
Germany 53,092 55,940 59,898 60,679
Netherlands 31,227 34,252 32,372 30,890
France 23,452 24,978 25,054 23,999
Belgium 18,236 20,124 20,623 20,470
Italy 14,403 15,331 16,709 15,764
Spain 11,305 12,541 13,272 13,964
Irish Republic 12,760 11,835 11,757 12,509
Poland 7,399 7,841 7,686 8,094
Sweden 9,078 7,432 7,590 6,815
Czech Republic 4,414 4,582 4,676 4,828
Denmark 5,845 5,306 4,460 3,436
Austria 2,602 2,868 3,126 3,031
Hungary 2,615 2,597 2,431 2,518
Portugal 1,739 1,933 2,243 2,333
Finland 2,143 2,510 2,358 2,038
Slovakia 1,565 1,808 1,916 2,012
Romania 1,309 1,444 1,515 1,542
Lithuania 828 889 960 769
Greece 678 728 700 714
Luxembourg 655 362 444 485
Latvia 358 514 401 478
Bulgaria 292 368 352 364
Slovenia 333 320 313 324
Estonia 218 182 177 183
Malta 130 109 128 181
Cyprus 155 183 132 152
Croatia 83 124 67 95
Total EU 206,914 217,101 221,360 218,667
Source: HMRC, Overseas Trade Statistics       

 

 

Leave a Reply