EU referendum: Are we really going to rip up all our trade deals and start again?
Let us put aside the reality that immigration has always been a function of the economic cycle and imagine renegotiating trade deals from scratch given a vote to leave the EU.
The time frame for a new trade deal would be determined as much by politics as economics.
If Mr Cameron is replaced with a more Eurosceptic leader, the EU has little incentive to make life easy if we are unwilling to shoulder the costs and responsibilities of a common market.
Requiring a unanimous vote of approval, the other 27 EU countries would decide the shape of a new trade deal with the UK. The Lisbon treaty – the only legal way to leave the EU – allows two years for this so, if it does not go well, we could leave the EU with no deal at all. Our trade deficit may carry weight with the larger EU countries but not with smaller ones who export little to us.
Reaching unanimity would be rancorous as Brexit would represent a breach of contract, and in whose interest would it be to encourage other states from leaving the bloc?
Trade deals are increasingly complex and time-consuming; the EU/Canada deal took seven years and is yet to be ratified. With a poisoned atmosphere following Brexit, even that time frame looks optimistic.
The UK simply does not have people with the needed technical knowledge since the European Commission has taken the lead in trade negotiations from the 1970s.
The UK benefits from about 80 EU bilateral and regional agreements, with negotiations underway with more than 15 countries including India, Brazil and Japan.
EU trade negotiating teams consist of 20 to 50 members. To begin again and renegotiate all those trade agreements, the UK would need about 500 negotiators working intensely for at least a decade. The 25 UK officials with the requisite skills are presently with EU commission.
Some of the Leave movement don’t want to broker a deal at all and suggest trade with Europe under the World Trade Organisation framework. This is how China and the US currently trade with the EU and it would sidestep complex negotiations. Britain could scrap EU regulation and close its borders to immigration from Europe. Yet this would open the UK to the EU’s common external goods tariff, with serious negative consequences for UK manufacturing exporters in particular. Car exporters would face a 10% duty and UK-based financial institutions would lose their “passporting” rights to trade with the bloc.
We already have a subdued manufacturing sector and EU trade terms are more favourable than those offered by the Word Trade Organisation membership.
Further, if we leave the EU, we would need to update the terms of our WTO membership where the commitments taken have previously applied to the EU as a whole.
All other WTO members would need to agree how the UK will take on the rights and obligations which we have formerly taken as a part of the EU; this would mean negotiating and agreeing updated UK schedules of commitments with all 161 WTO members. A bit of a headache.
It is a true fact – there are about three million British jobs linked to British exports, more than 10% of all the jobs in the country. A thriving export sector increases GDP and attracts foreign investment, which we need to cover our large annual current account deficit.
The London School of Economics’ Centre for Economic Performance calculates long-term costs to Britain of lower trade with the EU could be as high as 9.5% of GDP. Leave campaign-supporting economists have as yet not done detailed analyses.
When Britain entered the then EC in 1973 there was a big boost to UK trade volumes. We need policies to boost jobs, wages and productivity, to raise national income; does Brexit look like the answer?