Brexit harms, not helps, our trade with the rest of the world

The last refuge of the Brexiters – all their other claims having been debunked and discredited – is that we can forge our own, better trade deals with the rest of the world once we leave the EU including its customs union.

This now seems to be the sole remaining economic argument deployed in favour of Brexit.

Yet it is profoundly mistaken.

Leaving the customs union means we would have to replace all the trade deals and arrangements, that we currently have via the EU with third countries, with our own separate agreements with those countries. In most cases, there is no reason to suppose that separate British deals would be better than the ones we have now, which were negotiated by the EU as a whole, with the clout it has as the world’s largest market. Other countries are willing to make concessions to get access to the whole EU market that they wouldn’t necessarily give for access just to the much smaller UK market. Or not unless we paid a high price…

Even if Britain reduces its ambition to just rolling over existing deals on a status quo basis, it will find that this is not so simple. Assuming that a third country is willing to do that in the first place, without using the opportunity to make demands, the snag comes in the form of WTO “rules of origin”. Trade agreements are about the conditions for accepting each other’s goods. But what counts as “your” goods? Generally, it requires local content of at least 50% (often 55%) measured by added value.

For our current agreements, “local” means added value from anywhere in the EU. For a separate UK agreement, it would mean added value in the UK only. So our cars, for instance, would no longer qualify, as virtually none of them have more than 50%  of their value added in Britain alone: they are part of EU-wide supply chains and production systems. They easily reach the 55% threshold as a European product, they don’t as a British one.

This has consequences. It means the status quo in terms of rules is not enough if we want to avoid a significant loss of exports.

Far from making up for any loss of access to European markets, deals with countries in the rest of the world are themselves likely to add to our losses.

We are in a lose-lose situation.

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2 Comments

  1. Soft Brexit is expected to lose 2% of GDP (= 2008 crash) with new trade recovering 0.6% – rehashing the ‘lend me a fiver and I’ll give you a quid’ scam. Nevertheless, Rees-Mogg and his ERG friends are salivating for far more spectacular, hard Brexit damage to win a jaw-dropping windfall for disaster capitalists who will clean up on a fading currency in a ditching economy with fire sale asset prices.

    These bankruptcy prizes are reserved for the monied elite – you must remember those ‘fat cats’ whom multi-millionaires Johnson and Farage raged against on the stump to win protest Leave votes, exhorting ordinary people to ‘take back control.’

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