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Analysis
Brexiteers peddling false hopes

Brexiteers peddling false hopes

After UK departure, EU states would seek trade diversion 

by Peter Wilding in London

Wed 20 Apr 2016

Britain’s trade with the rest of the world plays a vital role in the referendum debate. ‘Brexiteers’ dispense the balm of blind hope to dismiss the ‘jobs at risk’ argument of those who want Britain to stay in.

John Redwood, the Conservative MP campaigning for the UK to depart, promises that leaving the European Union wouldn’t endanger Britain’s trade because the EU ‘sells us much more than we sell them’. Boris Johnson, the mayor of London, has suggested the UK could easily negotiate a free trade agreement with the EU along the lines of the 'Canadian model'.

On the other side, Lord (Stuart) Rose, leader of the Britain Stronger in Europe campaign, repeats the mantra that 3m British jobs are linked to UK-EU trade and that a post-Brexit re-entry into the single market is fantasy.

Amid so many different arguments, it is difficult to tell who is right. And there’s little point relying on economic forecasts. According to a report by the think tank Open Europe, UK GDP could be 2.2% lower or 1.6% higher by 2030 if the UK exited, depending on a range of unpredictable variables.

In truth no one has the full answer. But there are three certainties that all those pondering a post-Brexit world should bear in mind.

First, on the trade numbers. Eurosceptics are fond of pointing out that Britain has a big trade deficit with the EU. Other member countries’ exports to the UK were £291bn in 2014, against British exports to the EU of £229bn. So, the argument goes, the remaining EU states would lose more than the UK if Brexit led to tariff barriers or other forms of protectionism. This argument fails to consider that exports to the EU represent 12% of UK GDP, while the EU’s exports to the UK account for just 3% of EU GDP. Although neither side would win from a trade war, the UK would be hit proportionately much harder.

Second, on post-Brexit access to the single market. Those in favour of leaving say that, if the UK did not get a trade deal with the EU on the right terms, an adequate fall-back route would be available through the World Trade Organisation. But this is far from a satisfactory solution. The WTO concentrates on trade in goods (where the Germans are powerful) and works far less well for services (where the UK excels). With the EU focusing on breaking down the last barriers to intra-EU services trade, leaving the single market is odd. WTO and other possible trade arrangements after Brexit would not give equal access, would not complete the single market in services and would be equally flawed.

Third, Brexiteers – keen to enter the post-Brexit world of relying on trade (not politics) for UK global influence – believe Britain’s erstwhile partners would readily make concessions in negotiations, as Ruth Lea argued in her piece for OMFIF's EU referendum series, 'Britain's Brexit boon', on 19 April. However, this is highly unlikely. This argument ignores the reality that some EU countries would be eager to divert trade from the UK. They could seek to undermine the City of London, and lure financial market activities that at present take place in the UK towards EU financial centres like Frankfurt or Paris.

Moreover, other EU states would do their best to divert to their own territories foreign direct investment currently destined for the UK. These states’ governments would argue, with some justification, that such investments would lose their rationale once the UK no longer had full tariff-free access to the EU market.

These three points about trade are real-life arguments that have nothing to do with statistical ping-pong and everything to do with British jobs, British livelihoods and British prosperity. On trade, as in other matters, the Brexiteers peddle false hopes. They do this at their own, and the British people’s, peril.

Peter Wilding is the founder and Chair of British Influence, an independent pro-EU pressure group. This is No.37 in the series.

OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.

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