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The boon of a UK exit

The boon of a UK exit

Leaving EU would boost UK competitiveness

by Ruth Lea in London

Tue 19 Apr 2016

The 23 June referendum will be a choice between Britain becoming a self-governing democracy once more or remaining in an increasingly dysfunctional EU struggling with the migration crisis, pondering further euro area integration and worrying about sluggish growth. I shall vote to leave.

There are uncertainties associated with leaving the EU, but staying is full of uncertainties too. Who knows where the EU will be in five years’ time?

Trade with the EU, and associated jobs, will be uppermost in many minds. The EU remains Britain’s largest trading partner – even though it is declining in significance as EU growth lags behind more dynamic parts of the globe – and any major disruption to Anglo-EU trade would be damaging. But there is no convincing reason to expect major disruption.

The UK had a current account deficit with the EU of £106.4bn in 2015. Within this total the goods deficit was £89bn – £31.5bn with Germany alone. For every £3 of goods exports to the EU, Britain imports £5. No German car exporter or French wine exporter would wish to see impediments to trade with Britain.

After ‘Brexit’, UK-EU trade would continue under World Trade Organisation rules as the default position in the absence of an EU trade agreement. British exporters would face the EU’s common external tariff on goods. The average CET is very low, but cars, for example, are subject to tariffs of around 10%. It would make commercial sense to push for a trade agreement, and for our EU partners – with their huge trade surplus – to reach agreement expeditiously.

Two key articles in the Lisbon treaty favour successful negotiations. Article 8 talks of ‘a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness’. Article 50 concerns a member state’s withdrawal. It specifies that the EU ‘shall negotiate and conclude an agreement… taking account of the framework for its future relationship with the Union’.

In the event of a vote to leave, the British government would trigger Article 50. This need not happen immediately after the vote, and there would then be up to two years to negotiate the new arrangement (which could be extended if agreed by the European Council and Britain.) After that, we would leave. The Lisbon treaty outlines both the ‘mood music’ and the mechanism of withdrawal. It would surely be honoured.

Brexit would provide a major competitiveness boost to the British economy. First, we could repeal or amend those EU regulations which business finds most irksome. Second, we could negotiate our own trade deals, on purely commercial grounds, with favoured countries with which the EU has yet to conclude an agreement. Third, we could agree a more pro-business immigration policy which does not discriminate between EU and non-EU nationals. Fourth, we would no longer be a major contributor to EU funds, a useful potential addition to the Treasury’s coffers.

Britain’s economic future is already bright – and Brexit would enhance it further.

Ruth Lea is Economic Adviser at Arbuthnot Banking Group and was formerly Head of the Policy Unit at the Institute of Directors. This is No.36 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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