It’s time for Brifta
A British free trade area to enter the global ring
by Brian Reading
Wed 3 Aug 2016
Brexit was the British referendum vote to exit the European Union. Brifta would be a British free trade area. It could begin with a series of bilateral free trade deals. Britain would drop all tariffs and quotas on trade in return for reciprocal treatment. There would be no shortage of potential partners. Australia is already knocking on the door. New Zealand will doubtless follow. China has shown an interest.
Bilateral arrangements could rapidly become multilateral. The UK is the world’s fifth largest economy measured in current dollar GDP. It is also the fifth largest importer. British GDP exceeds the combined GDP of the bottom 129 (out of 189) IMF member countries. Few countries will ignore the attraction of open entry into so large a market. If the EU imposes punitive terms on trade with Britain, the Germans, French and most others will rue the day.
The opportunity is palpable. Political uncertainty has diminished with pragmatic Theresa May replacing David Cameron as prime minister. George Osborne’s departure from the Treasury bodes well for a sensible approach to public sector investment and debt (as I argued on 27 July concerning social housing). There has been no financial market Armageddon, no systemic crisis. Sterling is moderately less overvalued. UK share prices are back where they were. The Bank of England has found little need to do anything yet about the non-existent financial crisis it feared.
Britain has a comparative advantage in services compared with most other countries. It is business-friendly thanks to its legal and tax systems, lack of corruption, limited bureaucratic regulation and flexible labour markets. It is post-industrial. Its shrinking manufacturing is rapidly becoming high-tech. Released from the EU straitjacket it is singularly well placed to do trade deals. The City is potentially the leading offshore centre for Chinese renminbi transactions.
Some commentators such as Charles Grant (on 1 August and 2 August) point to the complexity of future negotiations, including with the World Trade Organisation. But these impediments can be exaggerated. There is no world government, only a series of clubs with rules; staying, leaving or being thrown out is a matter of choice. Does it really matter if Britain is no longer a member of the WTO?
Brussels employs 600 trade negotiators. Member governments employ more to monitor progress and protect national special interests. EU trade negotiators play multiyear games of tit-for-tat to satisfy national special interests. British negotiators working for the EU can be redeployed to work for the UK.
UK deals would not require pick-and-mix negotiations on behalf of 28 countries involving hundreds of negotiators. British deals can be simple and straightforward. The UK would drop tariff and quota restrictions on goods and services exports to Britain provided the partner country reciprocated. Britain may not lose much on trade in goods; most has already been lost to low value-added cheap foreign labour. The potential for services and high-tech is greater.
The merchants of doom make their unduly pessimistic claims by cherry-picking evidence, mostly survey opinions not facts. The short-term impact on the economy will not be known for several months but the referendum cast no great shadow beforehand. Foreign investment has perked up with the more realistically valued pound. Softbank has bought Arm, the chip designer, for £24.3bn. GlaxoSmithKline, the drugs company, is to expand its UK facilities to serve world markets.
Multinationals are no longer threatening to relocate. There has been no stampede to take money out of Britain. Closing Britain to EU markets, which is unlikely, opens Britain to world markets. Even in negotiations with the US, the UK is more likely to jump the queue than be last.
Britain is not Norway or Iceland seeking terms to join the European Free Trade Association. It is not a supplicant begging to be allowed to remain in the single market. It is an international market heavyweight. Brexit provides the UK with the chance to enter the global ring.
Brian Reading was an Economic Adviser to Prime Minister Edward Heath and is a Member of the OMFIF Advisory Board.
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