Borderless Brexit

“What does Brexit mean? Two main options are emerging: the single market option and the free trade option”

Marketplace
Lord Beaverbrook: His Empire Free Trade Crusade party campaigned for  the British Empire to become a free trade bloc (Anefo CC BY-SA 3.0)

Brexit means Brexit, but what does Brexit mean? The weeks of public debate since June 23 may not have provided a simple answer to the question, but they have reduced the number of sensible courses of action. Almost no one wants to pull up the drawbridge and to end Britain’s friendly relationships with its European neighbours. The challenge is to recover independence, including the ability to make our own laws and the control of immigration, while securing a close approximation to borderless trade in the continent of Europe to which Britain belongs.

Two main options are emerging. In the first Britain leaves the European Union, but remains inside the European Economic Area (“the single market”). Much the same position on trade as at present would continue, but the UK’s highest court would not be the European Court of Justice and it could to a large extent, although not entirely, adopt its own laws and regulations. The downsides are at least twofold. Unless it could negotiate a special provision, Britain would have to comply with the free movement of labour and hence would not have full control of its borders; and, again unless it could obtain a dispensation of some sort, it could not conduct separate trade deals with non-EU nations. As the EU is to some degree protectionist, this inability to do deals (with China, India and so on) might be seen as a missed opportunity.

The second approach is more radical. Britain leaves the EU and does not seek membership of the EEA. Its relationship with EU member states resembles that of — for example — the US or Australia. It makes its own laws, controls its borders, has its highest court on its own territory and so on. Both it and the EU belong to the World Trade Organization, and life goes on.

But we want as close an approximation as possible to borderless trade with the rest of Europe, don’t we? How can that be attained when we are so definitely outside the EU? The reply now being widely urged is that Britain adopts free trade (that is, zero tariffs and no other import restrictions) with all the world’s countries, including EU member states, on a unilateral basis. So we import as freely from the EU as before. Admittedly, unless something changes, our companies would face the common external tariff when exporting to the EU, just as American and Australian companies do at present. Importing from the EU is barely altered from the current position, but exporting to the EU is not so easy.

The labels for the two options are obvious: “the single market option” and “the free trade option”. The areas of negotiation are also obvious: the extent of control over immigration from the EU, and the degree of market access for UK exporters. Some sort of compromise may well be struck. For example, once we are outside the EU, its citizens might still be allowed to work in the UK on a better basis (in some sense) than citizens of non-EU countries, while zero tariffs and no customs arrangements apply in trade between Britain and the EU in motor and aerospace components, including exports from Britain.

All sorts of deals can be imagined, and no doubt countless adjustments, concessions, bargains and so on will be made in the two years of negotiations under Article 50. After all, in modern European states matters like this are agreed by politicians and civil servants in committees, and the jaw-jaw keeps them out of worse mischief. At the last G20 summit Theresa May more than hinted that she wanted post-Brexit Britain to be “a global leader in free trade”. In the pre-referendum debate the Remain camp wanted to stigmatise the Leavers as protectionist and small-minded little Englanders, and even sometimes smeared them as populists or nationalists or worse. Thankfully, that sort of thing is over. Outside the EU, Britain can indeed become a global leader in free trade.

But what happens if Donald Trump becomes the next US President? Membership of the Bretton Woods institutions is not part of the American Constitution. Can Britain champion free trade if the US reverts to the ugly protectionism of the early 1930s? And how are supporters of an open Europe to react if the next French President is Marine Le Pen? Will our own Conservative Party, which historically has been ambivalent on “free trade vs. protection”, turn out to be weak and flabby on the issue? The case for unilateral free trade — for allowing imports in freely with no tariff or other barriers — is easier to make when the rest of the world is liberalising trade, as it has been doing more or less continuously since the Bretton Woods conference in 1944. The challenge for Britain’s free traders, in both the Leave and Remain camps, will become more interesting and difficult if America and Europe slide into protectionism in the next few years. We may have to seek different friends, new and old. Empire Free Trade, anyone?