Is Brexit Binary?

"Theresa May and her colleagues should announce that Britain seeks global free trade as well as free trade with the EU"

Tim Congdon

Brexit means Brexit, but what does Brexit mean? That was how I started my Marketplace column last October. Even with Article 50 triggered, the question remains live and difficult. The October column identified two options: full and genuine independence from the European Union, and a half-way house (“the single market”), in which the UK recovered the theoretical right to make all its own laws, but belonged to the European Economic Area.

To my surprise, Theresa May clarified the government’s position on the two options in January. She said that the UK “cannot possibly” remain within the single market, as staying in it would mean “not leaving the EU at all”. Her commitment to a clean Brexit (or “hard Brexit”, if you prefer) could not be more definite.

Admittedly, the Prime Minister may be talking tough ahead of rounds of bargaining in which concessions will be made, but her words have to be taken at face value. Ruling out the single market means ruling out the single market, just as Brexit means Brexit, doesn’t it?

But now another pair of options has to be discussed. As far as most people in this country are concerned, the purpose of the UK’s relationship with the embryonic political union on its doorstep has always been economic. It has been about finding the best basis for trade. By implication, now that we are leaving the EU, we need to organise the best kind of trade regime with them and of course with all the world’s countries.

Recall a cardinal principle of the World Trade Organisation (and before that, GATT) which includes today all EU states in its membership. Nations can be as protectionist as they please, but not on a selective basis which allows the big to bully the small. A nation cannot discriminate in its international trading arrangements. Under the rules, it can have a 50 per cent tariff against imports of cars (or textiles or computer chips or whatever) from another nation. But if it has that 50 per cent tariff against that type of imports from one nation, it must apply the same tariff against imports from every nation.

So what are the two alternative trade regimes that the UK might want for itself in March 2019 when it is again truly independent? The first — which might be called the default option — is that we inherit the EU’s common external tariff (CET), and apply that to imports from the EU as well as to imports from the rest of the world. (The CET spells out the tariff levels facing exporters from countries outside the EU when they sell things to us.) Apart from food and a handful of other products, the CET is not particularly troublesome for exporters to the UK, as its average rate is only 4 per cent.

Nevertheless, by imposing new barriers on imports from our EU partners, the default option would be a move in a protectionist direction. The Remain side made a fuss about this in the pre-referendum debate and warned about a supposed loss of living standards. Indeed, this was one of the more analytical and reputable parts of Project Fear. However, even here the Remainers were up to mischief. They ought to have acknowledged that there is a second option.

This is that the UK adopts free trade, voluntarily, unilaterally and for its own benefit. It has zero tariffs on all imports from every nation. There is no doubt about the feasibility of the free trade approach, since both Singapore and Hong Kong have had complete free trade in this sense for many decades, and it has served them well. Hong Kong’s spectacular prosperity was surely the key example that motivated China’s commercial opening to the outside world — with its own extraordinary unforced and unilateral trade liberalisation — from Chairman Mao’s death in 1976.

It is true that — if Theresa May’s government were to pledge to unilateral free trade at the start of the Article 50 negotiations — the UK could exert no immediate leverage over the remaining EU members (the EU-27), if the EU-27 were determined to enforce the CET against the newly-independent UK. The EU-27 are no doubt bickering among themselves about this matter at present, while on the British side cabinet ministers are exchanging thoughts and words, and civil servants are writing scores of memos about variants, compromises, permutations and mixtures of the two options.

Yes, the default option and unilateral free trade are not binary opposites, though that is the way I have presented them to highlight the issues at stake. Even with the single market now off the table, May and her colleagues have much to discuss with their EU counterparts. Above all, they must not be afraid to stake out the high ground — intellectually and diplomatically, but also practically — by saying at the outset that Britain seeks global free trade as well as free trade with its European neighbours.

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