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Gove's BMW Confusion Shows the Flaws in Brexit

11/05/2016 12:01 | Updated 11 May 2016

"I think it would be very difficult for any German finance minister to say to BMW I am afraid you are going to have to lay off workers because I want to punish the British for being democratic by erecting trade barriers... that won't happen."

It seems that in the minds of Michael Gove and Vote Leave, the entire decision-making power of the European Union rests on the whims of BMW's management. On this shaky basis Gove reasons that upon our exit, Britain would be able to negotiate tariff-free trade with the EU, because it's in BMW's interests, and that Britain would achieve this along with ending all payments to the EU and ending the free movement of people.

The claim, repeated by Vote Leave figures like Boris Johnson and Dominic Cummings, is that the leverage of BMW's exports will deliver continued free trade, £350m/week, and an end to open immigration. Gove told Andrew Marr:

'If you don't have tariffs then both sides can agree there is no need to erect them. Germany carmakers are not going to want to have tariffs erected when they sell many more cars to us than we sell to them.'

Germany is very important in the EU, and even more important when it comes to Greece, as Germany is a major creditor for Greece's bailout loans. That does not mean, though, that the EU works only in the interests of Germany, and certainly not just in the interest of BMW.

Gove is probably right that Germany would want tariff-free trade with Britain, as would French farmers and Italian textiles exporters: they all sell Britain more than Britain sells them. However, not all EU member states have trade surpluses with UK.

The ten central and eastern European states have a negligible level of trade with the UK. In oral evidence to the Treasury Select Committee, Matthew Elliott of Vote Leave admitted that states including Luxembourg, Denmark, Bulgaria, Estonia, and Croatia have actual trade deficits with Britain. Protecting free trade with the UK is not the priority for them. What would matter far more are two elements: their citizens' continued rights to work in the UK, and Britain's contributions to the EU's structural and cohesion funds. These are designed to tackle unemployment and bring those countries' infrastructure up to the EU average.

Each EU member will have a veto on the UK exit agreement. Many will have to pass the agreement through their parliament, or even through a referendum. Pascal Lamy, former director of the World Trade Organisation (WTO), in a Times article arguing the WTO option is flawed, explained: "Any ambitious UK-EU deal will need to be ratified in 27 legislatures as well as the European parliament." So in an extreme case Estonia alone could kill a Brexit agreement.

This means the deal cannot just satisfy Germany, France and Holland, ignoring the rest. It is very hard to see Lithuania or Hungary agreeing to a deal which protects all BMW interests but abandons their key concerns. Gove told the BBC that the EU 'is win-win for [Europeans] at the moment. It should be win-win for us [Britain] and it will be if we vote to leave and we can maintain free trade, stop sending money and also have control of our borders.' Removal of our funding and migration rights would make it 'lose' for many veto-wielding EU members.

Vote Leave's comparisons to the EU starting free trade agreements, without free movement, with distant countries like Korea or Mexico, are false. In those cases both sides began talks with high tariffs, then gained mutual concessions. Conditions for both sides improved. This would not be the case with Vote Leave's optimistic exit ideal - Britain's lot would improve and that of Croatia would implicitly suffer.

When Gove says that we can leave, keep tariff-free trade, but end free movement, end EU budget payments, and end the EU court's say over trade law, he is pushing a utopian fiction. Germany might lean on the smaller states not to veto outright, but they would defend their interests and win concessions. Either Britain would accept continuing significant payments and give privileged migration rights to Europeans in exchange for free trade, or there would be tariffs and barriers. There is a legitimate case to make for Brexit, but it should be made sincerely, not with an idyll that will never materialise.

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