The prime minister, Theresa May, has kept her Brexit cards close to the chest. A crystal ball is not, however, needed to see that in the battle for Britain's future outside the EU, Britain's new trade arrangements will be pivotal. Two radically different options have emerged.
The first, for which the remainers clamour, is to negotiate some form of membership of the Single Market - 'Norway' style, EEA style, or via a bespoke UK-EU deal. For these protagonists, the Single Market seems still to be the only show in town, and no price is too high for entry. They want Britain's focus, therefore, to be on achieving such a deal, irrespective of whatever the various EU countries demand in return. Such a deal would need each of the 27 member states to agree. The odds are against their doing so, as they have already made clear.
Take the sabre rattling by some EU countries who demand continued EU immigration to Britain. At the recent Bratislava summit Jean-Claude Juncker, the EU Commission President, insisted there was 'no prospect' of compromise on this area, and the Slovak Prime Minister, Robert Fico, announced that the Visegrad 4 group (Poland, Czech Republic, Slovakia and Hungary) would veto any deal which limited people's right to work in the UK.
But the British people voted to regain control of their laws and their borders and in doing and to end free movement from the EU. The Prime Minister knows this well. Immigration is therefore a red line, and an attempt to reach a deal to stay in the Single Market would founder on it.
Nonetheless, this option remains hard fought by some. Their tenacity is seen by the economist, Patrick Minford, to represent another round in the battle to preserve the protection the Single Market gives to producers at the cost of consumers. Minford's new study, Trading Places: Consumers v Producers in the New Brexit Economy, examines the economic context of the referendum, the implications of belonging to or leaving the Single Market and the options for trade post Brexit. The producers fighting for a deal, who include big business and manufacturing industries, benefit from the economic protection of the EU afforded by the tariff and regulatory wall around the Single Market that keeps costs high and cheaper competitors at bay. Producers also benefit by being allowed to import unskilled labour from poor areas of the EU, the so called 'fourth freedom', a powerful 'producer privilege at the expense of the consumers', as Minford puts it. Moreover, through their taxes consumers subsidise the welfare benefits for which many of these unskilled workers are eligible, tax credits c.£3,500 on average per year and running to a total of £3.5 billion (0.2 per cent of GDP) - and these are figures which exclude other tax-funded general costs such as those for healthcare and education.
Remaining in the Single Market would have to cross the voters' red lines, whereas leaving would bring a huge saving to the consumer and a significant fillip to Britain's economy. Minford and his colleagues estimate the costs of protection which come from Single Market membership 'raise the costs of goods to consumers in the UK by up to 20 percent'. They are, he says, 'far more damaging than the alternative, of being outside with no trade barriers against the rest of the world, leading to lower prices and taxes in the UK ...'.
This brings us to the second option, for unilateral free trade under WTO rules, one Minford advocates along with growing numbers of international trade economists and lawyers. That course would allow the UK to have access to the EU's Single Market on the same or equivalent basis as the US, Canada and other countries, meeting common and agreed standard conditions for goods and services. It would be consistent with the electoral mandate to leave the EU along with its expensive constraints and the baggage of the Single Market. This option leaves Britain with its sovereign powers intact, the power to control its borders and to be governed by its own laws. It meets the democratic mandate of the referendum.
And while there will be much to negotiate with the EU to give effect to Article 50, on this option there would be no need to delay while trying to draw up a complex trade agreement.
We may find that when it comes to the point, Angela Merkel may prefer to do a special deal with Britain, partly to guarantee that German cars can continue to find their way into UK dealers without the standard car tariff. Indeed, she may want to trump the WTO with her own free trade deal. But unless Britain plans and prepares for the WTO deal, we shall never know.
Sheila Lawlor is Director of Politeia which this week publishes
Trading Places: Consumers v Producers in the New Brexit Economy
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