Although it’s not possible to say with any certainty whether Britain would be better off financially in or out of the EU (see previous blog post at http://www.richardmilton.net/stay-or-leave-1-better-off ) it is possible to make some definite statements regarding the UK’s trading arrangements post-exit with the EU and other countries.
Will Britain lose out by not being an EU member?
One of the key reasons for Britain joining the EU originally was that it would give us free access to important markets inside Europe without having to pay any import tariffs on the goods we sell to them. Countries outside the EU would have to pay the Common External Tariff to sell their goods to EU countries.
20 years ago, this was an advantage. In 1996, a country outside the EU would have to pay around 6% tariff to trade with the EU on many goods. But over the past two decades, the common external tariff has slowly come down year on year. So today, a country outside the EU pays only around 1% tariff. This is an additional cost but it is no greater than tariffs we pay to our other trading partners around the world.
The bottom line: The key reason that we joined the EU no longer exists. The world has changed, with markets becoming globalised, and local protectionist markets like the EU are outdated solutions to problems from the 1950s.
Will Britain have to renegotiate with everyone? Won’t that take years?
There will not be any urgent pressing need to renegotiate trade deals as has been suggested by the government. The reason is the Principle of Continuity. Governments change all the time at elections and countries sometimes split up as happened with Czechoslavakia in 1993. Under international law, the trade treaties that former governments and former sovereign states have signed remain in force until such time as they are renegotiated. This continuity happens under a convention of international law known as the Vienna convention on the law of treaties. The existing treaties are deemed to be valid until the law is changed and they are replaced.
The governments of the Czech Republic and Slovakia, the successor states to Czechoslovakia, simply notified everyone that existing trade treaties will continue to be honoured and they have been.
It is, of course, likely that the EU will wish to renegotiate its trade arrangements with the UK but until those negotiations are completed, the existing trade arrangements will continue in place. The only alternative would be for the EU to contravene international law.
Britain will be free to begin trade negotiations with other countries as soon as it chooses. In the past the EU has taken years to conclude trade treaties, but this is because it is negotiating on behalf of 28 countries, all of which have different interests to be reconciled by compromise. Britain is a single sovereign state with no such cumbersome apparatus to hamper trade talks.
The bottom line: Existing trade treaties will be valid post-Brexit until they are renegotiated. Just because the EU takes years to negotiate trade deals doesn’t mean it has to take the UK a long time.
Will the EU punish Britain by imposing heavy import tariffs on British goods and services?
We can completely sure that this cannot happen. International trade is regulated not by the EU but by the World Trade Organisation. Every country and trading bloc, including the EU, has accepted WTO regulation as legally binding. Every parliament has ratified its country’s membership of WTO and the organisation’s regulations have the status of international law.
The overarching aim of the WTO has been to reduce barriers to trade, especially protectionist tariffs such as that levied in the past by the EU, and replace them with uniformly low trade tariffs. (This is the reason the EU’s common external tariff has come down in recent years). The mechanism it has used to achieve this aim is to decree that the highest import tariff any country or group can impose is that which it gives to its “most favoured” trading partner. Whatever the best “mates rate” it gives to its friendliest partner, that is the rate that – by international law – it must give everyone.
The bottom line: It is legally impossible for the EU to impose some kind of punitive import tariff on the UK. It can only impose the 1% or so that it imposes on everyone else.
Is there any advantage to be gained by UK from negotiating its own trade treaties?
As a member of the EU, Britain has been compelled to hand over its trade negotiations to the EU Commission to negotiate on behalf of all member nations. Sometimes this has been beneficial, but often it has been detrimental to British interests.
Here’s an example. The second biggest English-speaking country in the world is The Philippines with a population of 103 milllion. It is one of the fastest growing economies . Because it is an Anglophone country, people in The Philippines are keen to buy British and American goods. Britain has been pressing the EU for decades to conclude a trade agreement with The Philippines but has been ignored because France , Germany and other main EU members have little or no interest in English speaking markets. It was only last December that the EU finally concluded a trade agreement with The Philippines and this was a cynical last-minute measure aimed at heading off the impending Brexit.
On its own, Britain will be able to negotiate mutually favourable deals with the 67 sovereign states that speak English including the United States, The Phillipines, Canada, Australia, New Zealand, India, Pakistan, Bangladesh, South Africa, Singapore, Malaysia, Sri Lanka, Israel, and Hong Kong as well as almost all the major African States. In total, these English-speaking markets comprise more than 2 Billion people – one quarter of the world’s population and four times bigger than the EU market place.
By comparison, not one member country of the EU has English as a language either officially or in practice.
The Bottom Line: Negotiating its own trade agreements will benefit the UK by opening up massive English-speaking world markets to its exporters.