The EU Remain campaign, Britain Stronger In Europe, launched on Monday 12 October, led by Lord Stuart Rose. The former chairman of Marks & Spencer opened the campaign with a speech on the importance of Britain’s EU membership in which he touched on Brussels’ role in police cooperation, counter-terrorism, consumer prices and our exports to the continent. One of his more contentious points, though, was that the EU boosts Britain’s international clout.
“Nothing carries more clout in trade negotiations than numbers. A trade bloc of 500m consumers has greater negotiating power than a country of 65m. That’s why we benefit from trade agreements with 50 countries around the world on terms that work for us. European trade deals with Canada, America and Japan could, for example, bring £16.3bn to the British economy every year.”
Lord Rose argued that staying in the EU was the most patriotic action – he suggested that Brexit would lose Britain access not only to the EU but to some of the world’s most vibrant markets.
This is far from clear. The Canadian, American and Japanese deals he claimed could bring £16.3bn to Britain’s economy are questionable. The first of those agreements is not ratified, the second has run into numerous delays and is currently stalled, and there has been no news of progress on the third. Their estimated benefits assume the best possible final terms, and would not arise until 2030. Lord Rose drew attention not to concrete EU successes, but to distant hypotheticals. When he cast doubt on Britain’s potential after exit he used a vague pessimism, the spectre of unknowability.
Really, the EU’s record on winning free trade deals is underwhelming but there are solid examples of non-EU states flourishing. Nearby non-EU states such as Norway and Switzerland have more free trade agreements in force. Switzerland in particular has excelled at closing agreements with the world’s largest economies, including Canada, Hong Kong, Japan and China. How does that compare with the EU’s 50 trade agreements? Well, most of those are with minor players. Mexico and South Africa are the highlights, but Andorra, the Faeroe Islands and Lebanon are more typical EU deals.
The pro-EU response to Switzerland is to deny the Swiss deals are balanced. It is claimed that the Swiss are always at a disadvantage, that they fail to win real market access or investment rights. This is a bizarre claim since far more Swiss deals cut barriers to services trade, a UK priority, than do EU agreements. In a Civitas study released on Friday I looked into the detail of the Japanese-Swiss free trade deal of 2009 to see if it held any further lessons for the British EU dilemma.
If the clout argument were true, you would expect the Japanese-Swiss deal to be heavily in the island nation’s favour. By GDP Japan the third largest state in the world, $1 trillion richer than Germany, while Switzerland’s economy is as complex as Britain’s but far smaller. In fact, the Swiss do very well out of their agreement. Swiss exports of flagship products such as chocolate, cereal, cheese, pharmaceuticals and watches all face lower tariffs, or none at all. This is a notable achievement given that Japan is historically protectionist, especially of its agricultural, processed food and industrial sectors.
Swiss businesses have started using the free trade terms swiftly. Economists from the University of Zurich have shown that sales of products which saw their tariffs slashed grew much faster than those that were already low. Moreover, the Swiss managed to open the Japanese economy to services exports and foreign direct investment. The benefits of this are mutual: Japanese investment in Switzerland has roughly doubled since 2009.
The concessions that Switzerland won are actually very close to those America itself has negotiated with Japan this year as part of the Trans-Pacific Partnership. Some US exports will not be tariff free until 11 years after that deal comes into force. The Japanese quota protecting rice farmers remains in place for both America and Switzerland.
Limited success works both ways. Take the EU-Canada deal that is still awaiting final approval. The EU has the clout in that deal, it is ten times larger, so it should win more concessions. Yet Canadian tariffs on 8.3% of agriculture will stay, while the EU retains tariffs on only 6.2% of its agricultural products. In total, 98.6% of Canadian and 98.7% of European tariffs will be eliminated. Canada also scored victories over fish sale rules, and compromises over an EU favourite, the enforcement of geographical indicators like ‘Prosciutto di Parma’ or ‘Valencia oranges’. Many Canadian products can keep these names or add qualifiers (‘Gorgonzola-style’). It is unclear where the EU’s substantial clout advantage won out: the Commission described the deal as ‘balanced and reciprocal’. Why could Britain not do so well alone?
Nothing in the negotiations between Switzerland and Japan suggests Britain would be unable to conclude an equally ambitious deal after Brexit. In fact, comments by Japanese officials during the six year discussions imply that the EU’s vast size could actually hamper its negotiation efforts. Firstly, countries worried about protecting their most sensitive industries are unwilling to open them up to the threat of the whole EU’s industrial and agricultural might. Secondly, the 28 different states of the EU all prioritise reducing different tariffs, so the EU’s position comes across as confused. From Britain’s perspective, this means a lot of Brussels’ effort is spent working to reduce barriers that aren’t in UK exporters’ interests. If our government was championing only the views of British manufacturers, farmers and services providers, it would be reasonable to expect eventual comparable to Lord Rose’s £16.3bn.
None of this is to say that the whole Swiss situation, joined to the EU by complex bilateral treaties, is a desirable exit model. Switzerland is just useful to view as a proxy for Britain, as an economically developed European state outside the EU. Like Britain, the Swiss have healthy banking, pharmaceuticals and electronics sectors. Their experiences with China and Japan illustrate that Britain would not be disadvantaged on its own. In fact, Switzerland is currently selling to both important Asian economies at a competitive advantage to the EU, Britain included.
Other economies represent themselves profitably outside trade blocs. Australia, for example, concluded trade deals with America in 2005 and Japan this year. Its Japanese deal sees victories for the Australian wine and beef industries. Moreover, that agreement does not contain the controversial investor-state clauses which have become a sticking point in Europe’s negotiations with Canada and America. Alone, Britain would be able to replicate the Australian experience and close significant deals without the threat to sovereignty that investor-state arbitration arguably entails.
There are other lessons. Switzerland has an experienced cadre of negotiators pushing its deals ahead. Britain might consider hiring foreign experts such as those from Australia or Norway to boost manpower after Brexit. Diplomats from Switzerland are also very active in global trade bodies like the World Trade Organisation, where it is important to influence international commerce rules. This would be especially important for Britain because it would no longer be part of the EU-America deal (TTIP), which is expected to sway global trade rules if it comes into effect.
Winning meaningful trade deals is not an automatic right for independent countries, however. All a country’s departments must already be in internal agreement over what goals it should prioritise in talks. After Brexit there would need to be a clear public debate over how much openness and deregulation Britons are comfortable with. Some people would prefer to have the right to save domestic industries like the Redcar steelworks, and forfeit the extensive rights to another country’s procurement contracts. Others would be happy to suspend or alter some of Britain’s food safety, cosmetic or environmental rules in exchange for better trade deals. Many modern trade agreements include clauses on migration rights for businesspeople and company personnel – this is another aspect that the British government would gain direct responsibility for, so would need to consider carefully. Negotiations should only move forward when consensus over what sort of economy the UK should be has been reached.
Negotiating our own trade deals represents a challenge for Britain, but a challenge that Switzerland’s history implies can be overcome. If Britain voted to leave the EU then the country would regain full responsibility for representing itself on the world stage. The government could no longer point to Brussels to excuse economic troubles. What Britain alone lacks in the EU’s clout, it could make up for in single-mindedness and purpose. The EU-Canada deal shows that clout does not count for much, while the Swiss-Japanese agreement proves that independent countries can clinch meaningful deals. Brexit should not be seen as a threat to UK trade, but an opportunity.