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Apart from being overly bureaucratic and cumbersome for exporting businesses, especially small businesses, the proposal amounts to keeping the UK closely aligned to EU rules and regulations for goods and agricultural products, essentially replicating the single market for goods.
This is purportedly in exchange for preferred access to the EU’s services market, which the EU may or may not agree to.
Business has already grabbed the opportunity to warn the government that such a customs arrangement is complicated and may take up to a decade to establish, therefore requiring along transition period. During this time, Britain is allowed to strike free trade deals with third countries but, in practice, this would be quite difficult as importing companies would have to administer and reclaim duties, a highly impractical and costly process.
Even more importantly, third countries are likely to find these conditions less than attractive for any free trade agreement. The deal can be presented as a voluntary alignment and a technical agreement to keep trade “frictionless” but is fraught with technical and political difficulties that, even if accepted by the EU, could cause future problems.
Two years after the referendum when the majority of Britons clearly expressed their wish to leave the EU, we are contemplating the prospect of a long, maybe never-ending, twilightzone of transition and accepting EU regulations and oversight, possibly the authority of the ECJ, without being able to influence them. It sounds like the country is renouncing sovereignty and the freedom to conduct independent policies.
Why would the nation want to accept such a deal?
Economically, there is no convincing argument. Britain had a £96bn trade deficit on goods and a £14bn surplus on services in 2017. The share of trade with the EU has continuously declined, with exports to the EU falling from 54% in 2006 to 44% in 2017. It is still a large proportion but not the bulk of exports, and the declining trend is likely to continue whereas the share of international markets in UK trade is growing.
Britain has a strong and diverse economy, a wide network of international relations, a vibrant entrepreneurial culture and high quality, competitive products to sell. It is a major recipient of investment, a global financial centre, and one of the most important hubs for financial technology.
Relentless Project Fear forecasts of the economy crumbling because of Brexit have duly been proven wrong both by life and other forecasts. In a desperate attempt to show the detrimental effect of even the thought of Brexit, Remainers have suggested that the UK’s first quarter GDP growth figure of 0.1%, modified to 0.2% later by the ONS, is so low because of Brexit fears, conveniently forgetting that during the same period Germany’s GDP growth halved to 0.3%.
Economists for Free Trade has published plenty of analyses and forecasts showing that the country could thrive after Brexit. Applying an independent trade policy formulated in the interests of the country rather than to accommodate other countries’ priorities could substantially increase economic benefits. Regulations, simplified and taken domestically are proven to be much more effective than centralised EU regulations. Big business predicted the end of the world if the UK did not join the euro; they are predicting the same now and threatening to leave, although BMW quickly backtracked on such dire warnings.
The economic arguments have all been discussed. These are very important but ultimately, Brexit is about much more: what kind of country the UK wants to be.
Staying in the single market and accepting EU rules means that, in a way, the UK continues to be part of the EU without a right to participate in decision-making. Some might argue that this is fine as long as the EU is a dynamically developing, economically strong free trade area benefiting the UK’s economy. This is, however, not the case.
At the risk of restating the obvious, the EU is a political project. Its aim is to phase out the nation state and create a United States of Europe. The economy and citizens’ interests have systematically been ignored and subordinated to the political goal of a federal Europe where mosaic societies live side by side with a central authority, directed by Germany and France, deciding on all aspects of life.
The best proof of this is the euro itself. Driven by the federalist effort, the euro was called to life as a binding economic tool to accelerate a political project. The result, a sovereign debt crisis, has weakened Europe, slashed growth, impoverished millions of people, exacerbated the existing structural economic differences and driven surplus and deficit countries farther apart. Core and periphery economies diverge as do political priorities.
Last weekend’s spectacular EU summit failure was not a one-off over the particularly thorny issue of migration but a clash of national interests and the demonstration of the nonexistence of European unity. Nevertheless, the EU leadership will continue its efforts to force federalisation sacrificing economic and political common sense. Laws, regulations and policies will be created to promote “more Europe”, something Britain has never subscribed to. Nor do actually most European citizens.
One must pose the question: is this really what the UK wants to be tied to?
The EU has amply demonstrated that it wants no mutually beneficial agreement. Their refusal to talk about trade has shown that they do not care about free trade and its economic advantages. Their dismissal of mutual recognition in financial services to ensure the continuity of seamless finance on which EU businesses greatly rely shows that they do not seek an optimum solution. Threats to exclude the UK from the Galileo project and certain security arrangements, and to take away British flying rights, illustrate that they are ready to compromise the security and interests of their own citizens.
The EU is trying to thwart the referendum result and deter other members from leaving; after all, if the world’s fifth largest economy cannot manage to become independent how could anybody else. Acquiescing to their demands will not lead to a sensible agreement. Italy’s unexpected tough stance at the summit showed what might produce some results. The menace of walking away and not paying could concentrate minds on the losses the EU itself would suffer in such an eventuality.
Brexit is a major historical event. At stake is much more than a trade agreement: it is the long-term future of the UK.
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