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Marching Orders: Trade After Brexit

The British electorate has called for Brexit and the President of the European Commission, Jean- Claude Juncker, has given the United Kingdom her marching orders. It's high time for Westminster to start deciding what sort of trade agreement they want with the European Union as an outside force, which maybe should have been done before Brexit was decided upon. Witnessing the disarray in the House of Commons over the last few weeks, it's very clear it wasn't. It's always useful to begin from a self-evident statement, so here goes: The EU has far more bargaining power than the UK and no amount of nationalist fervour is going to change this. The common market of the EU operates on a constitution called the four freedoms: the free movement of goods, services, capital and people between EU member states. The UK has a problem with the latter, with immigration being the salient concern of the Brexit voter. But if the free movement of European labour into the UK isn't permitted, the EU will not allow the free movement of goods, services and capital from the UK into Europe. The four freedoms are all or none, and to demand the UK be held to a different standard to other countries is to demand the EU cast aside its entire economic charter. The president of the European Council, Donald Tusk, recently stated in the aftermath of Brexit: "Leaders made it crystal clear that access to the single market requires acceptance of all four freedoms - including freedom of movement [...] There will be no single market a la carte." So the choice for the Palace of Westminster is: free movement and free trade with Europe; or a pick and choose immigration policy and a tariff war with the EU, a war the UK cannot win because 44% of her exports go to the EU, and because of the sheer power and size of the institution. It seems the new British government may opt for the former, which means, like Norway and Switzerland - countries not members of the EU, but nevertheless part of the Schengen Area and the common market - the UK will be a de facto EU member, but won't have any representation in the European legislature. In this scenario the UK has actually lost sovereignty, not gained it, and it appears a large degree of free movement between the UK and Europe will continue, despite immigration being the cornerstone of the Brexit vote. But what about the UK's affairs on the other side of the Atlantic? Hypothetically, if Westminster wants to gain complete control of UK borders, even at the expense of EU tariffs, surely we can find a way to increase exports to the US to compensate for this loss? At present the USA accounts for nearly 17% of British exports, but it's likely that this will diminish as a result of Brexit, at least in the short term, because of the waiting period the UK will have to endure to pen a new trade deal with the US. Barack Obama himself said the EU will take priority over an independent UK. To quote him verbatim: "Maybe some point down the line, there might be a UK-US trade agreement, but it's not going to happen any time soon because our focus is negotiating with a big bloc - the European Union - to get a trade agreement done, and the UK is going to be at the back of the queue." To the more entitled and solipsistic of the British political class, this was interpreted as a threat, and was even met with edgy remarks by Boris Johnson concerning Obama's Kenyan ancestry. But it's actually a perfectly justified and unavoidable stance taken by the US president, considering that the EU is arguably the world's largest economy, and thus has to be the US's priority as a trade partner in order to create a more stabilised means for almost the entire Western world. To add to this, it is not desirable to become more dependent on the US. The US produces the second largest number of patent applications in the world, after China, and is still the leading country in science and technology, spending more money on research and development than any other country. And so it's a common characteristic in US trade deals to incorporate extremely stringent intellectual property rights, guaranteeing themselves a virtual monopoly on many key scientific innovations. The North American Free Trade Agreement (NAFTA), and the Transatlantic Trade and Investment Partnership (TTIP) - which is currently being negotiated between the USA and the EU and remains in the balance - are prominent examples. Britain is no slouch in the innovation department, ranking 12th on the global creativity index, and many scientists, including Stephen Hawking, have attributed much of this success to our membership of the EU. But if British science is to stay this way, it's in the best interest of the UK to stay within the common market as a non-EU member. The EU will have some difficulty trying to negotiate around the more avaricious demands of the TTIP agreement, or any deal that replaces it, but it does have the bargaining power to do so, given that it's of similar economic size and power to the US. Many European politicians have expressed deep concerns about the agreement - most notably the German Vice Chancellor Sigmar Gabriel and the French President Francois Hollande - and if no compromise is made the entire trade deal will likely be vetoed. The common market will offer better protection for the UK against the dictates of a US trade deal, but if the UK decides to operate outside the common market, a separate agreement will be negotiated with the US likely incorporating similar, if not more tactless, demands, which we may yield to without the benefit of the EU's political clout. This, alongside the inevitable European tariffs, would likely cause a sharp decline in British innovation. )

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