After Brexit?

The deed is done, the doers undone

Had I been a Brit, I would have voted ‘Remain’ rather than Brexit (or ‘Leave’). Instead, I have been bemused by the comic theatre of British politics, fascinated by what the Brits actual think and professionally interested by the revelations of the complexity of the interactions between Britain and the (rest of the) European Union.

The complexity is summarised in the 2000-plus page agreement (and many loose ends which, when settled by negotiation, will add even more pages). It comes to three times the length of my Not in Narrow Seas and that is covering only 650m years of New Zealand’s history.

I never imagined how complicated was the totality of UK/EU relations. I began wondering what would have to be negotiated supposing there was a standoff between us and the Australians – something I hope never happens. It would not just be repealing the CER agreement but would involve a wide variety of other dimensions, which are beyond my competence to list, together with numerous informal arrangements – for instance, our attorney-general attends meetings of the Australian state attorney-generals.

I doubt the majority British voters in 2016 expected a 2000 page agreement signed at the last minute. They had been told that the deal was easy. What do they think now? Actually, it is not clear what the majority ever thought. The 2016 referendum gave 52 percent for Brexit but there was so much disinformation that it was unclear what was happening. More voted in the 2019 British election for parties which supported Remain than for those parties which supported Leave (say 55% to 45%). However the eccentricities of the British Front Runner electoral system gave the pro-Leave Conservatives a comfortable majority in parliament.

At the heart of the Brexit rhetoric was the demand that Britain exercise its sovereignty and ‘take back control’. ‘Sovereignty’ is a complicated term. On many matters – sometimes described as ‘cultural’ – Britain already had it. A country can decide on such matters as the choices at the end of life or how to regulate cannabis. That is true for member states in the EU which has a governing principle of ‘subsidiarity’ – that decisions should be made at the lowest level possible.

However subsidiarity does not work once exchange between economies is involved, as is well illustrated by the 2000 pages. Suppose one country has some regulatory standards. It will be reluctant to allow imports from another country which does not have these standards. It would be a fat lot of good, for instance, taking domestic measures to restrain carbon emissions and then consuming imports from a country that did not care. Similarly, as a general rule, one country will not allow another to subsidise exports to it if it compromises its local industries.

As a consequence, the EU requires Britain to maintain similar standards for its exports if they are to be tariff-free. So rather than take back control, the British freedom to regulate on such standards is limited. Norway and Switzerland, countries outside the EU but with earlier trade deals with it, complain they are bound by EU regulations despite having no say in their formulation. Britain might have a fraction more wiggle room, but it has hardly taken back control.

One stream in the Leave thinking was neoliberals who objected to the EU standards and thought that if Britain was in control it could set lower levels of consumer, environmental and worker protection in a no-deal option in which trade would be simply regulated by WTO rules.

It is unlikely that the vast numbers of those who voted Leave would favour the elimination of these standards – they were not neoliberals. Their concerns were about sovereignty in a wider, almost cultural, sense. One irritation was from the free flow of people between EU countries. Brexit restricts EU citizens’ right to live in the UK but the offset is that Brits lose rights of free movement throughout the EU.

In my judgement, the case for unlimited people mobility across borders is not as clear-cut as some economists argue. (I am less laissez faire in this regard than was the Key-English Government.) I can see that unlimited mobility is necessary in continental Europe with its permeable borders. Once the principle was there it was harder to justify restricting flows across The Channel/La Manche. There may be some gains here for some Brits if there be losses for others. The measures will impact unevenly. Now those on short-term holidays on the continent will have the ignominy of having to queue with us at points of entry.

Behind this is a British view that their country is more important than it is. Almost all countries claim to punch above their weight – we do too but we are still flyweight. Perhaps because of its imperial history British claims are excessive. The promise to out-negotiate the EU was absurd. Some 45 percent of British exports went to the EU but only 15 percent of the EU’s went to Britain (the latter proportion excludes member states’ exports to one another). This is not surprising given that the EU after Brexit produces more than five times as much as Britain. On the other hand, the EU’s structure of a confederation means it is not as politically cohesive as Britain, although sometimes that can be an advantage.

In contrast to its ambitions, Britain may find itself quite lonely in the world. Even New Zealand with its sentimental ties to Britain will prioritise the EU. Can Britain gather the equivalent of the 27 votes in the UN and the economic power that the EU has? It will be prone to be bullied by even a Biden-led US. That the EU rolled Britain makes it very vulnerable to the next bully who comes along to negotiate an FTA. We are offering one, of course, but this flyweight will insist on concessions for agricultural access.

Nor is there much expectation that the British economy will boom, although PM Johnson has claimed that. (That he has claimed to have done the EU deal better than promised does not give one confidence for this claim either.) The key factors may be the structural change which will become necessary and the rise in transaction costs across borders. Brexit has not simply been a neoliberal ambition, but I am reminded of the claims of the Rogernomes who confidently promised huge economic gains while knocking off 15 percent from our GDP.

Behind the comedy of British politics and the tragedy of the outcome, we can treat Brexit as an experiment – the first trade pact to reduce the flow of trade. Outsiders watch it to learn but, sadly, if one is fond of the best of Britain.