Britain is deluded when it comes to its global future

Martin Wolf: Here are six things that are impossible yet are being touted as the Brexit dividend

Martin Wolf: If people in the UK government believe such stuff, it really is terrifying. This is nonsense. Wake up!

Martin Wolf: If people in the UK government believe such stuff, it really is terrifying. This is nonsense. Wake up!

 

The White Queen in Lewis Carroll’s Through the Looking Glass claimed to believe six impossible things before breakfast. Alas, a recent pamphlet from the London-based Legatum Institute, fully matches the queen. This matters because the view it advances of the “Brexit prize” to be won by the UK is influential. Here then are six impossible things it argues.

Free trade

The first is the statement that “historically, the British system of free trade made Britain, Europe and the world richer. The EU system that has replaced it — of protectionism and harmonised regulation — has constrained economic growth for Britain and the world.”

In fact, the volume of world trade is twice as high, relative to global output, now as at its peak before the first world war. Global output per head rose at just 1.3 per cent a year between 1870 and 1914, the heyday of the imperial era. This is well below the 1.9 per cent achieved between 1980 and 2008, the heyday of the latest era of globalisation. In the imperial era, free-trade India became poorer, relative to the UK. Between 1980 and 2008, however, India and China did extraordinarily well.

Cake and eat it

The second impossible thing is that the UK can have its cake on regulatory barriers to access to EU markets and still eat it. The report states: “Any agreement to maintain harmonised regulations within the interim must allow divergence afterwards — without this we will have only partial freedom to negotiate with other countries. This requires a mutual recognition agreement (MRA) or sector-specific MRAs.” Yet the report also states that “the EU system of trade and internal regulation — including tariffs, but also its prescriptive rule-book approach to regulation — has damaged the EU, Britain and the global economy”.

Thus, the very EU that clings to what the report considers unreasonable regulation will happily accept the regulations the UK introduces subsequent to Brexit as equivalent to its own.

The report even suggests an “agreed mechanism for monitoring and managing divergence while maintaining recognition”. But such an agreement would either nullify UK regulatory freedom or subvert EU regulations. The UK would be tightly constrained by the former and the EU would surely reject the latter.

Leadership

The third impossible thing is the idea that World Trade Organization members are panting for “UK leadership”. Have the authors not noticed that Donald Trump is a protectionist, whose administration has rejected the Trans-Pacific Partnership, may repudiate the North American Free Trade Agreement and is apparently seeking to subvert the WTO’s dispute settlement system?

No important trade agreement has been reached in the WTO since China’s accession in 2001. Do they imagine UK influence on the trade policies of the US or China will be greater when it is outside the EU than today? The UK is not its 19th-century self, but a second-rank power in decline.

Apparently, all will be well when the UK just explains “that making the global economy more prosperous over the long term requires the urgent liberalisation of world trade”. This is sophomoric. The UK’s priority must be to agree its new trade policy schedules with the other WTO members and replace the trade agreements to which it is now a party as a member of the EU.

Time

The fourth impossible thing is the notion that the UK is under time pressure to escape from the EU. Thus, argues the report, without a swift break from the single market and customs union, the “opportunity to liberalise trade for the UK, and liberalise the stalled system of world trade, reaping the huge economic benefits that come with it, would largely be lost”. This is double nonsense: it ignores the costs of losing favourable access to what is — and will remain — the UK’s most important market; and it reflects an entirely unjustifiable belief in UK influence on global trade policy.

Customs

The fifth impossible thing is the idea that the government must “instruct UK customs to talk to member state customs agencies and work on customs declaration services implementation and inter-operability with the EU27. Despite some EU member states’ customs agencies being unable to discuss these, the UK government must ensure this happens.” How can it ensure it? Is the UK about to invade the continent?

Mandate

The sixth impossible thing is that the UK should not “allow itself to be bound by the EU’s negotiating mandate”. We all now know this is infeasible. The EU holds the cards and it knows it holds the cards. The Legatum authors still do not.

If people in the UK government believe such stuff, it really is terrifying. This is nonsense. Wake up!

- Copyright The Financial Times Limited 2017

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