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Editorial – Brexit: Where Goldilocks meets Micawber

Proponents of the ‘Leave’ campaign might be viewed as having a healthy scepticism about economic forecasts that predict severe economic turbulence for the UK outside of the EU writes Tim McNamara. However their inability to indicate a cohesive path to economic prosperity is a major failing. Like the famous fairy tale, Goldilocks, they believe they will discover something that is ‘just right’ after a little experimentation.

Repetitive claims such as “we are the 5th biggest economy in the world, they will have to deal with us” sound plausible, but mask the raw economic truth. If the UK wants a compressive trade deal with the other 27 member states of the EU, it should get used to bending its knee as a supplicant.

All member states negotiate as one body (represented by the European Commission). In other words the UK will be negotiating with the second biggest economy on the planet. 5th doesn’t sound so good when compared with 2nd. it’s also a very, very long way, in terms of economic activity, from 5th to 2nd. Negotiating from a supposed position of strength simply will not be the case. it isn’t going to happen.

Brexiteers put forward a multitude of scenarios to defend their claim that the UK will be able to negotiate a trade deal that benefits the UK. For example, models such as Norway, Switzerland, Iceland, Canada or a hybrid of some or all are put forward. Yet, the EU will not be in any mood to deal with the UK in a fair and even-handed manner.

Put simply the ‘Leave’ campaign seem to want a divorce but still be able to claim conjugal rights as and when it suits. It isn’t going to happen. The 27-member EU will ensure that any trade deal for a former member of the EU will not pour encourager les autres. In other words the UK economy will be at a significant disadvantage compared with what we have today.

No UK civil servant of working-age has ever negotiated a trade deal of any kind. The European Commission is the body that contains all the skilled trade negotiators in Europe. One or two might have limited experience as having a junior role when on secondment but the imbalance of experience and knowledge will be startling. The idea that UK nationals working for the European Commission will give up their well-paid jobs to join the UK civil service is an implausible scenario. It isn’t going to happen.

Anybody who has had experience of international trade relations knows that it can be simultaneously ‘red in tooth and claw’, mind-numbingly pedantic as well as being hugely complex and long drawn out. It is a continual process of balancing a vast multitude of interests against a series of prospective marginal gains. It is not for the faint-hearted and certainly not for the inexperienced.

“They need us, more than we need them” is an oft-repeated mantra by the ’Out’ campaign. Yet, like divorce, post-break-up negotiations never run smoothly and economic mutual interest rarely wins out against emotion and recrimination. Only two member states have a trade surplus with the UK (Germany and the Netherlands). The other twenty five (yes, twenty-five) run a trade deficit with the UK.

The idea that the economic self-interest of the vast majority of the EU will work to the benefit of the UK is delusional. The UK sends 13% of its Gross domestic product (GDP) to the EU, they only send 3% of GDP of theirs to us. Whose self-interest will be apparent seems pretty self-explanatory. Both the Dutch and German economies are more than robust enough to manage the minor economic turbulence that might follow Brexit. It just won’t happen.

But, Brexiteers claim, the Germans will still want to sell their cars here, the French their cheese, the Spanish their wine etc. etc. They will want a fair trade deal also. Yet again, this is a misleading claim. As already said the UK has a trade surplus with 25 EU member states (such as France or Spain), any disruption will hit the UK harder than them.

Even if tariff free access was maintained, the biggest barriers to trade across the globe are non-tariff barriers. France and several other countries have a history of applying such barriers in their national self-interest. Various, tools can be employed, ranging from complex and lengthy customs procedures to onerous licensing requirements.

An extreme example is the historic case of video cassette recorders (VCRs) originating in Japan. In order to disrupt the surge of imports of VCRs into France, the government simply applied a simple rule that all Japanese VCRs had to be physically cleared by customs in one customs post in the middle of France. To add insult to Japanese injury, only one customs officer was assigned to this location and he was allowed to work on a part-time basis. Mayhem ensued.

For the German car industry, any trade tariffs that might occur would be a small marginal cost and easily subsumed into a competitive price by BMW, Mercedes, Volkswagen etc etc, they won’t lose market share. What will benefit the economies of the rest of the EU will be the eventual relocation of production facilities by companies such as Nissan, Toyota, Honda, BMW, Opel/Vauxhall to other EU member states.

The idea that global companies will continue to invest at the same level in a UK that does not have full, free and fair access to the rest of the EU is, to put it kindly, a misnomer.

Finally, Charles Dickens’ character, Wilkins Micawber always believed that “something will turn up” seems to perfectly epitomise many Brexiteers’ economic understanding of the realities of global trade. Something may turn up, but would you take punt on that? Unlike for the fictional Micawber, a happy ending (involving emigration to Australia),  is highly unlikely in the real world for the UK. It just is not  going to happen.

Tim McNamara is the editor of www.policyreview.eu

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