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CapX: Why Brexit will benefit Britain and Europe

Date: 21 07 2017

Why Brexit will benefit Britain and Europe

By Owen Paterson

On June 23, 2016, 17.4 million people in Britain voted to leave the European Union – more than have ever voted for any issue or political party. The turnout, 72 per cent, was the highest since 1992. And leave the European Union we will. The EU – and every member state – needs to recognise this simple fact. Brexit is going to happen.

Article 50 was triggered on March 29, after 494 MPs – an overwhelming majority – voted for it in the House of Commons. The automatic legal effect of this is that at midnight on March 29, 2019, the EU treaties in their entirety will cease to apply to the UK, with no post-exit obligations on the UK.

We have since had a general election in which 85 per cent of the votes cast were for parties advocating leaving the Single Market, the Customs Union and the remit of the European Court of Justice. The main Remain party – the Liberal Democrats – saw its number of votes fall.

The Government’s position, therefore, has not changed. Not a single Conservative MP voted against the Queen’s Speech, which set out the Government’s plans for this Parliament and focused on regaining control of our laws, money and borders. An Opposition motion – which would have kept us in the Single Market and the Customs Union – was defeated by 322 votes to 101.

Two weeks ago, the UK triggered our withdrawal from the 1964 London Fisheries Convention, signalling our determination to take back control of our waters and develop our own, bespoke marine policies based on sane, modern technology.

As if that were not confirmation enough, last Thursday the European Union (Withdrawal) Bill was published, which will repeal the European Communities Act 1972 (which gave effect to European law in the UK) and convert into UK law the entire Acquis Communautaire.

Still, there are those who seek to use open-ended “transitional arrangements” to delay and frustrate our exit. But while we may see transitional implementation, the European Council’s own guidelines on the scope of transitional agreements are clear. They must be “bridges towards the foreseeable framework”, “clearly defined”, and “limited in time”. The WTO also makes it clear that any arrangements like this must be for a limited time, in contemplation of a free trade agreement. These requirements explicitly rule out the open-ended stalling tactics now being touted by some.

Those still in denial must take note, and understand the reality of the situation. I was one of the three founding MPs behind Vote Leave, and our central message was that a vote for Brexit was a vote to “take back control” – of our laws, our money, and our borders.

In order to control our borders, we must leave the Single Market, or we will be bound by freedom of movement. In order to control our trade policy, we must leave the Customs Union, or else we will be bound by the Common External Tariff and Common Commercial Policy. We must also leave the European Economic Area, since we need to have authority over domestic regulation in order to strike new trade deals, covering goods as well as services. And in order to control our own laws, we must cease to be under the jurisdiction of the European Court of Justice.

These simple statements, which resonated with 17.4 million people, are not negative ones. They are not “anti-Europe”. Rather, they are positive expressions of the age-old notion that a sovereign country will be more successful when it governs its own affairs.

Leaving the Single Market, for example, is a prerequisite for expanding our trade around the world – because we are, in the main, a services economy and any services negotiation is a negotiation on domestic regulation, which we must control.

In 1999, 61 per cent of UK trade was with the EU. Now it is 43 per cent. By 2025, it has been projected that our exports to the EU will account for under 35 per cent. The European Commission itself predicts that 90 per cent of global economic growth in the next 10-15 years will be generated outside Europe, a third of it in China alone.

Nonetheless, there is a clear incentive to continue our trade with the rest of Europe. About 44 per cent of UK exports in goods and services went to other countries in the EU in 2016 — 270 billion euros out of a total of 620 billion.

We have no desire – and it is in no one’s interest – to abandon the close ties which we have. Our goal is, and always has been, reciprocal free trade.

But the economic case for our European partners is no less strong. The UK runs a monumental deficit of 80.6 billion euros a year with the EU. That figure went up by 11 billion euros last year alone. Around one in seven German cars is exported to the UK. Around 950,000 newly registered vehicles in the UK last year were made in Germany. As many as 60,000 automotive jobs in Germany are dependent on exports to the UK. Deloitte have explored the potential effect of a “tariff war” on the industry. They assume a 10 per cent tariff on vehicles and a 4.5 per cent tariff on car parts: Deloitte believe that EU carmakers will lose 8.3 billion euros in revenue a year, with 6.7 billion coming from German carmakers alone.

In the first 12 months after the UK left, German car exports to the UK would collapse by 255,000 units, representing a 32 per cent decline, with 18,000 jobs in the German car industry put at direct risk. Overall, German car production would fall to 2.28 million units, down from 3.07 million in 2016, and close to the 2.19 million seen in 2009 at the height of the Great Recession. BMW, Daimler, Volkswagen and the many thousands of jobs, households and families which depend upon them, would all suffer unnecessarily.

German politicians are realising this. The Bavarian Minister for Economic Affairs, Ilse Aigner, has said that “Great Britain is one of the most important trading partners in Bavaria. We must do everything we can to eliminate the uncertainties that have arisen.” She subsequently called for extensive new trade agreements between the EU and Great Britain: “There must be ways to re-establish economic relations with Great Britain without breaks.”

The Minister is correct. We must remember that we currently have zero tariffs, and enjoy conformity of regulations and standards. A comprehensive free trade agreement is not only vital, but should be easy to achieve.

In other words, spiteful protectionism from the Commission would accomplish nothing but impoverishing all sides. There ought to be no reason that independent countries cannot trade freely, and no reason whatsoever that free trade cannot be maintained with a fully-fledged free trade pact.

Reciprocal free trade is in all our best interests. Indeed, across the world, the UK and the EU must be alive to new opportunities in developing markets and rapidly growing economies. Last year, our trade surplus with the rest of the world was 38.6 billion euros. With the USA, it was 44.4 billion and with Canada it was 1.5 billion euro. In 2015, we had a trade surplus of 4.2 billion euros with Australia.

India’s GDP has grown between 7 and 10 per cent each year for the last decade as a result of economic liberalisation, and Brazil’s average growth since 2010 has been over 3 per cent per year. These countries will continue to grow, and the idea that we can all rest easy behind a protectionist wall as they do so is – I hope – patently absurd.

The economic case from the UK’s perspective is clear. Expert analysis from Professor Patrick Minford concludes that leaving the Single Market and Customs Union will provide a saving of 340 euros per household per annum on food bills, or some 9.2 billion overall.

But the case for free trade, as Edmund Burke pointed out, is not based upon utility but upon justice: the moral case is just as strong as the economic one. And the United Kingdom will be bold in stating it.

The Customs Union has caused inequities in the European attitude to trade with the developing world. As Oxfam’s trade adviser put it in 2006: “Not only does the Common Agricultural Policy hit European shoppers in their pockets but strikes a blow against the heart of development in places like Africa.”

After oil, coffee is the second most traded commodity in the world. The entire continent of Africa exports coffee to the European Union with a value of 2.1 billion euros. Yet Germany, without growing a single bean, earns 3.3 billion from the same market. How can this be?

The EU customs union has no tariff on raw beans, it is true. But any added-value product is penalised. A 7.5 per cent tariff is imposed on roasted coffee, ensuring that the added value remains inside the Union and is denied to poorer African countries. This results in higher prices in our shops and further denies African nations the chance for the investment and jobs which they need to grow.

July 21st, 2017: CapX