July 24, 2017 by Paul Goldsmith
You know that feeling you get when you can’t work out if a set of politicians are ignorant are lying? I’ve got that feeling this morning over the ‘confusion’ many Leave-supporting politicians seem to have over the difference between a free trade deal and the single market. I think they are lying, hoping that the public’s ignorance will see them through on it, but I fear they might be ignorant, which is actually worse, because if they are then they really are leading the UK into a whole world of trouble.
I’ll start with Suzanne Evans, the former Director of Policy for UKIP. She appeared on Daily Policits with Andrew Neil to insist that there was no need for a ‘transitional deal’ between the UK and the EU to avoid a ‘cliff-edge’ issue (a sudden imposition of tariffs and costs and regulatory barriers for businesses) when we leave at the end of the Article 50 process in March 2019. This was because, Evans opined, the ‘cliff-edge’ issues are a ‘myth’, seeing as we already have a free trade deal with the EU and she expects us to have one in 2019. So nothing will change. I am paraphrasing Evans here, but we do not have a free trade deal, and we have never had a free trade deal with the EU. We were part of the Common Market and Customs Union until 1993 then became part of the single market in 1993. They are not simply free trade areas. I would hope she knows that.
Then there is Owen Paterson, who was once Environment Secretary and is a leading Brexiter Tory MP. Paterson was commenting on the BBC’s Today programme that since the USA, Japan and Australia don’t pay for access to the EU Single market, the UK shouldn’t have to after Brexit. Paterson went on to say that normally if you want access to a market you pay tariffs, which won’t be necessary in the UK’s case because the EU has a trade surplus with us so would naturally want a reciprocal free trade agreement. Not finished digging himself a conceptual hole, Paterson argued that having to pay a fee for access to the market would probably be against WTO rules as it would be discriminatory.
There is so much wrong with what Paterson says that I almost don’t know where to start. Either he is ignorant or he is lying. Whichever it is, it is dangerous to be peddling this stuff in public as it means the electorate will not understand the compromises that will have to be made over the next few years. If Paterson was peddling this rot during the EU referendum campaign (as I imagine he was) then the claim that Leavers didn’t understand the consequences of what they were voting for holds more water.
Tariff barriers in the trade of physical goods were abolished in the EU a long time ago. But non-tariff barriers (regulations on where goods and services could be sold or their features) remained until 1993 when the Single Market came into force. This has been particularly important for services (you should note there is not a single proper free trade agreement for services operating anywhere in the world). The Single Market is managed by the European Commission and regulated by the European Court of Justice (ECJ). These institutions ensure regulatory harmonisation and cost money to operate. This is why Norway, who are not in the EU but do have access to the single market, pay for that access, although less per head than EU members as Norway don’t have a seat at the table of those who decide what those regulations will be.
All Japan, US and Australia do is trade with the EU. They don’t pay for access to the Single Market. This means they don’t benefit from regulatory harmonisation. As a result, their services exports to the EU are considerably lower than they would otherwise be. Much lower, proportionately, than the UK’s services exports to the EU.
80% of the the UK’s economy is services and they make up a large amount of our exports. In this field you won’t find many economists who don’t think the UK has benefitted massively from the Single Market over the past 25 years. A free trade deal with the EU would not cover those services. At the moment financial services firms use the Single Market ‘passport’ to sell their highly lucrative wares. We are also part of the Single Market in agitation services. Leaving the Single Market with no transition deal in April 2019 would cause massive disruption, and there is not a chance we will be able to work out any substitute for the arrangements we have in the Single Market during that time. Bear in mind, there is no similar arrangement to the Single Market anywhere in the world, so no model for leaving one. It will take time, and Suzanne Evans’ ‘idea’ that since we already have a free trade deal it should be simple to retain one, is, either knowingly, or unknowingly, unrealistic.
To make sure we can still sell our services to the EU without barriers we would need to pay for access to the Single Market, like Norway does, so it isn’t illegal to ask us to do so. Owen Paterson was comparing paying for access for a trade deal for goods to paying for access to the Single Market. Suzanne Evans seems to be suggesting that leaving the EU economically is easy as it is only a free trade relationship. The phrase ‘comparing apples to oranges’ applies here. So again does the question…ignorant or lying?
It might also well make economic sense for us to remain in the single market indefinitely too, like Norway, given services account for such a large and growing share of our exports and the prospects for services exports are very dependent on the regulatory and licensing harmonisation of the single market.