Skagen’s Torgeir Høien: Brittain goes Swiss – why not instead pursue unilateral free trade?

Torgeir Høien

Premier Therese May, in her speech today, stated that the UK government intends not only to withdraw from the EU but also from the single market. The UK wants restrictions on migration that are incompatible with the fourth freedom of the single market – the free movement of labor.

This excludes a so-called Norwegian solution. Norway, along with Island and Lichtenstein are outside the EU but inside the single market. The UK will instead seek to negotiate a free trade agreement with the EU. This is a Swiss solution – although the terms will differ, of course. Theresa May stressed that the UK’s goal should be to retain as much of the three other freedoms as possible.

The title of her speech was a global Britain. She was not nostalgic about the colonial empire - her government’s purpose, she said, was to engage in as many free trade agreements as possible. This implies that the UK quits the EU’s custom union, as this union erects barriers to trade outside the European Economic Area.

Therese May said the wanted as much free trade as possible in goods, services and capital not just with the EU, but with the rest of the world. I wonder why her government has not contemplated a policy of unilateral free trade.

Free trade agreements are better that protectionism, but they are not a prerequisite for free trade. The UK initiated free trade by scrapping the corn law. It could repeat that success, and again be the torch-bearer of free trade, by eliminating all its own barriers to international commerce. This is the Hong Kong model.

The counter-argument is that without free trade agreements other countries might keep their barriers to British produce and capital. But it is by no means clear that the net free trade effect of negotiating a multitude of free trade agreements will benefit the typical British citizen more than to eradicate all homemade protectionist walls around the UK.

Is Brexit now for real? It depends upon political developments in the UK and the EU over the next years. I take it that the Parliament will vote before Ms. May triggers article 50 in the Lisbon Treaty. With great hesitation a majority of the PMs will likely vote in the government’s favor. Negotiations are then supposed to be finished within two years, but the haggling between London and Brussels might continue beyond that.

The premier said that the parliament will vote on the divorce treaty. But if by then there has been a new general election in the UK, and if a majority of a new parliament supports continued membership in the EU, it’s not at all obvious that the new parliament will be constrained by an advisory referendum called for by the current parliament.

The divorce proceeding might very well end up with a loveless “to death do us apart” between London and Brussels. It’s still too early to tell.