WHEN the “Britain Stronger in Europe” campaign was launched, the former Marks & Spencer boss Stuart Rose spent a good portion of his speech claiming that Britain would risk its prosperity if it left the EU.
His argument came down to leverage. He suggests you need to be part of a 500 million person bloc to force other countries to lower their tariff barriers or reform protectionist regulations.
Alone, with only 65 million people, he does not think Britain could broker trade deals with the likes of Canada, Japan or the USA – although the EU has failed to finalise deals with these three.
This might be an oversimplification. It is true that the EU’s size gives it clout, but the EU in confusion. Because its trade position is a patchwork of 28 squabbling members’ priorities, the EU is slow to decide which nations to open negotiations with, and in which industries it should try hardest to reduce barriers.
For Britain, this means our export strengths like financial services often get less attention than improving export conditions for continental wine or cured meat. Moreover, such is the EU’s economic strength that some prospective trade partners are intimidated, fearing threats to their sensitive domestic industries, so delay talks and refuse concessions.
Could we do any better outside the EU? Switzerland is an economically advanced state like Britain, with big chemicals, financial and electronics sectors. The main difference: Switzerland is not in the EU. This means Switzerland steers its own trade policy where it sees the most opportunity. The modest central European state has closed deals with Hong Kong, China, Canada and Japan, none of which the EU has managed. This implies that Britain could win such deals after exit.
However, part of Lord Rose’s pro-EU argument is that the EU’s trade deals are “on terms that work for us”. It is often suggested that Switzerland’s deals are imbalanced or unfair, since it is so small compared to its partners. Would Britain be bullied in negotiations if it tried to go it alone?
To answer this, my Civitas study Lessons from Switzerland looked in detail at the 2009 free trade deal between Japan and Switzerland. Japan is a formidable country with 200 million inhabitants and a gross domestic product smaller only than America and China’s – it dwarfs Switzerland.
Yet Swiss negotiators were able to win tariff concessions for all their most important products – chocolate, Emmental & Gruyère cheese, watches, chemical products. It also removed obstacles for selling services and foreign investment impediments. If the UK brokered a similar deal, it would be a substantial opportunity for British businesses.
The tariffs the Japanese lowered or eliminated for Switzerland are actually very close to those the US itself has negotiated with Japan this year. This means Switzerland has a competitive advantage over the whole EU, Britain included, when selling to the world’s third largest economy.
Moreover, this advantage is tailored to Swiss exporters’ needs. Evidence of trading since 2009 shows that Switzerland has sold more of the products that saw tariff reductions, and that investment has flowed faster. Swiss consumers get cheaper cars, cheaper tech products and sake.
It would be complacent to conclude that Britain would automatically be better off outside the EU. The potential is certainly there, but closing good trade agreements requires serious concessions.
After Brexit, the Government and public would need to come to a consensus about how open an economy Britain should be. A more closed economy would be able to save domestic industries like the Redcar steelworks or coastal shipyards, but by protecting these industries, might not win ambitious concessions from trade partners.
Agreement on opening all public services up to foreign bids would help push negotiations forwards, but might face opposition from those worried about the privatisation of the NHS. You do not necessarily need clout for meaningful deals, but you do need to be willing to make major concessions.
If Britain committed to an active trade policy like Switzerland’s after EU exit, there is no reason that it could not succeed. Our diplomats would need public support, and would need to act with commitment, but the evidence suggests Britain would not be devoid of market opportunities if it left the EU.
A free trade deal with Japan would mean UK consumers could get cheaper luxury Japanese products, while British businesses could invest and sell more easily to the Asian economy. But Japan is just one example: Brazil, India, and Nigeria could all be great trade partners. If the UK Government had full responsibility for trade policy, it could replicate Bern’s attitude to clinching deals with emerging markets and established economies.
Jonathan Lindsell is EU Research Fellow at Civitas think tank and author of a new report on Brexit called Lessons from Switzerland.