The Hidden Economic Opportunities of Brexit
We have been led to believe Brexit is leading the United Kingdom toward the precipice of economic self-destruction in a game of blind man’s bluff with drastic consequences for the international economy. But little is made of the economic benefits awaiting Britain in its separation from the EU. In one referendum British citizens have freed their national budget and increased the potential for new international trade agreements both within and outside of Europe.
Why Vote to Leave?
Britain’s Leave Campaign had a successful slogan, which encouraged citizens to take back control and cease funding the European Union £50 million a day, or over £18 billion annually. While this slogan failed to acknowledge finances received from the EU, it is true that Britain has spent more on the EU than it has received. Annually, Britain spends around £3 billion more than it receives from the European Commission, making it second only to Germany as a net contributor. Nonetheless, the Leave Campaign was able to tap voter distaste at funding other European states through EU agencies. Britain has now freed these funds for its own citizens and programs rather than funding other EU member states.
The United Kingdom has a long history of separation from the affairs of the European continent. Winston Churchill first argued for the necessity of a “United States of Europe” in Second World War aftermath, but maintained that Britain should remain outside of European integration. This tradition continued as the UK watched from outside first the inception of the European Coal and Steel Community and then the Treaty of Rome ratification which created European Economy Community, the predecessor to the EU. Once it joined the European Community, Britain negotiated special budget arrangements, central bank autonomy over the Pound and clemency on open borders.
The national identity of Britain thus is somewhat unique to other EU member states. Indeed, the Eurobarometer public opinion survey consistently finds UK citizens are the least trusting of EU institutions and have the strongest national identities. British citizens, for example, are among the least likely to identify as European compared to other EU member states. In voting to Leave, some citizens were expressing a return to British sovereignty in the midst of European integration and open immigration.
Post-Brexit Economic Opportunities
Contrary to common opinion, Britain’s departure from the EU need not lead to total separation from the European common market. Britain can now follow the example of Norway and Iceland, countries that have rebuffed invitations to join the EU, but have special agreements allowing them similar trade rights as EU member states. Britain can follow their example in seizing an autonomy over its national economy while benefitting from trading with the single market of Europe. Despite Brexit, the United Kingdom could negotiate a continuation in the free trade of goods, services, and capital with the members of the European Union.
Rather than being cast from the European continent into isolation, one method available to Britain is to join the European Free Trade Association (EFTA) and continue to reap the benefits from parallel economic union with the EU. The EFTA is composed of Switzerland, Iceland, Norway, and Lichtenstein, four countries with growing economies that have opted out of EU membership. And the European Economic Area (EEA) provides precedence for states to enjoy full access to the internal European trading market without European Union membership.
Democratic governments oftentimes use trade agreements to reduce economic uncertainty and volatility. Acting quickly, Britain could apply for membership to the EEA, which would maintain trade commitments with the European continent and eliminate uncertainty.
Either in coordination with the EFTA or independently, Britain is now free to form its own trade deals with other countries or regional trade organizations. These trade agreements can now be negotiated solely from the perspective of British interests and without the consent of the other 27 EU member states.
Leaving the EU, the United Kingdom is more likely to negotiate future trade deals. Democracies have more veto points in the ratification of international trade agreements. Instead of acting by consensus with 27 other member states, Britain is more likely to both successfully conclude negotiations and ratify the resulting agreements. Prime Minister Theresa May has already seized upon opportunities to engage with opening new bilateral trade talks.
With Brexit, Britain has more flexibility and capability in negotiating a trade deal with the United States. Despite President Obama proclaiming Britain will have to go to the back of the queue for trade talks, the UK is more likely than ever to form a trade deal with the United States. Negotiations between the US and EU to form a Trans-Atlantic Partnership have stalled. Much of the discord between the two economic powers lies in agriculture where both economies are inflexible in their negotiations on trade in agriculture. Indeed, the EU devotes around 40% of its €155 billion budget on the Common Agricultural Policy (CAP), a robust and complicated system of assistance to farming. Britain has consistently been a net contributor to the CAP and mostly funded other European farmers through its own citizens’ taxes.
Free from the constraints of the CAP, the United Kingdom should find a willing trade partner in the United States. The hormone controversy, for example, led to both deadlock and international lawsuits as the EU has blocked the importation of hormone-treated beef from US markets. With little interest group pressure for beef or other agricultural sectors, Britain should be more flexible to deal with the United States while members of the US Congress can maintain agricultural support to their farming districts.
Independence from the EU should allow Britain to successfully negotiate trade agreements with all countries. Research finds that democracies tend to favor complicated trade policy, making it more difficult for a large group of democracies to come to agreement on a single trade deal. Acting alone Britain can negotiate directly with other countries and find common ground. No longer shackled to the special interests of French winemakers or German dairy farmers, Britain is now free from the vetoes of other EU member states when negotiating directly with Brazil, Japan, or Australia to name a few.
Britain has cast a shadow of doubt upon its immediate economic future through choosing to leave the European Union. This uncertainty has bred a wave of pessimism and fear for the British economy. But uncertainty is not necessarily wedded to economic decline. The future may hold prosperity for a country now free to choose its destiny.
Timothy W. Taylor is Assistant Professor of Politics and International Relations at Wheaton College.
Photo Credit: By tfengreen, via Flickr.