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Deal or no deal on Brexit is not a choice between triumph and disaster

By Mark Littlewood - The Times / 30 July 2017

Free trade and free market advocate Mark Littlewood, of the Institute of Economic Affairs, argues that some comments on Britain’s future outside of the EU are hysterical and that no deal is better than a bad deal.

The initial stages of the Brexit divorce proceedings have been characterised by an obsession with the ability for the UK successfully to cut deals. Politicians, advisers and negotiators disappear into a room with their foreign counterparts. They emerge some hours later and proceed to pepper the media with a swathe of adjectives, usually including the words “robust”, “constructive” and “fruitful”.

At cabinet level, there are two key players. David Davis is charged with wrapping up a departure deal with the remainder of the European Union, initially determining the terms of our departure and then moving on to the nature of our future working relationship. However, the more wide-ranging challenge falls to Liam Fox as international trade secretary. His task is to deal with the 93 per cent of the human race that doesn’t reside in the EU and typically lives in countries with far more impressive growth rates than those of sluggish continental Europe. Dr Fox’s job is complicated not merely by the enormous diversity of nations and cultures he needs to deal with, but also by the fact that having surrendered all trade policy to Europe for the past four decades, he has to construct a competent negotiating team from scratch.

All but the most recalcitrant of Remainers will wish Mr Davis and Dr Fox the best of fortunes in their endeavours, but even if they meet with relative failure, we should not consider that this would amount to any sort of existential threat to the British economy. Trade agreements between different bureaucracies and administrations are a lubricant in generating economic growth, they are not the engine of it.

Listening to some commentators, one might get the impression that deals between the UK and other jurisdictions are not merely vital to our economic performance but a prerequisite to any sort of meaningful human activity. Last week, without it obviously being a spoof, BBC’s Newsnight asked: “Will Britain’s planes fly after Brexit?” It is safe to assume, even if negotiations were to flounder hopelessly, that the answer to this question is a very firm “yes” and that our departure from the European Union will not mean the immediate closure of the UK aviation industry.

Of course, underlying Newsnight’s rather hysterical concern was the issue of how an independent Britain will comply with the enormously complex web of airline safety regulations once we are no longer forcibly locked into them by virtue of our European Union membership. This will, indeed, be a necessary undertaking for a handful of administrators and bureaucrats, but it is impossible to credit that it is a task that will not be completed satisfactorily, even if it concludes less than perfectly. We may as well worry about Brexit having an adverse effect on the British weather.

The prime minister’s catchphrase that “no deal is better than a bad deal” is actually rooted in historical precedent. Economic progress, technological advance and trade between nations have all blossomed without it being strictly necessary for formal deals to be in place.

Over the course of the mercantilist 18th century, prior to the free-trade revolution, British exports tripled in real terms. No doubt even more spectacular results would have been possible with a more enlightened and liberal approach to the economy, but nevertheless impressive growth was achieved. More recently, the UK’s export of goods to the United States has increased by 50 per cent since Ronald Reagan left the White House.

No formal trade deal has been instituted and efforts to create a Transatlantic Trade and Investment Partnership between the European Union and the US effectively have failed. Prior to sanctions being imposed, in only three short years from 2009 to 2012, Russian imports from Britain grew by fully 75 per cent. Once again, this was absent any free-trade deal being in place between the two nations.

None of this means that Dr Fox’s exhausting itinerary of foreign travel is wholly in vain. Although domestic economic reform and deregulation will need to be the basic building blocks of greater prosperity, the international trade secretary can help by giving us a push in the right direction in two important ways.

First, the bilateral removal of a swathe of tariff barriers would be a welcome step. We are impoverishing British consumers by effectively placing a tax on the purchase of, say, oranges or wine. This is especially frustrating because even ardent protectionists would find it hard to argue that there are vast numbers of British citrus groves or vineyards requiring insulation from “unfair” foreign competition. If Dr Fox can find a way to trade away tariffs on both our imports and exports, more power to his elbow.

Second, and more importantly, Dr Fox needs to seek the eradication of non-tariff barriers to trade. Tariffs can stem the flow of products to market, but regulatory hurdles can act as a total prohibition. Here, he has to deal not merely with putative international partners but also with his own cabinet colleagues. The value of a free-trade deal with the United States on agricultural products is of limited benefit if we find spurious reasons to block the sale of actual American food. The uproar over the prospect of Brits having the right to purchase and consume US chlorinated chicken, despite the scientific evidence of its safety, is a case in point.

The UK’s overall economic and trade performance in the years and decades ahead will largely depend on our willingness to embrace a dynamic, light-touch, low-tax economic model at home. The world will keep spinning even if Liam Fox cannot get any trade deal to “signature-ready” status. Planes will not fall from the sky nor will supermarkets’ shelves be bare if he fails completely. But if he succeeds, even modestly, Dr Fox may just help us in getting the world to spin that little bit faster. 

MARK LITTLEWOOD
Former head of media for the Liberal Democrats, now Director General of the Institute of Economic Affairs