Although the United Kingdom’s departure from the European Union is a monumental shift in terms of trade and regulation, the change will not be nearly as traumatic as the transformation of former communist countries. Brexit may itself lead to new opportunities for both the UK and the EU, writes David Lane, Emeritus Fellow of Emmanuel College, University of Cambridge and Fellow of the Academy of Social Sciences (UK).
It is useful to analyse the effects of Brexit in the context of how associations work in regions. These are of two kinds. The formal associations and legal agreements between states; and other more informal and spontaneous actions which take place through civil society activities and individual links.
The more formal linkages based on the Treaties of the EU provide great challenges for both sides. Trade hinges on the levels of tariffs. Both sides have incentives to keep tariffs at a low level. The balance of trade is currently in favour of Europe, which has a positive balance of trade, so EU exporters in countries such as Germany would lose, if UK tariffs were to rise against them. For some exporting companies (such as car manufacturers), the UK is a major destination for their exports.
The UK, even with slightly increased tariffs to the EU, will need to diversify its export profile. Since 2011, exports of goods and services from the UK to the USA and the rest of the world have been increasing compared to Europe. China and the BRICS countries are developing at a much faster rate than the EU. If faced with increasing costs of imports from the EU, UK manufacturers may source supplies (of components) from within the UK, thus re-establishing some branches of industry, which it has lost. This would have a beneficial effect on British employment. Exit from the EU will give the UK government the great advantage of fixing the tariffs with third countries, which potentially presents benefits for UK trade. If the EU and the UK profess to promote free trade, they should perhaps work for it within the WTO and not within regional blocs and bi-lateral agreements.
Turning to the second aspect of regionalisation, changes in forms of communication have in recent years increased immensely, facilitating contacts and making state boundaries porous. After Brexit, these will continue in the same way between members of all European states. Some of these currently are promoted by the EU – such as educational exchanges and joint projects. There is no reason why they should not continue with little, if any, change. Such extravaganzas as the European Song Contest and the UEFA cup will not be affected at all. As the UK is not in the Schengen zone, there will be little practical difference to people movement between the UK and the rest of the world, though migration is a different issue. These forms of regionalisation ‘from below’ will be unchanged after Brexit. They qualify the more extreme scenarios of ‘isolation’ currently articulated in the media.
Seeking control of immigration need not have calamitous effects. As currently with non-EU immigration (which is only slightly higher in quantity to that of the EU), work permits and permission to reside can be made in terms of UK’s economic needs and humanitarian impulses. One likely consequence is that much of unskilled agricultural labour will be replaced by mechanisation.
While the transitional period will no doubt be one of difficulty, it need not be as traumatic as the recent ‘transformation’ of the post-communist countries. In the longer term, the UK will benefit from a financial bonus, as it will not be required to pay into the EU budget. These sums are widely regarded as excessive. In 2015, the UK paid £35 billion into the EU (after various rebates were deducted) and received back £6 billion for agriculture subsidies and other grants. This left the UK with a net deficit contribution of £29 billion (approximately $35 billion dollars). Such sums, currently paid by the UK government to the EU, could be utilised to finance research, teaching, infrastructure as well as things currently paid out of the EU budget. Much of the current subsidies to UK agriculture could be used to support other activities. The UK is badly in need of investment in infrastructure, skills training, and research and development.
Following Brexit, there are considerable difficulties to be overcome in commercial negotiations. One possible compromise would be for the EU to give the UK favourable access to its markets and concurrently the UK to agree to pay an initial financial compensation to the EU to make up for big hole the absence of UK’s contribution will make to its budget. In such a scenario, both sides would gain and not appear to lose face.
Leaving the EU is not a calamity. It opens up immense opportunities for the UK to strengthen associations not only in Europe, which extends outside the EU, but also in the wider international community.
