Sorry Brexiteers: Regional Trade Agreements Are Inevitable

Dean Hochlaf

EU Leader Gathering

President Barack Obama talks with European leaders before their meeting in Hannover, Germany, April 25, 2016. From left: British Prime Minister David Cameron, the President, German Chancellor Angela Merkel, French President Francois Hollande, and Italian Prime Minister Matteo Renzi. (Official White House Photo by Pete Souza)

 

Sovereignty has become a battle cry for those campaigning for the UK to leave the EU. Vote Leave, “the official campaign”, has been keen to stress that in wake of a Brexit, Britain will be able to negotiate more fruitful trade deals as an independent nation. However, this sets Britain against the reality of a world where regional trade agreements are increasingly popular.

A Britain that finds itself in a position to seamlessly sign global trade deals upon leaving the EU, while retaining the vision of ‘full’ sovereignty put forward by leave campaigners, seems an overly optimistic vision. The reason for stalled trade deals, in the eyes of Brexit advocates, seems to be exclusively stifling bureaucracy, but the Doha round, the latest round of trade negotiations among World Trade Organisation members, should serve as a cautionary tale.

For 14 long years, these negotiations dragged on, with dreams of success slowly fading. Economies fundamentally changed over this time. But it was not bureaucracy that killed the talks – strategic and national interests played the largest role. Developing nations, while happy to export, remained opposed to opening up their borders, which they feared would harm their internal production. India for example proved a major obstacle by continuously thwarting efforts to open up their economy to agricultural imports which would threaten domestic producers of maize and food stuffs. As the largest member of the Commonwealth, this also exposes the fallacy in the leave camp that that organisation could ‘replace’ the EU as a trading bloc.

Developed nations have also indulged in this type of behaviour. The US, a champion of the free market, has put aside ideology to levy heavy tariffs on Chinese steel. The desire to protect national and strategic interests, such as steel and food production, makes multilateral trade deals harder to agree on. Potentially this could see Britain go well into the future without fully achieving the new wave of trade deals which leave campaigners are promoting.

However, the failure of global deals has had a side effect: the proliferation of regional trade agreements, which are increasingly seen as a pathway to multilateralism. The number and size of regional trade deals have risen dramatically in the last few decades. The EU has expanded into the former communist nations of eastern Europe, NAFTA exists in North America while Mercosur has developed in South America and the ASEAN-Chinese partnership dominates South Asia. Although Britain may be a large independent economy, it is considerably smaller than many of the regional trading blocs, which will adversely impact its negotiating power on the world stage.

So why can’t Britain have a free trade agreement without the political integration of the EU? Although other trade blocs have made attempts at greater integration, they have never been close to matching the EU and there is little interest in shared sovereignty. However, the political integration in Europe stems from a more progressive and reconciliatory attitude among its constituent states. It is hard to imagine nations such as Brazil and Argentina or Japan and China pursuing political integration given their historical and unresolved feuds.

The success of Europe in overcoming these issues should be celebrated and serve as an example to the rest of the world. Political integration is crucial for removing non-tariff barriers. According to The Carnegie Endowment for International Peace, lack of political integration has created multiple constraints for other trade blocs. Using evidence from eastern Europe, the report shows prior to their accession to the EU, eastern European economies grew less than 3% per annum. Following the expansion of the EU, these nations saw economic and export growth almost double.  Cross-country regulations and harmonising of policy may sound like unnecessary bureaucracy, but it allows nations to trade without the need to monitor quality and with reduced risk of political strife between nations.

This leads us back to the question of sovereignty. Outside of the EU, Britain at first glance would have full sovereignty, but would be lost in a sea of regional trade agreements. In the long term, Britain would have to sign deals with these blocs to enjoy the benefits of international trade, but by the nature of international agreements, this would result in some concession of sovereignty. Future democratically elected governments will not be able to opt out of any previous agreements without tarnishing Britain’s reputation and, by extension, their own negotiating abilities. Furthermore, Britain may inadvertently create non-tariff barriers for itself if it rejects political harmonisation with its trading partners.

Ultimately, the future of global trade looks like one where regional blocs prosper. Outside of the EU, Britain would have to penetrate these large markets on its own accord, which may not even be on the agenda of trading partners who have other blocs waiting to do deals with them. As an EU member, Britain has an opportunity to lead a significant, powerful trading force. Pooling sovereignty must be the price it pays for participation in the future of global trade.

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