Just thought I'd copy and paste a recent opinion piece, which may be of some interest:
Even as a youngster, growing up in New Zealand, I knew – we all did – that exports were fundamental to our standard of living.
Later, doing an undergraduate degree in economics and law, I learned that, while the benefits from international trade are a matter of economics, the determinants of that trade are so often a matter of law – the trade agreements that govern access to markets abroad. And later, working for the OECD, I learned how infernally complex trade agreements are and how long they take to negotiate.
These are simple lessons.
And yet, watching the Brexit brouhaha, it is not obvious that even these have been taken on board by many of the protagonists.
Tariffs are not, by and large, the issue. Tariffs do raise costs and prices, and thereby restrict trade. But while tariffs on some individual products remain high, decades of negotiation in the GATT and its successor the WTO have brought most down to single-digit rates.
Today the real issue is access.
In the modern world, countries require that most products sold in their markets satisfy nationally-specified standards. These non-tariff, technical, barriers are not necessarily there primarily to protect domestic producers – protection of the consumer is often the basic motive. But they have to be met.
Hence, any producer wishing to export to the US market has to meet US standards; and it also has to have concluded a recognition agreement whereby the US authorities accept certificates of conformity. And, where there are commercial disputes, the exporter, like the domestic producer, has to accept the jurisdiction of the US courts.
The EU for its part has constructed its Single Market, an essentially similar customs and regulatory union where goods are concerned. For services – and particularly financial services – the work is not yet complete. And, as in the US, there is a court, the European Court of Justice, to adjudicate on commercial disputes.
Thus, free trade is in no way the automatic, natural, state of affairs that some have been asserting. On the contrary, international trade takes place in large part only because of the multilateral, plurilateral, and bilateral deals that nation states strike.
If the UK leaves the Single Market, as Prime Minister Theresa May seems to have affirmed it will, it could conceivably revert to being in a customs union with the EU, with: free movement of goods and some services between the UK and the EU; a common external tariff vis-à-vis third-countries; full acceptance of EU standards; and agreement on how to handle rules of origin. But May seems to have ruled that out too.
Failing that, the UK will revert essentially to “third country” status, and thereby have to negotiate Free Trade Agreements, product by product, with the EU in much the same manner as China (with which the EU has around 65 Mutual Recognition Agreements, the US (135), and Australia (82).
The UK would also have to negotiate trading agreements with the 50-odd countries with which it currently trades under the auspices of agreements negotiated on behalf of all EU members by the EU Commission.
All this would be demanding in respect of goods; and even more so for services, particularly the financial services in which the UK specialises. Tellingly, not even Switzerland has been able to negotiate “passporting” rights for its banks to the EU market: thus far they have depended on their presence in London for access to the EU market.
It is in the interests of all parties to proceed as fast as possible. But it seems increasingly clear – and has now been acknowledged by Chancellor Philip Hammond – that the most that will probably be able to be achieved in the two years following the triggering of Article 50 is some sort of transition agreement. Negotiation of the full set of necessary Free Trade Agreements could well take 10 years or more. The Canada/EU agreement alone took seven.
The UK economy will ultimately adjust to all this – economies do. But the process whereby resources move from one activity to another – for example from services to manufacturing; from producing parts for Nissan to parts for Chrysler – cannot be quick or smooth.
No one can know what the main economic numbers will look like. Some engage in a priori reasoning to obtain orders of magnitude; others look for historical parallels. Neither option is perfect.
Perhaps the most informative calculations to date are those of the UK’s National Institute of Economic and Social Research, which estimates that moving to a comprehensive free trade agreement would, over a run of years, reduce the level of UK exports by around 20%. Moreover it seems implausible, purely as a matter of arithmetic, that the smaller markets beyond Europe, even if fast growing, could anything like offset these losses.
One historical episode that may afford some lessons is that of New Zealand. In 1973 the UK agreed to French demands that, as a condition of the UK’s entering the Common Market, the UK should cut its imports from New Zealand, and thereafter reduce them by a declining quota.
In the late 1970s New Zealand’s economy stagnated, and unemployment began to rise, to rates that had not been seen since the Great Depression of the 1930s. So serious was the situation judged to have become that in the 1980s the country engaged in an unprecedented, painful, root and branch programme of structural reform. Today, most economists consider that New Zealand’s economy is more flexible, more adaptable, and more resilient than it would have been without the reforms. But reaching this state took the better part of two decades.
Of course the New Zealand economy, especially then, was a comparatively simple one, whereas the UK economy today is highly sophisticated. But does that make the adjustment challenge easier, or harder?
It will probably be a decade before we will know what the fundamental consequences of Brexit have been for the UK economy. For my part, I find it hard to believe that the protagonists of Brexit have any real appreciation yet of the task that they have set for their policymakers and, behind that, the consequences for the UK economy.