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Aftershock

The continuing case for Europe despite the EU’s deficiencies

8 May 2020

In the third instalment in this series, Roger Liddle reflects on the continuing case for Europe despite the EU’s deficiencies and limitations.

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Roger Liddle
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Image credit: Shutterstock

For the previous instalment in this series, please click here.

In a world with such a degree of high interdependence in so many different fields, a single (some might say, blinkered) focus on the scope for sovereign national action has clear limits. For most progressives it equates to an argument for smaller government with less ambition, the explicit aim of many Brexit supporters. It runs up against the most powerful emotion in progressive politics that “a better world is possible”.

In the eyes of most progressive pro-Europeans, a better Europe, a different Europe is most definitely still worth fighting for. And even the Europe we have, for all its faults and divisions, its slowness and bureaucracy, the gap between airy rhetorical ambition and practical achievement on the ground, is still worth defending. In particular, the minimum standards that the EU sets prevent ‘a race to the bottom’ from which the vulnerable would lose most. Those minimum standards are strengthened over time by amending legislation and through Court judgements that are to the benefit of all European citizens, and by mutual cooperation in fields such as research, education, health, working conditions and environmental standards. Brexit supporters denounce these processes as an “undemocratic ratchet”. An alternative way of looking at it is to see it as a long march to entrench shared European values in practical changes that make a real difference to ordinary people’s lives.

Common European positions on the world stage are very much worth fighting to establish, where agreement can be reached – on climate change, international development, migration and defence of democracy and human rights. The European Union often finds this difficult because of divisions between its member states, but the effort to achieve consensus is worth making and often does achieve results.

Covid does not change these arguments for Europe. If anything, it reinforces the case for common European action in health – a policy field hitherto of largely national competence. There is however one area where the European Union has real clout internationally: the policing of its Single Market and its trade relations with the rest of the world, because the founding EU treaties grant Brussels exclusive competence in the fields of competition, state aidi and the common commercial policy. As economic power moves from the Atlantic to the Pacific, this is where the European Union representing the wealthiest economic entity in the world, can have real influence, which it can use to real effect.  Covid will make this key European strength more relevant, not less.

Covid fundamentally changes the nature of the core economic arguments made for Brexit. The advocates of a ‘clean break’ with Europe have consistently argued for a revolution in Britain’s trading patterns with the rest of the world. But is their strategic choice “for the open seas” over the Continent, sound? Are their linked assumptions about globalisation and free trade, valid in the post Covid world? While some deglobalisation may well be welcome in achieving greater security of supply of essential goods such as food, pharmaceuticals and vital components of key manufactures, deglobalisation will not make an independent trade policy better able to deliver positive results.

Prospects for a UK- US trade deal

For Brexiteers, a UK trade deal with the US is a key part of their post Brexit vision. But they should recognise it will be a trade deal very much on American terms. Politics make this inevitable. The Covid crisis is sharpening geopolitical tensions with China. Donald Trump blames China – and globalisation – for the destruction of US manufacturing jobs which in the 2016 Presidential election led to his victories in blue collar districts in Pennsylvania, Michigan and Wisconsin, once Democratic strongholds, that handed him the Presidency. Since his election the United States and China have been engaged in a constant but unstable tariff war where the frontiers of the conflict move constantly back and forth. Now Trump is heaping the blame on China for the spread of the Covid virus, and is making anti-Chinese resentment a key building block of his re-election campaign. If Britain ties itself to a US trade deal under Trump, it will essentially be hitching itself to the Trump world view.

Much will depend on the outcome of the November Presidential election. A Democratic victory under Joe Biden will hopefully bury for good Trump’s nationalist rancour, but it is not likely to ease US protectionism, which is rife among Democrats in Congress. As Bill Clinton is fond of explaining, the electoral power of protectionism is much stronger in the States than in Europe because of the absence of a comprehensive US welfare safety net. The terms of a UK-US trade deal will have a much higher profile in US politics than they would normally have in Britain. Constructing a UK-US trade deal that will be approved by a Democrat controlled House, with its strong Irish lobby to consider, will be no quick or easy prospect, given the sensitivities around the Irish border.

In February, the British government proudly set out its mandate for the UK- US trade negotiations, accompanied by a detailed economic assessment. In itself, this was welcome and remarkable. The government point blank refused to do the same for the UK-EU negotiations, even though the share of UK trade with the EU is some three times larger than that with the USA. The economic assessment was thorough, but its results extremely modest. A deal of the nature envisaged in the government’s White Paper would add a mere 0.18% to UK GDP over the coming decade, as against the 4-7% loss of a Canada style FTA between the UK and EU.

So why does the government set so much store by the prospect of this modest US trade deal? Its political symbolism is crucial for Johnson as a token of Brexit’s success in re-uniting the Anglosphere. But on the face of it, it will make a paltry contribution to British economic recovery. One is driven to the conclusion that the government cannot – at least at this stage politically – set out a vision for a more ambitious deal with the States because this would involve the kind of concessions on the UK side that the government has pledged never to make – for example, the notorious spectres of chlorine washed chickens, higher pharmaceutical prices and greater access for US pharma companies to the NHS. Let us see how long this determination to protect the NHS and high standards in UK farming lasts in face of the political pressure to secure a more ambitious deal with the United States. Either way, the Brexiteer vision looks none too appealing.

EU trade policy in the years ahead

Europe is also in the throes of a difficult debate about its relationship with China. The EU has for the last three decades been a leading standard bearer for opening up to China and by doing so, setting the pace for globalisation. It achieved this under the leadership of three distinguished Trade Commissioners – Leon Brittan, Pascal Lamy and Peter Mandelson – two of whom were British. That the EU’s member states were prepared to accept British leadership in this field belies the typical Brexiteer view of the EU as some kind of protectionist racket. However, the relationship with China is now undergoing reassessment, in part because of UK withdrawal, and in part because of increasing suspicions of China.

China is not following the optimistic path towards gradual liberalisation and democracy that European policy makers assumed when they fully backed China’s membership of the WTO. In the past three decades, Europe has done well out of China. The Brexiteer view that membership of the European Union has held back British business from exploiting opportunities in China is hard to square with the fact that German exports to China are three times ours and France’s double. But as Chinese business moves up the value chain, and Chinese trade surpluses have built China’s financial clout, worries in Europe have grown about the absence of fair competition with China, because of hidden subsidies to its state-backed businesses. China has also been deploying its new financial muscle to buy up ‘strategic’ European companies, build a quasi-Empire in Africa, and through the ‘Belt and Road’ initiative, win friends in Eastern Europe and Italy. As a consequence, Germany is now moving onto French territory by calling for a stronger European industrial policy to sustain European ‘champions’. The European Commission is introducing new controls on Chinese backed mergers and acquisitions. Security concerns about some types of Chinese investment in Europe are rising. Most of all, in the light of this, Europe has to redefine its trading relationship with China.

This comes at the same time as Covid is giving a sharp impulse to deglobalisation. In truth the world is moving in the opposite direction to the Brexit ambition for a ‘Global Britain’. The government’s Brexit strategy is designed for a world of expanding free trade of which Britain would be a global champion: that could turn out to be a very lonely and vulnerable position in the post Covid world. Even before Covid, the government’s independent trade strategy was based on assumptions most trade experts question: that a sovereign Britain can negotiate advantageous free trade agreements with other nations which more than compensate for the losses in easy access to the European single market which (the government, to its credit, now acknowledges) Brexit will entail.

In the post Covid world, can we rely on a sovereign independent trade policy to deliver the promised access to new markets? The WTO is forecasting a dramatic decline in global trade, far deeper than experiences as a consequence of the 2008 financial crisis. Where are these promising new markets? Why should Japan and Korea for example give an independent sovereign Britain greater access to their markets than we already enjoy as a result of EU trade agreements with these countries? Is this UK Brexit ambition at all realistic in a world where trade tensions with China are rising and the United States’ response is ‘America First’?

The case for reconsidering Britain’s rejection of the European Single Market as a credible Brexit option.

The European Single Market has over the past three decades become the UK’s “home market”, yet the Brexit policy is seeking to erect new barriers to our trade in this market. The pro Brexit argument is that Europe is a region of the world in relative decline, that the European Union makes this problem worse by over-regulation and protectionism, and that a structurally flawed Eurozone further constrains the possibilities of growth. There are elements of truth in these points, but in the words of the old adage, is it not better “to cling onto nurse for fear of something worse”? How can UK withdrawal make sense in a post Covid de-globalising world?

The Single Market remains the cornerstone of the EU’s legal order. In the Covid crisis, panic reactions by member states have put up barriers to the free flow of some goods, but order will eventually be restored. In the medium term, the likelihood is that the single market will be more closely bound together by a new scepticism about both the reliability of international supply chains and over-dependence on China for key components and resources. We may well see further moves towards collective purchasing of essential materials (from which Britain has so far excluded itself), restraints on foreign takeovers of key European businesses, a more relaxed attitude to the mergers that create ‘European champions’ and tougher action against the dominance of US internet giants.  In the meantime, Britain is putting itself outside this relative haven of safety. 

With the prospect ahead of stronger European economic integration, where does this leave a United Kingdom, whose government has decided, of its own sovereign choice, to leave the EU’s Single Market and Customs Union? Notably, this was not an inevitable consequence of the Brexit vote and is not something our EU partners required us to do!

In the next instalment in this series, available here, Roger Liddle considers the prospects of a hard Brexit.

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