September 14, 2016

September 14, 2016 | Commentary on United Kingdom, Trade, European Union

U.S. Interests in the United Kingdom and Europe After Brexit

The Senate Foreign Relations Committee will soon hold a hearing on “Brexit: U.S. Interests in the United Kingdom and Europe.” Both witnesses scheduled to appear are officials in the Obama Administration. Thus, while the hearing will shed light on the attitude of the current administration, which will soon leave office, it will not present the full range of U.S. opinion on its important subject.

Nevertheless, the hearing will be an opportunity for Committee members to set a clear Senate agenda for the future of U.S. relations with Britain after it leaves the European Union. The Committee should emphasize that the fundamental interest of the U.S. is for the U.K.’s departure to happen as quickly and cleanly as possible. After the U.K. exits, it will regain the freedom to negotiate its own trade agreements, and the U.S. should then move rapidly to formally conclude a free trade agreement with it.

The Committee should also recognize that the many U.S. interests in Europe that do not relate to the EU – including, most importantly, NATO – will not be harmed by Brexit. Indeed, Brexit offers an opportunity for the U.S. to emphasize the value it attaches to its bilateral relationships across Europe, and to make it clear that if the EU continues to seek to supplant NATO, it will further weaken the transatlantic security alliance. Especially in the waning days of the current administration, Senate leadership on these vital questions is urgently necessary.

Brexit Is Going To Happen

On June 23, 2016, the British people voted in a national referendum on the future of British membership of the EU. On a turnout of 71.8 percent, 52 percent voted to leave the EU. More people in Britain supported Brexit than have ever voted for any British political party.

The vote led to the resignation of Prime Minister David Cameron, and his replacement by current Prime Minister Theresa May. Behind her is a strong Conservative government which includes many of the leading backers of Brexit. While May herself quietly supported Remain, she has stated that her government will respect the result of the referendum. In her words, “Brexit means Brexit.”

On September 6, the House of Commons debated a petition seeking a second referendum. The debate concluded without a vote, and, the government made it clear that, in the words of Brexit Department minister Robin Walker, “this was a once in a generation vote and that decision must be respected.” A so-called “March for Europe” before the debate in London drew only 50,000 supporters.

In short, Brexit is going to happen. The interests of the United States in Britain and Europe can only be secured and advanced if the U.S. bases its policy on this reality.

The Fundamental U.S. Interest Rests In A Quick and Clean Brexit

Given that Brexit is going to happen, the fundamental interest of the United States is that Brexit happen as quickly and cleanly as possible. Before the referendum, many Remain supporters, in Britain and around the world, asserted that a vote for Brexit would cause the British economy to suffer, or even to collapse. But since the referendum, the British economy has strengthened, while the economies of the Eurozone have moved closer to a deflationary spiral. The claim that Brexit threatened economic disaster was not based on facts: it was about scaring the British people into voting for the EU.

Nevertheless, it is undeniably true that the process of exiting the European Union is going to involve a great deal of change in Britain, and indeed in the EU. Change means uncertainty, and neither markets nor business likes uncertainty. For the interlinked economies and businesses of the U.S., the EU, and Britain, it is therefore best that this uncertainty be resolved as quickly as is reasonably possible.

The May government is likely to conclude its consultations on Brexit and formally trigger Article 50 of the Treaty of Europe in January 2017, which, allowing for the two year period that the Treaty gives to negotiate Britain’s exit, would result in Britain achieving its independence from the EU at the end of 2018. The U.S. should make it clear to Britain and especially to the EU, that while it understands the complexity of this process, it is in no one’s interests to prolong it unduly, or to seek to punish Britain for exercising rights that are contained in the EU’s own treaty.

One of the central questions in the Brexit negotiations will be what kind of trading relationship Britain will have with the EU after it exits. There are many possible models, but the best one for the United States is for the U.K. to leave the EU entirely, and not for it to stay inside the European Economic Area (EEA). It is commonly argued that if Britain does not stay in the EEA, it will not be able to access the EU’s Single Market. This is nonsense: the U.S. trades with the EU, yet the U.S. is not in the EEA.

The EEA is fundamentally a single rule-making area: nations inside it have tariff-free access to the EU. But EU tariffs are generally low, while the costs of EU rule-making are high. Furthermore, for the U.K. to remain inside the EEA, the EU would have to adopt a new treaty, which would likely lead other EU members to ask for their own deals. This process would drag on indefinitely, and its results would be hard to predict. It would certainly create a great deal of uncertainty.

The best option for everyone, therefore, is for the U.K. to leave the EU completely, to be outside the EEA, and to negotiate its own trade deal with the EU. The U.K. has regulatory equivalence with the EU today, and is a net importer from the EU, so these negotiations should not be prolonged. After all, the EU already has free trade agreements with nations as diverse as Mexico, South Korea, and Israel. Unless the EU’s trade policy is dominated by spite, there is no reason it cannot negotiate successfully with Britain.

The Next Step Is A U.S.-U.K. Free Trade Area

It is clear that, contrary to the claims of the Remain campaign, Britain understands – as it has for centuries – that it cannot prosper without close connections with the rest of the world. Chancellor of the Exchequer Philip Hammond has already announced that, while the U.K. will not accept the uncontrolled movement of people, “highly skilled” workers will be exempt from the migration curbs that Britain plans to impose after it exits the EU. Hammond’s announcement was intended to reassure the City, London’s financial district, and it bodes well for the close ties between U.S. and British financial institutions.

Leaders in many nations – including all ten of the world’s largest economies, with the exceptions of EU members France and Italy – have already expressed interest in negotiating free trade areas with Britain after it leaves the EU. In the U.S., Senators Tom Cotton (R-AR) and Mike Lee (R-UT) introduced the “United Kingdom Trade Continuity Act” on June 30, which would oblige the U.S. to continue its existing commercial relations with the U.K. until the U.S. and Britain negotiate a free trade area. This is the right course for the United States to follow.

One of the challenges that Britain will face in negotiating such an area is that it has not conducted its own trade negotiations since 1973, when it joined the EU’s predecessor. But this challenge should not be exaggerated: Liam Fox, Britain’s Secretary of State for International Trade, is building up his new ministry, and the London-based Legatum Institute has created a Special Trade Commission, drawing on trade experts around the world. Freed from the EU, Britain will benefit from the world’s expertise.

The U.S. should offer to assist Britain by seconding a trade expert from the office of the U.S. Trade Representative to Britain’s Department for International Trade. While Britain cannot conclude formal negotiations on any free trade area until it formally exits the EU, it can begin – and has already begun – informal discussions now. Providing a U.S. expert would be a gesture of friendship for Britain, and a demonstration of U.S. desire to work closely with Britain as it develops its own trade policy.

The goal of this cooperation should be the rapid negotiation and ratification of a U.S.-U.K. free trade area. A U.S.-U.K. free trade area would have the greatest value in practice if it focused on liberalizing trade in high-value goods, avoided any effort to harmonize regulations, clearly aligned the U.K. with the U.S. as a nation outside the EU’s regulatory reach and sought over time to bring other nations that share the value that the U.S. and Britain place on free, open, and competitive markets into their partnership.

Brexit Will Advance Other U.S. Interests

U.S. interests in Europe have never been limited to economics, though for the U.S., Brexit is first and foremost a matter of economics. But other considerations matter too. The U.S. has an interest, for example, in the new immigration rules that Britain will adopt after it leaves the EU. But as long as these rules treat the U.S. no worse, and no better, than they treat Canada, Japan, India, and Australia, the U.S. will have cause for celebration: being treated equally would be considerably better than today’s reality, which is that Britain is forced to privilege citizens of EU member states.

Brexit will have no effect on the overwhelming majority of Britain’s international connections, memberships, and affiliations. It will remain a member – a veto-holding, Security Council member – of the United Nations. It will still be part of the IMF, the World Bank, and many other international organizations. It will have the opportunity, in the case of many technical institutions, to become a member in its own right, and to be a more effective advocate of its interests, and a more effective partner with the United States, than the EU ever was.

Finally, of course, it will remain a founding and vital member of the NATO alliance. The U.S. already enjoys close defense, security, and intelligence ties in Britain, and Brexit will not alter that fact. Instead, it offers the United States the opportunity to emphasize the importance that it places on its bilateral relations across Europe, and the fact that NATO is the institution – the only institution – that embodies the broader transatlantic alliance, which continues to be of central importance to the United States.

The Committee’s hearing offers a valuable opportunity for the Committee, as the Administration approaches the end of its term in office, to set the U.S. agenda on Brexit. As it works, it should remember that the interests of the U.S. in Europe, and around the world, ultimately rest in the defense of the free, sovereign, capitalist, and democratic nation-state. That is what Britain after Brexit will become, which is why Brexit is not just in Britain’s interests. It is profoundly in the interests of the United States.

About the Author

Theodore R. Bromund, Ph.D. Senior Research Fellow in Anglo-American Relations
The Margaret Thatcher Center for Freedom