How Brexit Opens Up a Path for a U.S.-U.K. Free Trade Area

COMMENTARY Europe

How Brexit Opens Up a Path for a U.S.-U.K. Free Trade Area

Mar 5th, 2018
COMMENTARY BY
Theodore R. Bromund, Ph.D.

Senior Research Fellow in Anglo-American Relations

Ted Bromund studies Anglo-American relations, U.S. relations with Europe and the EU, and the U.S.’s leadership role in the world.
Diverging from the EU's regulatory model will allow Britain to set its own taxation, labor, regulatory, and trade policies. belterz/Getty Images

Key Takeaways

By reclaiming its sovereignty, Britain also took back the ability to choose its own path in taxation, labor, regulatory, and trade policies.

Without diverging, Britain won’t be able to sign those other trade deals, because it won’t have anything to offer in the deal.

The EU simply wasn’t designed for Britain, politically or economically.

Last week, I was in Brussels to help launch a new report on financial services in Britain and the European Union after Brexit. During that time, we inched a bit closer to the creation of a free trade area between the U.S. and Britain—and I learned a bit about why the EU is standing in the way.

Britain didn’t vote to leave the EU to make itself richer. It voted to leave to get back its right to govern itself. But Europe is a slow-growing part of the world, and that has a lot—not everything, but a lot—to do with bad European policies.

By reclaiming its sovereignty, Britain also took back the ability to choose its own path in taxation, labor, regulatory, and trade policies.

The EU doesn’t like this much. European leaders, such as German Chancellor Angela Merkel, have regularly warned that Britain won’t be allowed full access to the EU’s single market if it doesn’t accept all of the EU’s other obligations. This is what she calls “cherry-picking.”

Leaving aside the fact that Britain doesn’t need to accept all of the EU’s obligations to trade with Europe any more than the U.S. does, the “cherry-picking” accusation is revealing. It implies that while the trading part of the EU is good, the rest of it isn’t so appealing. Quite a lot of people in Britain would agree.

What the EU is actually afraid of is that Britain will dump a good deal of the EU’s regulatory overhead, keep market access in the EU, and then run off and sign trade deals with a lot of the rest of the world—trade deals the EU hasn’t been able to negotiate. In other words, it fears a competitive Britain.

Happily, that’s the way things seem to be headed. Britain has been too slow—far too slow, really—for reasons of domestic politics to make it clear that while it wants free trade with the EU, it plans to diverge from its regulatory model. But it’s now become clear that Britain is going to diverge.

That’s good. Without diverging, Britain won’t be able to sign those other trade deals, because it won’t have anything to offer in the deal.

As a series of high-level U.S. visitors to Britain have made clear over the past week, if the United Kingdom can’t talk about regulations and agriculture, there’s not much left to talk about, because trade in other visible goods between the U.S. and Britain is already close to free.

This isn’t just a U.S. concern. The biggest news of the past week was the invitation to Britain, from the prime minister of Australia, for Britain to join the Trans-Pacific Partnership—the same agreement the U.S. unwisely quit last year.

That would bring to Britain free trade with Australia, New Zealand, Japan, and a series of fast-growing Asian economies. This offer refutes the ridiculous claim that no one will want to negotiate with Britain—the world’s fifth- or sixth-largest economy—outside the EU.

But again, the Australians made the point that Britain needs to break out of the EU’s clutches for this to work. And there’s the irony of it. Outside the EU, nations are clamoring to do a deal with Britain, but the EU itself is far less eager.

The immediate reaction to the report on financial services regulations that I helped launch was that the EU couldn’t bind itself in any agreement with Britain: Even once the agreement was signed, the EU, for political reasons, had to retain the power to say no.

That’s not the way trade deals work. It’s not the way contracts work in business, for that matter. But the EU appears to be operating on the assumption that a stable, win-win deal is impossible. One way or another, it implied, one side had to lose.

That attitude illustrates why Britain was never very comfortable in the EU. The EU simply wasn’t designed for it, politically or economically.

Though quite a few countries in the EU had a lot of good will toward Britain, the EU itself was never all that interested in a diverse, multispeed, devolved EU that could have accommodated Britain, no matter how much it said it was.

But things have changed. When it was inside the EU, Britain had few options. Once it exits, it will have a lot more options, as long as it has the courage to take advantage of them. The EU would obviously prefer that Britain didn’t do so. But, just as it was by the outcome of the Brexit vote, the EU is going to be disappointed again.

This piece originally appeared in the Daily Signal