On Tuesday, the
international trade secretary told us that he wants
the UK to be a "21st Century
exporting superpower", and the story was inevitably linked to the
‘freedom’ that Brexit will give the UK to negotiate trade deals around the
world. Personally, I have more than a
few doubts about whether exporting is the inherently good thing as which it’s
usually painted; in environmental terms, it seems to me that there’s a lot to
be said for more local production and consumption. But, for the sake of argument, let’s accept
the assumption that exporting is always a good thing, and that the UK economy
should aim to do as much of it as possible.
Currently,
exports make up 30% of the UK’s GDP, and he wants to get that up to 35%. That sounds like a lot, but it leaves the UK
lagging behind a country such as Germany,
which really is an exporting superpower, with exports accounting for 41% of
national output. It’s worth considering
how and why Germany manages to export so much more than the UK. Firstly, of course, it can export freely to
the other 27 member states of the EU and take advantage of the relatively easy
trade offered by the 50+
agreements which the EU has signed with other countries. These are all advantages which the UK also
currently enjoys (although the same trade secretary actually wants us to walk
away from all of those in order to negotiate less comprehensive agreements).
The question
which needs to be asked is why, if the UK enjoys all the same benefits of trade
agreements as Germany, it is unable to leverage those in the same way and achieve
the same level of export success?
Clearly, it is not membership of the EU per se which prevents that (and
if EU membership isn’t the problem, it follows as surely as night follows day
that leaving the EU won’t solve the problem).
The underlying problem must be simply that goods and services produced
in the UK are not competitive; and the question is why that should be.
Brexiteers such
as Fox might well argue that one of the reasons for the lack of competitiveness
is the extent to which EU rules constrain British manufacturers to produce to a
particular set of standards following a particular set of rules. Freed from those constraints, UK suppliers
would be able to be much more competitive on price. It’s a simple analysis, and one with which I
can readily agree. The problem is,
though, that the analysis is not just simple, it’s too simple. There is a major flaw in assuming that goods
produced to a different set of standards will automatically lead to higher
sales simply because they are more competitive on price. That flaw is that any market which adopts a
particular set of rules to maintain standards – and we’re talking here not just
about standards governing the quality of the goods themselves, but also those
governing environmental factors and the health, safety and conditions of the
employees – is not simply going to allow goods produced to a less exacting set
of rules to flood into that market. For
sure, the UK post-Brexit can abolish all sorts of rules currently enforced by
the EU and produce goods more cheaply as a result – but who’s going to buy
them?
This is the issue
at the very heart of the impasse in negotiations between the EU and the UK over
borders and trade: the EU wants to maintain the integrity of its market, whilst
the UK is demanding, in effect, that it should be allowed to compete on price
by not complying with the EU’s standards.
The Brexiteers don’t often put it in such terms, but Rees-Mogg was
pretty explicit when he argued
that standards which were “good enough
for India” could also be good enough for the UK. It’s a world view which starts from the
assumption that business regulation should be driven by the lowest common
denominator. The corollary is that any
improvement in standards over time can only come about by global agreement
rather than by agreement within individual trade blocs such as the EU.
Effectively, the
Brexiteers are demanding that the EU reduce its standards to whatever the UK
decides they should be. They want the
whole EU to become a ‘rule-taker’, with Britannia setting the rules. There is only one way in which a disagreement
couched in those terms can end, but Fox’s optimism on the post-Brexit future
for UK exporting is based on the wholly unrealistic assumption that another
outcome is certain. Despite his desire
to improve export performance, there’s only one possible result of a blind
determination to exempt the UK from the rules and standards applying in the
markets to which it exports. And that result
isn’t an increase in exports.
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