Friday, May 10, 2013

Bad reasons to stay in the EU

I've flirted with the Better Off Out position, but as it stands I'm pretty undecided which way I'd fall in an in or out referendum. Nigel Lawson's magnum opus seemed to me to be a bit sketchy on the practical economic implications of exit, while Portillo barely touched on it. On the other hand, the arguments currently being mustered against exit are even worse. Take Polly Toynbee today. Leaving to one side her argument that there should be no referendum on Europe because it is so deeply unpopular with the European people, she focuses on the economic dangers of exit.
But reasons to stay are blindingly clear. US banks and financiers only stay in the City as a gateway to the EU. Japanese car-makers are only here to trade in the EU. President Obama sent an envoy to warn Cameron that a "bridge" to the US was useless if the UK were outside the EU. Cameron presides over the G8 soon, where a long needed EU-US trade deal will bring tariffs tumbling: the UK alone can never win such a deal.
So, there are four factors given there: US banks are only in the City to facilitate trading with the EU; foreign manufacturers are only in the UK to sell cars in the EU; the US/UK relationship depends on EU membership; and the UK would be unable to negotiate free trade deals on its own. I'm not sure that any ring true.

The first is perhaps least convincing. For a start, US banks and financiers have been present in the City since before the EC was founded, let alone since before the UK joined. Equally, the City is very far from confined to working with or in Europe - the City is a global financial centre, and much of its work is focused on the Far East, and other rising economies. As to the argument that it would be impossible to retain a position as a financial centre when located proximate to but separate from a greater trading bloc, I can think of two pretty clear examples of why that isn't true: Singapore and Hong Kong (especially before '97, but it remains outside the Chinese system).

The second at least has some foundation - car makers have said that a British exit would be bad for business. The difficulty is that the same predictions were made for British industry and FDI if Britain remained outside the Euro. Yet in 2007 (before the financial crash, which devestated global FDI trends) the UK was the world's third largest recipient of FDI, a fivefold increase on 2000. Repeated warnings that fail to materialise inevitable diminish in credibility.

The third is largely a diplomatic point: the UK would be a diminished power if no longer part of a greater bloc. This has superficial logic, but think of this: the UK has a larger economy than Russia, a larger and more effective army and greater ability to project force across the world. Yet which nation receives more diplomatic attention from the US? Russia, largely because the UK is considered as a part of a wider bloc (and a bloc with very limited hard power potential) and its individual importance is diminished accordingly. I think it's at least arguable that Britain would have more clout outside the EU, and not less.

The last point - that an 'independent' Britain would be unable to negotiate free trade agreements with trading partners, and the US in particular, is something of a doozy. What do the following countries have in common? Jordan, Australia, South Korea, Colombia, Peru, Oman, Morrocco, Singapore, Chile, Bahrain, Mexico, Canada and Israel? Free trade agreements with the US. Others are being negotiated with (among others) Ghana, Kuwait, Mozambique, Indonesia and Kenya. Is Polly seriously suggesting that the UK has less financial and diplomatic heft than Ghana?

And then there's this:

Trading with the EU from outside means obeying every rule with no seat at the rule-making table.

So, does this mean that the US has just signed up to obeying every EU rule in order to trade with it? The hell it does. Oliver Kamm had a more sophisticated version of this argument when he said (in response to Lord Lawson):
But note that Norway, whom UKIP cite as a possible model, does contribute to the EU budget and accepts almost all EU regulations. It does so because it wants access to the Single Market.
But Norway runs a thumping trade surplus with the European Union - it's position is that much weaker because it needs to sell things to the EU. The UK runs a substantial trade deficit with the EU - we buy things from it (indeed, even though ostensibly a bare majority of UK export goods go to the EU, this is distorted by the Antwerp/Rotterdam effect - in reality, the EU is not the destination for most UK exports). The bargaining positions are not equivalent.

I think that in/out is the only referendum that the pro-EU side have a chance of winning in the UK. But the arguments are going to have to be an awful lot better than this.


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