In words that are now coming back to haunt him, British Prime Minister Boris Johnson once said that negotiations with the European Union on Britain’s exit from the bloc would give Britain its cake and let it eat too. He insisted that the UK sign a trade deal that would keep 450 million consumers unrestricted access to the continent’s market and free the UK from onerous European rules, regulations and standards. The only problem is that the EU negotiators don’t seem to want to give away half the cake. With talks still stalled and a tough January 1, 2021 deadline for Britain to exit the EU approaching, the rest of the world should aim for Europe to stick to its share.
It’s easy to dismiss the long-running Brexit show as an internal European matter – of deep concern to companies doing business there, slightly less interest to European citizens, and of little concern to others. That would be a mistake. For one, there will be short-term economic costs – and if the UK has a tough exit with no new trade rules, it could send shock waves around the globe. The UK economy is expected to shrink 4 percent over the next decade and there is likely to be massive disruption to trucks and air freight in the short term, potentially leading to widespread bottlenecks.
But there is also a greater commitment to the world. If Brussels collapses in the negotiations, it will be the end of the last best hope of curbing the race to the bottom in world trade.
At the center of the unsolved Brexit issues is a metaphor known as “a level playing field”. For decades the phrase was used as a justification every time a trade minister suggested tariffs or other protectionist import restrictions. After all, who could compete on sloping fields? However, the metaphor has captured the conviction of many market-based democracies in the West that capitalist competition should be more or less fair. There’s no shame in a company losing market share to a nimbler, more innovative competitor. But what if that competitor gets huge, tax-free loans or other government subsidies? Or preferential treatment by the supervisory authorities? Or can you cut costs by throwing litter into a nearby river? Most of us would consider these practices unfair and would like to limit them. Many of the problems that separate the United States and China from trade, for example, are issues of a level playing field.
In the Brexit negotiations, these problems have proven to be by far the most difficult to solve. The EU, if not without its own sins, has been the global champion of high-standard capitalism. It has gone much further than the United States, for example, by restricting government subsidies to corporations, resisting tax competition that is draining the treasury, and insisting on high levels of social protection for its citizens. In the Brexit talks, Europeans fear that an untethered UK will weaken investment by giving promising UK-investing companies full access to the EU market without this costly protection.
In 2018, the European Council went so far as to embed the metaphor in its guidelines for the Brexit negotiations, insisting that “the future relationship will only be mutually satisfactory if it contains solid guarantees that ensure a level playing field” . The guidelines state that the aim is to “prevent an unfair competitive advantage” by ensuring that a post-Brexit UK enforces European rules that restrict government subsidies to companies, restrict tax competition and set standards for labor and environmental protection , not undermined. The European Parliament went a step further and insisted that the UK must comply with EU standards on consumer protection, climate change, public health and animal welfare in order to have equal access to the EU market as a Member State.
For the British, such demands undermine the whole reason for the exercise, namely to restore national control over economic regulation. Whatever the British people may have wanted when they voted to leave the EU in 2016 – control of immigration seems to have been a major issue – for those sections of the British elite who supported Brexit, it was the real one Price greater economic autonomy. Freed from the shackles of supposedly stifling EU regulations, the argument went, Britain would become a “Singapore on the Thames” – a deregulated, free-trading, business-friendly magnet for investment.
The EU’s insistence that the UK adhere to EU standards if it wants to stay in the common market is therefore non-negotiable. “To believe that we can accept EU supervision on so-called level playing field issues just doesn’t make sense of our activities,” said British negotiator David Frost in a lecture in Brussels earlier this year. “It’s not an easy negotiating position that could move under pressure – it’s the point of the whole project.” The UK believes that Brussels should be ready to accept a trade agreement similar to the one negotiated with Canada, Japan and other countries in which the EU is abolishing tariffs without the need for a full alignment of standards. However, France in particular argues that these countries trade far less with Europe and are therefore far less capable of disrupting EU markets. Britain, on the other hand, is far more economically integrated into the EU, and looser standards after Brexit could put pressure on the EU to cut its own if it wants to stay competitive.
Brexiters certainly have a legitimate point: a more easily regulated UK could well have a greater competitive edge. It is no accident that few of the world’s leading technology companies are in Europe. For a young entrepreneur with a good idea who wants to get fabulously rich with minimal government interference, the United States is a much better place to start a business than Europe. It may also be a little paranoid for the EU to fear that the UK will suddenly embark on a frenzied dismantling of regulations on the environment, labor and occupational safety in the style of US President Donald Trump and his Republican allies. Johnson has already made commitments to comply with existing standards, but has not agreed to adapt to future EU regulations.
Nor has the EU always practiced what it preaches. Ireland and the Netherlands are key hubs for many of the infamous tax avoidance schemes operated by giant tech companies like Apple and Google, although Brussels has tried to crack down on these practices every now and then. The EU state aid system does far more than most to prevent governments from throwing taxpayers money on businesses. Massive French and German subsidies for the aircraft manufacturer Airbus, however, contributed to the economic success of the company and sparked a decades-long trade confrontation with the USA. Yet the EU remains the world’s greatest effort to smooth the rough edges of global capitalism. For example, income inequality is on average much lower in EU Member States than in the UK or the United States.
It is of course difficult to predict the outcome in deadlocked negotiations. Both sides have reasons to pull away from the cliff before the end of the year. But the British position is by far the weaker of the two. One of Johnson’s big negotiating chips was the prospect of a new trade deal with the United States, which the anti-EU-Trump administration enthusiastically supported. The United States is by far the UK’s largest export market outside the EU, and advances in a US-UK deal would have strengthened Johnson’s hand. But President-elect Joe Biden’s new administration has shown much less enthusiasm for the deal.
The Biden team should go further and say publicly that they would prefer a final deal that respects high European standards. The US trade consensus is already moving in the direction that free trade must go hand in hand with stronger social obligations. For example, at the urging of the Democratic majority in the U.S. House of Representatives, the renegotiated North American Free Trade Agreement – now known as the United States-Mexico-Canada Agreement – requires Mexico to do far more to uphold labor standards and enable its factories to organize ; Failure to do so could lead to swift retaliation in the United States.
The European Commission has also handed an olive branch to the new von Biden administration, calling on Washington to seize what it describes as “once in a generation” opportunity to adopt a new transatlantic agenda based on shared values, interests and interests. and global influence. The proposal calls on the two economic giants to deepen cooperation on tackling the pandemic, tackling climate change, regulating the digital economy, reviewing risky investments and reviving global trade rules through the World Trade Organization. The agenda goes well with the Biden platform: its “Better Reconstruction” agenda calls on the United States to take a far more European approach to investing in workers, communities and the ragged social safety net.
A clear Brexit result that upholds the commitment to high European standards would be a strong signal that a new direction is possible for global trade and capitalism – where governments work cooperatively to better use their economies for their people. While the Brexit negotiations lead to a final deal or breakdown, the EU should continue to insist that it only share the cake on fair terms. The world is watching.