Brexit, the Final Frontier … this is the voyage of the Liam Fox Enterprise. Its continuing mission: to explore strange new worlds, to seek out new life and new civilisations, to boldly go where no one has gone before. Captain Fox and his heroic crew are on a mission, a hard Brexit mission, to discover new trade opportunities with new peoples in new lands offering unmined gold and untold riches.
This may sound like an uplifting adventure for those raised on boys’ adventure comics like Hotspur, but there’s nothing new about these worlds; they have been discovered and are already trading with the UK on terms previously negotiated through the EU. What’s more, the terms of trade are advantageous to the UK as they reflect the size and power of Team EU instead of a solitary UK player. In a fantasy world of intergalactic colonisation Captain Fox, the secretary of state for international trade, is a rising star, but down here on Earth there is no realistic plan to create better trade deals.
This week, parliament will debate and approve proposals for two giant trade agreements between the EU and Japan, and between the EU and Canada. After Brexit we will be locked out of these deals, which are worth trillions of dollars in GDP and are likely to move investment away from the UK to a bigger markets just on our doorstep. Nevertheless, hard Brexiters are still peddling the myth that, outside the customs union, there is a new world of immense opportunities and untapped wealth. They pretend we will boldly trade where we never have before – when in fact we’re already trading there and haven’t needed to detach ourselves from our biggest market to do so.
The government’s planned departure from the customs union and the single market is an act of grotesque economic irresponsibility. Being in the customs union means that we are part of Team Europe when we negotiate with big blocs such as the US, China and Japan. If we leave, as one player against a whole team, we cannot expect to negotiate better terms, let alone get enough extra trade to compensate for that lost as a result of exiting from the EU.
Economists are almost unanimous on the truth of the gravity model of trade, which says that the closer and bigger a market is, the more a country will trade with it. Empirically, over the past 140 years, it has been found that the relationship is: halve the distance and you double the trade. This is why the former permanent secretary at the Department for International Trade likened leaving the single market and the customs union to swapping a three-course meal for the promise of a pack of crisps.
The gravity model explains why half of the UK’s trade is with the EU. In my home country of Wales, in the north-east and Yorkshire, the figure is 60%. So, for the sake of the UK’s poorest communities and regions – many of which voted Brexit – we need to continue barrier-free trade with Europe. That means remaining in the customs union, and yet Theresa May’s hard Brexit buccaneers are intent on leaving it. Their argument is that the economic disaster of Brexit will be saved at the last minute by new trade deals forged with non-EU countries.
But which economies will these be? In the US, Donald Trump has repeatedly said that he would stop foreign countries “ravaging” his economy and “taking our jobs, making our products and buying our companies” and has already taken tough action on Bombardier, EU steel and tariffs on China. Putting “America first” means that the US will take advantage of Britain’s vulnerability when it transfers from Team Europe to single player status.
Meanwhile the EU is creating a trade deal with Japan that will embrace a third of the world’s GDP. If that trade deal is secured, we will not be part of it. Currently, 40% of Japanese investment in the EU is in the UK. We are at risk of losing inward investment and export opportunities including financial and other services, which make up 80% of our exports. This is in addition to the EU’s ongoing negotiations for trade deals with the US and Canada.
The government has also repeatedly ignored the fact that 14% of our trade is with non-EU countries with whom we have trade deals through being a member of the EU. After Exit Day in March 2019, these trade deals will cease and Chile, South Korea and Australia have already said that they want to change their terms of trade. Our weakened negotiating position means we will struggle to retain our existing terms unless we accept lower standards or allow immigration in exchange for trade access. So lower health and safety standards for our food and environmental protection plus new work visas may be included in the price we pay for new deals agreed behind closed doors.
People who voted to leave the EU were encouraged to imagine living on a fantasy island with Captain Fox returning with his enterprise of gold bullion. But the truth is that hard Brexit is more like being marooned on an island from which trade is much more difficult and jobs and prosperity are swept from our shores.
The truth is that we can’t just say “Beam me up, Scotty” to miraculously create new trade deals. If the UK wants grow our global trade relations this century it will be as part of Team Europe, not through Captain Fox’s failed enterprise.
• Geraint Davies is Labour MP for Swansea West
