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4/8/17

EU: From Great Britain to Little England?- by Michael O’Sullivan and David Skilling

British Prime Minister Theresa May blinked more than once as she prepared to invoke Article 50 of the Treaty of Lisbon and initiate Britain’s exit from the European Union. According to May, Brexit will transform the United Kingdom into what she calls “Global Britain.” But what lies ahead is really anyone’s guess. The UK has long been shorn of its empire; now it will be shorn of Europe, too.
 
Singapore, Switzerland, and Norway are often mentioned as models for the UK to follow as it pursues its own trade policies outside of the EU. This is ironic (or perhaps fitting), given that all three are small countries that do not share Great Britain’s sense of self-importance in world affairs.

The experience of small states is instructive for the UK. From the view of New Zealand or Singapore, it is fanciful to think that concluding new free-trade agreements with large emerging markets such as China and India will come easily for the UK. The gestation period for FTAs is long even under favorable conditions; and today a protectionist cloud hangs over the United States and potentially other countries. Signing a new FTA with the “America First” Trump administration will not be the cakewalk that UK Foreign Secretary Boris Johnson and others have promised.

It is telling that the same small economies that know the most about global engagement are consistently pessimistic about Brexit. Economic policymakers from the Nordics and the Netherlands to New Zealand and Singapore understand that regional integration matters, and that Brexit will have large negative effects.

In the coming months, the world’s small, open economies will function as canaries in the coal mine for the global trade system. Small countries on the periphery of the EU, such as Norway and Switzerland, have learned that benefiting from EU integration requires limiting the scope for independent domestic policymaking. Given these countries’ experience, the Brexiteers should rein in their expectations for how much control they can realistically “take back.”

May’s government has made various announcements indicating the types of post-Brexit policy changes it will pursue. Chancellor of the Exchequer Philip Hammond, for example, has talked about a low-tax, light-regulation model. But this model’s success in city-state settings such as Singapore, Hong Kong, or Dubai is no guarantee that it will work for a G20 economy. Meanwhile, May has suggested that the UK will, once again, embrace industrial policy, though it remains unclear what she means by this.

Read more: From Great Britain to Little England?

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