Professor Ian Wooton, Department of Economics & Fraser of Allander Institute, University of Strathclyde
Quite recently, a Westminster MP wrote to the vice-chancellors of all UK universities asking for the names of professors who are “involved in the teaching of European affairs, with particular reference to Brexit.” The purpose of the request is unclear but it has provoked a heated debate about the risk of academic censorship around Brexit. It looks likely that most vice-chancellors will leave the letter unanswered, allowing classes on Brexit to remain shrouded under the cloak of academic freedom.
I neither need nor seek this protection from public scrutiny. Brexit is simply too big and complex an issue to be left to politicians and civil servants. I have been researching and teaching aspects of trade integration for over three decades and I shall continue to do so when the greatest economic issue facing the UK is the disintegration of the relationship with its biggest trading partner.
I think that it is fair to say that, in the days prior to the referendum, the debate on the UK’s continued membership of the EU was more focused on issues of sovereignty and migration, rather than the trading framework at the heart of the relationship. Alternatives to the single market were occasionally mentioned but with little detail or apparent understanding of what they might entail.
This piece is not about promoting one view or the other with respect to the UK’s membership of the EU—the referendum has happened—but about understanding the implications of Brexit itself and how the outcome of the negotiations between the UK Government and those of the 27 other members of the EU will affect our standard of living. This is complicated stuff and there is a lot of jargon flying around. Many voices in the media and parliamentarians give themselves the patina of expertise by bandying about expressions such as “common market”, “customs union”, and “free-trade area” but they seem hard-pressed to distinguish between them. The problem is that each of these trading arrangements is distinct and there will be long-term and significant implications for the health of the UK economy depending upon our final relationship with the EU.
To take an example, currently the UK is part of the EU’s customs union. This means that goods in the European market can move freely amongst member countries, obviating the need for internal customs frontiers. Replacing this with a free-trade agreement, such as that between Norway and the EU, inevitably requires a customs border between the UK and the EU. It has been claimed that the barrier that this creates could be mitigated by technology and administrative arrangements. However, Canada and the USA are long-standing members of a free-trade agreement (NAFTA). Observing the customs delays that persist at the border between these countries does not give grounds for optimism about future trade between the UK and the EU.
Part of this reflects the fact that free-trade agreements are anything but free for much of the goods we trade, resulting from a fundamental difference between customs unions and free-trade areas that is largely ignored (or is unrecognised) in public discussions. Modern manufacturing has taken advantage of several decades of trade liberalisation such that production processes have become geographically fragmented and most goods are assembled from components manufactured across the world. The only goods that enter a country tax-free from partners in a free-trade area are those that were made there, otherwise they face the same tariffs as products from other countries. So when is a car assembled in the UK deemed to be “British”? This can be answered only after consultation of the often complex “rules of origin” (RoO) established for the good, determining the share of foreign components in total production that is allowed before the good is deemed to be “foreign”. Beyond the restrictions this places on sourcing of inputs into production, it exacerbates the border delays as customs officials have to determine whether the goods meet the rules to enter duty free.
Regardless of the deal that we reach with our European partners, the UK’s relationship will also change with the rest of the world. For the last forty years or so, our trade negotiations have been led by the EU. So, while the UK is a member of the World Trade Organization (WTO) in its own right, its obligations to the other member countries in the WTO were agreed as part of Europe. Already thousands of hours have been expended in drawing up the UK’s future independent agreement with the WTO. Much of this will be a continuation of its existing obligations, but there are going to be problems in some areas of market access, particularly with respect to some sensitive industries, such as agriculture. Just working towards keeping the status quo has already required a lot of effort.
Over its lifetime, the EU has become party to some thirty trade deals with other countries. If the UK wants to retain access to these foreign markets, it will have to begin discussions with each of these countries, but it would be unrealistic to imagine that such negotiations will be short or straightforward. Typically, such trade deals take years to conclude and will stretch the UK’s trade negotiating capacities. Whatever the outcome of these negotiations, the UK will be affected by its exclusion from the EU’s free-trade agreements. Components produced in the UK will no longer count as European in terms of these free-trade agreements. As a result, demand for the products of UK firms will decline as European manufacturers attempt to satisfy the dreaded RoO.
In summary, I am not going to hunker down and avoid public scrutiny of my academic activity. Some of my colleagues across the UK and the EU will share my views and others will have a different take – but either way the principle of open and robust debate is at the very heart of academic freedom.
Brexit is multidimensional but, at its core, it involves a trading relationship that is set to change. I consider it my responsibility to explain the implications of the choices that our politicians may make to as wide an audience as possible. If that involves sharing my evaluation of Brexit with a few more of our public servants, I am happy to oblige