Rebuttal: Dictating the Terms of Trade

No Reuters, trade will not “collapse overnight” without an EU UK agreement

The EU’s negotiating demands reflect neither normal international practice nor the inevitable force of economic realities.

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Professor Jonathan Portas (a Professor at LSE and a senior fellow of Remain-leaning thinktank UK in a Changing Europe) has recently suggested that any trade deal with the EU will necessarily reflect Europe’s greater economic gravity, compelling the UK to settle for the terms it sets.  One of the examples he uses is the supposedly bullying relationship of the US with the smaller nations with which it trades, citing the fact that it supposedly imposed a minimum wage of $16 on Mexican automobile workers after Trump’s recent renegotiation of the North American Free Trade Agreement.

Yet this is a revealing distortion of the facts.  There is no ‘minimum wage of $16 per hour for car workers’ mandated in the new NAFTA deal – only a rule that to qualify for zero tariffs, 40% of a car must be made in plants paying such a wage. Otherwise a mere 2.5% tariff applies, which many firms will probably choose to pay.  Moreover, such a restriction is limited to the automotive sector – rather than a full-blown level playing field comprising economy-wide regulations systematically monitored and enforced by foreign inspectors.  Implying that the kind of systematic monitoring and level playing field regulations that the EU is demanding is normal is thus simply untrue.

Looking at the argument more generally, the kind of leverage tactics Portas discusses (threatening to withdraw from deals to renegotiate more favourable terms) differs substantially from the mechanisms of unilateral tariff impositions across various sectors desired by European negotiators.  The former operate outside the treaty; the latter within it.

If this seems trivial, consider the difficulty that threatening to withdraw and subsequently renegotiating represents, particularly when compared to dynamic powers to penalise across the economy at will.  Rather than a rapid, legal and indisputable instrument to get your partner to do what you want, you have to threaten to dissolve the whole arrangement, then renegotiate and then ratify it.  If this prospect was difficult enough to delay the US from trying it until Trump, think how hard it would be the EU, with its need to agree, consult, and ratify across 27 capitals – as well as its substantial export surplus with the UK, and the growth of non-EU markets likely only to diminish Europe’s significance for British exporters in the long run.  Strategically, the EU’s interests are to secure a deal as soon as possible in the short term to preserve its current advantages – a need British negotiators should recognise and exploit.

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Briefings For Britain