When the UK voted to leave the European Union, many Brexiteers argued that this would allow Britain to move toward free market policies, free of burdensome EU regulations.
Today, the two sides are still engaged in difficult negotiations. Contrary to the arguments made by prominent Brexiteers back in 2016, it’s not at all clear that the EU will agree to a free trade agreement. Interestingly, the sticking point seems to be Britain’s reluctance to follow free market policies:
It is safe to say, though, that any Brexit deal will not fail over fish. The really big issue is what the EU refers to as the level playing field. Within that category, the state aid regime is one of the toughest elements. The EU wants the UK to adopt a legal framework for competition policy that broadly mirrors its own. What the EU fears is a politicised state aid regime where a British government subsidises companies for opportunistic reasons, and thus undermines competition with EU companies. It is highly unlikely UK prime minister Boris Johnson could agree to this.
Here Wolfgang Münchau of the FT is suggesting that Britain’s Conservatives are so eager to start subsidizing their corporations that they are willing to walk away from a free trade deal with the EU rather than forgo that sort of interventionism. Britain has drifted far from the lofty ideals of 2016. But then that’s often how nationalism evolves over time.
READER COMMENTS
Phil H
Aug 23 2020 at 1:55pm
“lofty ideals”
All sorts of claims were made, but the ones about making markets freer were always very obvious lies, and I don’t believe that even one person in the UK really believed them. If you pressed any pro-Brexit campaigner, ultimately they all admitted that the primary goal was to reduce market freedoms by removing the option to work in Britain. All other considerations were secondary.
Scott Sumner
Aug 23 2020 at 3:40pm
I think you are right about most ordinary Brexit voters. But the intellectuals who led the campaign did have “lofty goals”. I recall talk about the UK becoming the Singapore of Europe. In practice, Conservative Party support has shifted toward disgruntled blue collar voters with very unSingaporean attitudes.
Phil H
Aug 24 2020 at 12:32am
No, I’m saying I don’t believe that. They were all lying. For the most part consciously lying. If there were any people who believed in the free trade vision, they were people without any power, influence, or insight into the practicalities of British politics. All the people who were genuinely in a position to influence policy knew perfectly well that additional freedoms was neither the goal nor a likely outcome.
Brexit is a power struggle within the Tory party that got out of hand. There was never a coherent policy goal. And in the rush to win the referendum, the only policies that got built around it were a mulch of populist nastiness.
Radford Neal
Aug 23 2020 at 1:57pm
I think even one who opposes state aid to industries could be against such aid being prohibited by a difficult-to-change international agreement. It’s contrary to the compromise that is central to democracy – you let us implement our policies if we win the election, and in return we let you implement your policies if you win the election. There’s a consensus that this compromise doesn’t extend to policies abrogating certain fundamental rights, but I think there’s no consensus that “no state aid to industries” is out of bounds of the usual democratic back-and-forth.
Scott Sumner
Aug 23 2020 at 3:43pm
But the Brexit proponents also claimed to favor free trade agreements. Indeed Boris Johnson still claims to favor free trade agreements. And those sorts of agreements limit the freedom to impose tariffs. So within the UK government there is obviously no principled opposition to international agreements that limit the ability to do certain things, rather they really do want to become a more interventionist government.
Salem
Aug 24 2020 at 4:35am
There really is a strong principled opposition to signing up to EU “level-playing-field” rules, particularly given their “dynamic” nature (i.e. that it’s a blank cheque). Frost’s famous ULB speech sets out the position very clearly:
That said, you are clearly right that this is not only principle. It’s a little bit of a Bootleggers-and-Baptists situation. Johnson does seem to want the ability to “pick winners,” and we all know how that goes.
Scott Sumner
Aug 24 2020 at 11:58am
Again, I don’t see the difference between the UK and EU jointly promising to engage in free trade, and jointly promising to refrain from subsidizing industries to gain competitive advantage. Both are economically efficient agreements. What “principle” distinguishes these two cases?
Radford Neal
Aug 24 2020 at 6:21pm
I think free-trade agreements generally can be terminated by either party on fairly short notice. (I recall that the original Canada-US FTA had a six-month notice to terminate, and Trump forced renegotiation of NAFTA with no problems, so I assume it also could be terminated on short notice.)
My impression is that the Brexit negotiations contemplate an agreement that is not so easily ended.
Scott Sumner
Aug 24 2020 at 7:31pm
The UK can terminate either agreement.
Salem
Aug 25 2020 at 8:46am
The EU is not asking the UK to sign up to a fixed set of “no state aid” rules, judged by a neutral third party. The EU is asking the UK to sign up to matching whatever the EU’s competition rules look like in future, with compliance judged by the EU. In other words, if the EU unilaterally introduces a new rule next year, the UK would have to follow it.
This is what is meant by “dynamic alignment.” It isn’t a joint promise to abide by a set of rules, like a normal free trade agreement. It’s why it’s easy for the UK government to say no to these maximalist demands. But it also (barely) conceals the UK government’s desire to engage in opportunistic state aid.
Shane L
Aug 23 2020 at 7:02pm
There was a narrative that the EU was greatly restricting economic liberty, that the EU was “socialist”, and so on. I pointed out at the time that many of the most economically free countries in the world were EU member states – it didn’t seem to restrict freedom much!
In general I see Brexit as a major headache for the UK, the EU and the Republic of Ireland, which has an open border with the UK in Northern Ireland. In the short run, I imagine the main effect will be increased administrative and bureaucratic costs for British business, not decreased. I suppose it might be different in twenty years but the short run seems to be full of costs and uncertainty.
Christopher Bossano
Sep 5 2020 at 7:00am
I agree with you that it might be different in twenty years…
Richard Watt
Aug 25 2020 at 10:50am
The issue I though was a reluctance for the EU to allow trade where regulatory and other standards were not guaranteed by the U.K., which definitively ruled out free trade with nations such as the US due to required food standards and dynamic harmonisation of Labour and other standards with the EU as arbiter.
Subsidising it’s own industries effectively hands money to other countries, so even though state subsidy is a terrible idea for the U.K., this should be a positive for trade partners and is an odd basis on which to object to a trade agreement.
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