Alternative trading arrangements with the European Union in the event of a British departure from the bloc would pose “serious risks” to the prosperity of Britain, Prime Minister David Cameron’s government said.
The government analysed the relationships between the EU and countries outside the bloc to see if they would work, and “none of the options that are likely to be remotely deliverable comes close to matching what we have,” Foreign Secretary Philip Hammond said in a speech in London on Wednesday. The option providing for the most definitive break with the EU — a reversion to World Trade Organisation rules — would lead to greater costs for businesses and trigger an economic shock, according to a report released in London.
“What we’re really hoping to do today is smoke out the ‘Leave’ campaign, get them to put some flesh on the bones” of their alternatives and explain how they would improve on the benefits to Britain of negotiating as part of a bloc, Hammond said. “The history of international trade deals is the terms of the deal always favours the larger party in the negotiation.”
The government is campaigning for Britain to stay in the EU in a June 23 referendum, arguing that the country is “stronger, safer and better off” using the collective heft of the 28-nation bloc. On Monday, it warned of a decade of uncertainty in the event of a vote to leave, or “Brexit,” leading to accusations of “scaremongering” from the “Leave” campaign.
“There has been far too much scaremongering; it’s like Halloween come early,” junior Justice Minister Dominic Raab, a proponent of Brexit, told the BBC. “There’s more risk staying in the EU, which is crippled by the euro-zone crisis, facing all the challenges on its borders and very weak in facing up to the likes of Russia.”
Hammond used his speech to examine the countries most often cited as alternative models for Britain to follow — Norway, Switzerland, Canada and Turkey — and said that in all cases access to the European single market would come at the cost of loss of control.
“The price of access to the single market for goods let alone services is the free movement of people,” Hammond said, raising the issue of immigration, which is at the center of the campaign to quit the bloc. “The more access to the single market the ‘Leave’ campaign promises, the more hollow their promises of being able to deal with immigration.”
Services make up 80% of the UK economy, Hammond said, and the EU is the largest market for those services. “People in Frankfurt and Paris” are already planning ways to “seize” the financial-services businesses currently in London, he said.
Former Conservative Chancellor of the Exchequer Norman Lamont threw his weight behind the “Leave” campaign, arguing in an article in the Daily Telegraph newspaper that Britain must take control of immigration by seizing the “once-in-a-generation opportunity” to exit the bloc. Lamont, who served in John Major’s administration in the 1990s, adds his voice to that of former Tory party leader Michael Howard in opposing Prime Minister David Cameron, who worked for both men in the past.
Leaders of big companies largely support continued EU membership, though the country’s main business lobby, the CBI, has repeatedly said that some support a Brexit.
Reasons to Stay
“I’d much prefer a messy divorce than a disastrous marriage,” the billionaire Phones4U founder, John Caudwell, said on Wednesday in a Bloomberg Television interview. “What are the reasons to stay in Europe — objective reasons, ones that are provable, indefinite and guaranteed? I can’t think of a single one.”
The government sought to dispel the notion that all is rosy outside the EU with its report, which analysed the relationships with the bloc of countries that are outside. It found that:
- Switzerland pays into the EU budget, accepts the free movement of people and has limited access to the single market for its service companies. Services account for 80% of the UK economy.
- Norway contributes to EU expenditure, accepts free movement of people and has a higher proportion of EU residents than Britain. It implements 75% of EU laws and pays tariffs to export fish and agricultural products to the bloc.
- Canada’s trade agreement gives only partial access to the single market, is seven years in the making and has still not been implemented. Companies that export to the EU have to comply with the bloc’s regulations, there are quotas for agricultural exports and tariffs for products with too many foreign components.
- The fall-back option of WTO rules would bring in tariffs including 5% on chemicals, 10% on cars and 20% on whisky. That would make UK goods more expensive on the continent, and European goods more expensive domestically.
“Yes, we would be able to negotiate a free trade agreement with the European Union,” Hammond said. “But that agreement would come with a price tag.”
© 2016 Bloomberg