![Wise Men warn on dangerous delusions of Brexit Wise Men warn on dangerous delusions of Brexit](https://www.cer.eu/sites/default/files/styles/spotlight/public/images/spotlight/in_the_press/2014/commission_smarket_sm_sl-1402405845.jpg?itok=eTBOIuV4)
Wise Men warn on dangerous delusions of Brexit
EU exit would pose a grave threat to car industry and the City, warns report for Centre for European Reform
Withdrawal from the EU would nullify Britain’s trading treaties with the world in one stroke and reduce the country to a supplicant pleading for re-entry into the global system, a top panel of experts has warned.
"Brexit" would pose a grave threat to the UK car industry and the City of London, and cause foreign investment to dry up, a report for the Centre for European Reform (CER) stated.
“The regulatory sovereignty that would supposedly flow from leaving would be largely illusory. The UK would still have to comply with the club’s rule book without having power to influence it,” it said.
The report was drafted by a panel of economists and politicians with free-market views for CER. It included Sir Nigel Wicks from the British Bankers’ Association, Simon Walker from the Institute of Directors, BT chief Sir Michael Rake, Labour statesman Lord Mandelson and two former heads of UK operations in Brussels.
They argued that Britain currently has it both ways, able to preserve light-touch “Anglo-Saxon” laws while still having full access to the EU’s 500m-strong market. Britain’s economy is “among the least regulated in the developed world”, according to indices from the Organisation for Economic Co-operation and Development.
“The UK’s markets for goods and services are not just freer of red tape than elsewhere in the EU. They are also freer and less regulated than in any of the developed liberal economies in the English-speaking world: Australia, Canada, Ireland, New Zealand and the US. The claim that leaving the EU would be a supply-side liberation for the economy is wishful thinking. The factors that weaken Britain’s long-term economic growth are overwhelmingly domestic,” the CER report stated.
Britain negotiates trade treaties through the EU, and would not inherit these after leaving. The UK would have to negotiate fresh bilateral trade deals with China, Japan, Brazil, Russia or the US, without the leverage of a trading superpower. Britain’s diplomatic resources would be stretched to breaking point trying to handle so many complex cases at once, the report said.
Britain could fall back on its trading rights as a member of the World Trade Organisation but this would leave it facing external tariffs of 15pc, or 10pc for cars and 5pc for components, but this would be hazardous. The car industry is almost entirely owned by foreign groups such as Nissan or Jaguar, using Britain as base to export into the EU market. “Factories would not close overnight, but it would be harder for firms to justify new investment in their British plants,” it said.
The UK could try a free trade agreement to safegured the £364bn of bilateral trade, but it would be hard to secure access for services. These have accounted for 60pc of foreign direct investment into Britain over the past decade and generate a big surplus. While the EU has a big surplus in goods trading with Britain, the relationship is asymmetric. The UK makes up 10pc of EU exports, but the EU makes up 50pc of British exports.
Britain could opt for a Turkish-style customs union, but Turkey has to abide by much of the EU Acquis Communautaire rulebook. The UK could also try a looser Swiss option of bilateral deals, but the report said this has left Switzerland partly shut of the EU services market.
The City would risk a global exodus. American, Japanese and Arab companies would no longer be able to set up their regional headquarters in London and then spread into the rest of the EU. They would have to set parallel structures. The European Central Bank would force clearing houses to relocate euro-business to the eurozone.
Tim Congdon, from International Monetary Research, said the report ignores the elephant in the room. “The EU has been falling behind the US and other industrial countries. This is beyond dispute and it is proof that something is wrong. We think EU regulation could cost 5pc to 6pc of GDP,” he said.
“If we left the EU we would be like Canada or New Zealand or any other trading country. The idea that we have to be locked into the EU because we are geographically close is absurd,” he said.
The report said Britain can rely on the European Court to defend its access to EU markets, but this is no longer clear after two rulings this year that have shaken confidence in the court’s impartiality. The EU has created three new bodies to oversee markets. They have powers to override national vetoes, ending 300 years of British sovereign control over the City. These bodies have only just begun to flex their muscles.
The CER’s analysis largely assumes that the EU would carry on much as before if Britain left, even though Europe itself is in grave political and economic crisis. The exit of a large and wealthy state would change the chemistry of the EU in radical ways, with consequences that are impossible to predict.
Britain is a much bigger player than Norway or Switzerland, able to lead a European free-trading bloc. Most analysts say Sweden, Germany and Holland would bend over backwards to find an amicable arrangement.
Chancellor Angela Merkel, of Germany, told the Bundestag last week that those in Europe taking a nonchalant view on a Brexit are deluding themselves. “I find the ease with which some people say it doesn’t matter if the UK remains in the EU or not to be grossly negligent,” she said.