Brexit's Impact Will Reach Overseas

If North America and Europe don't set high standards for trade, others will set them lower

Published: March 13, 2018

Author: Armand de Mestral

If Brexit is reflective of something greater than a purely British malaise, the movement will certainly have implications for Canada.

We live in a time of considerable uncertainty about the fate of trade and investment agreements. Some argue that trade agreements have contributed to social inequality. The current president of the United States considers regional trade agreements to have contributed to the economic decline of significant regions of his country and he appears to be moving toward denouncing the North American Free Trade Agreement (NAFTA). In Europe, the failings of the EU monetary union have been severely criticized. The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is still subject to provisional application due to considerable political objection to the investment chapter. And at the global level, progress in making new multilateral arrangements to encourage further trade liberalization at the World Trade Organization (WTO) remains slow, although there have been some recent successes such as the Trade Facilitation Agreement.

The Brexit referendum reflected a number of public concerns, including the societal fear of immigration triggered by the free movement of EU citizens into the United Kingdom. The decline of the United Kingdom’s industrial sector employment also fuelled the Brexit movement.

The proposed solution is for the United Kingdom to leave the most successful Customs Union in history, to resort to national self-assertion and the negotiation of new free trade agreements (FTAs) with distant trading partners to compensate for lost trade with the European Union.

On top of all this, a new school of trade economists is trying to argue that trade agreements may be less necessary in the future, as robotics and laser printing technology make it cheaper to repatriate production in developed countries. There may be some truth to these claims, but for the foreseeable future, raw materials will be traded and technologically advanced regions will provide what others do not have.

Producers will need to trade and may well need the economies of scale that only large markets and international trade can provide to launch new products. While a trend to produce in individual markets is emerging, the evidence of a serious decline in international trade is simply not there. The world continues to rely on the WTO, regional trade arrangements and the international law that anchors these trade and investment agreements.

Critics of the European Union, NAFTA, regional trade agreements and globalization generally seem to be united in one thing: the proper response is national self-assertion and protectionism. However valid some of their criticisms of current trade policy may be, their solution is surely wrong. When we consider the results of extreme nationalism and economic protectionism in recent history — war and the Great Depression — there is little to commend the policies they propose, whether Brexit or the end of NAFTA.

Rather than tearing down valuable trade agreements that have brought prosperity to the great majority of their populations, North America and Europe should work together to unite under the banner of an Atlantic FTA, which would continue the process of promoting economic integration between these two regions, which already share so much in terms of values, history and social and political culture.

Of course, both North America and Europe have economic problems and need to do more for the welfare of the disadvantaged, but both parties already share a common interest in promoting high social, economic, environmental and technical standards. Social justice could be ensured by fair systems of taxation and social services. Surely, this is best achieved by working together and not by division and protectionism. The groundwork has been laid by NAFTA, CETA, the draft Transatlantic Trade and Investment Partnership and the EU-Mexico trade agreement (currently in negotiation). All that remains is to generalize the best of each agreement to promote an Atlantic FTA.

No doubt, this may be a politically difficult task amid nascent nationalism and protectionism, but it is surely the right approach.

The world is not standing still. If parties to a possible Atlantic FTA do not set the high standards of trade and social justice in this world, others will set them lower. The emergence of China presents great opportunities, but also immense challenges to North America and Europe. Faced with a successful Atlantic FTA, China will need to move toward the positions of North America and Europe. But if faced with division and disarray, China will take the lead: North America and Europe will have to follow.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.