Wednesday, October 5, 2016

Better Brexit, Greater Britain

Forget ‘hard’ or ‘soft.’ The U.K. should aim to be a free-trade mecca.


By Review & Outlook
The Wall Street Journal
October 5, 2016

Theresa May promised that “Brexit means Brexit” when she became Britain’s Prime Minister this summer, and she seems to have meant it. She said this weekend that by March she will formally begin negotiations with Brussels to leave the European Union, setting the stage for Brexit in 2019. Now Britain needs to live up to the other half of her famous dictum and “make a success of it.”

Doing that requires thinking big—much bigger than most British and European politicians are currently doing. London is consumed with debates about “hard Brexit” versus “soft Brexit,” meaning how much of its newfound independence Britain will surrender back to Brussels in exchange for how much access to the European market. The softees say Britain should preserve market access even at the cost of subjecting itself to most EU rules, as Norway and Switzerland do. The hard side says Britain should walk away from the EU so London can impose stringent immigration controls.

This debate is a trap. Attempts to cater to Brussels’s innate protectionism by bargaining Britain back into the unhappy circle will let the EU whittle away the advantages of Britain’s new freedom. But Britain also can’t afford to abandon Europe given the mutual economic ties that already exist.

Instead of hard or soft, Mrs. May and her colleagues should focus on creating a better Brexit to build a Greater Britain. That means radically expanding Britain’s trading relations abroad while boosting competitiveness at home. Thinking big this way would make the most of Britain’s new opportunity while helping Britain drive the right kind of exit with the EU.

Britain needn’t wait until it leaves the EU to start negotiating trade deals, and potential trade partners shouldn’t hold back either. Brussels insists Britain can’t open trade talks on its own while still formally an EU member. Plenty of London bureaucrats and lawyers may be tempted to agree. But why should Jean-Claude Juncker or Angela Merkel get a veto over Washington’s, Ottawa’s or Canberra’s ability to strike a trade deal with London?

Britain should aspire to have high-quality free-trade agreements in place with the U.S., Canada, Australia and New Zealand from the first post-Brexit day in 2019. Their historical ties are close, and all four countries of the Anglo-sphere have attempted to negotiate trade deals with the EU. Countries such as South Korea that already have EU deals could conclude new bilateral deals quickly. British Trade Secretary Liam Fox said last week he is also open to trade deals with developing countries. Brazil, China, India, Nigeria and others can jump at that invitation after years of trade difficulties with the EU.

This need not be done at the expense of the EU. New British bilateral trade deals might even prod Brussels to strike a more liberal deal with Britain to avoid being left behind. The stronger Britain looks economically, the more incentive Europe will have to think larger and give the U.K. better terms.

Mrs. May also seems to understand the crucial role of domestic economic reform in making Brexit successful, or at least some of her ministers do. Mr. Fox has criticized British businesses that grew complacent within the protectionist confines of the EU. Maybe it was in-artful to accuse CEO's of preferring Fridays on the golf course to putting in extra hours boosting competitiveness. But Mr. Fox is correct that Britain will need to invest more to increase productivity once the U.K. has to compete on its own for capital and markets.

One place to start would be tax reform. Former Chancellor George Osborne put Britain on track to cut corporate-tax rates to 17% by 2020 from 30% in 2008, which is a good start. New Chancellor Philip Hammond hasn’t embraced the Osborne timetable, but he will have to do more than fiddle to keep Britain competitive outside the EU. The spending plan he announced this week for better infrastructure is typical Euro-Keynesian small ball.

The May government is also revisiting laws that prevent much-needed new homes, and it should scrap such older Tory policies as Help-to-Buy that distort the housing market. These are small steps, but they represent a down payment on pro-growth reform if Mrs. May can build on them.

The economic harm from Brexit has been far less than advertised, but that is no cause for complacency. The pound has taken a hit this week on Mrs. May’s speech, and the sooner Britain can reduce uncertainty the better. The Tory goal should be to make post-Brexit Britain a mecca for investment and talent to build a prosperous example for Europe and the world.


Article Link To The Wall Street Journal: