A “Brexit Free Lunch” for Britain? Probably Not.

29 June 2016
Robert Scollay
Professor Robert Scollay

Boris Johnson, the de facto leader of the pro-Brexit forces, has sought to reassure Britons that a post-Brexit Britain will continue to enjoy “free trade” with Europe through its access to the European Union’s “single market”, even as it rejects the EU’s rules on movement of people and opts out of EU laws and regulations, and of contributions to the EU budget.

How realistic is this?

The “single market” is not simply about “free trade” in the widely understood sense of free trade in goods. It includes free trade in services, free movement of capital and free movement of labour. Free trade in services, which Britain needs to retain, itself involves substantial commitments involving free movement of people, for example in many categories of professional occupations. Even free trade in goods requires compliance with EU technical standards and other relevant laws and regulations. And legal disputes related to the “single market” are adjudicated by the European Court of Justice.

It is true that Norway and the other two members of the European Economic Area (EEA) participate fully in the EU single market without being members of the EU.  But under this arrangement they still have to follow all relevant EU rules, regulations, and the numerous single-market-related policies, without having any say in the ways they may be changed in future. This includes full compliance with EU rules on people movement. 

EEA members also make contributions to the EU budget that on a pro rata basis may be comparable to what Britain currently pays. Switzerland has a similar arrangement with the EU. For Switzerland and the EEA members there is even an EFTA Court that handles single-market-related disputes, in parallel to the European Court of Justice.

In other words there is no precedent for the scenario that Boris Johnson is painting, in which Britain retains the full benefit of the single market while rejecting EU rules on people movement, freeing itself from the need to comply with EU laws and regulations, and avoiding contributions to the EU budget.

Is the ignoring of these realities by the “Leave” campaign a case of breath-taking naivety, or just plain deception?

There will be intense pressure from business in both Britain and Europe to keep Britain within the single market, and the economic costs to Europe as well as Britain will be considerable if this does not happen. But the costs will undoubtedly be higher for Britain, and this will weaken Britain’s bargaining position. 

Its bargaining position will be further weakened if Europe’s leaders are united in opposing Britain’s desire to negotiate the terms of its post-Brexit economic relationship with Europe before triggering the exit procedures. A negotiation in which goodwill is absent and the EU holds the high cards is not likely to end well for Britain. And pursuit of brinkmanship on both sides of the negotiating table could well deliver the worst of all possible outcomes.

Robert Scollay, Professor of Economics, University of Auckland Business School.