A past member of the
UK’s monetary policy committee once told me that they got much more
intelligent questions from committees of the House of Lords compared
to committees of the House of Commons. This should not be too
surprising, as there are some people with considerable knowledge and
experience in the Lords.
Below is an excerpt
from the conclusions
of a recent Lords EU Committee Report (HT Frances Coppola)
“The notion that a country can have complete regulatory sovereignty while engaging in comprehensive free trade with partners is based on a misunderstanding of the nature of free trade. Modern FTAs involve extensive regulatory harmonisation in order to eliminate non-tariff barriers, and surveillance and dispute resolution arrangements to monitor and enforce implementation. The liberalisation of trade thus requires states to agree to limit the exercise of their sovereignty. The four frameworks considered in this report all require different trade-offs between market access and the exercise of sovereignty. As a general rule, the deeper the trade relationship, the greater the loss of sovereignty.”
There you have, in
one calm and measured paragraph, the contradiction at the heart of
the argument put forward
by Liam Fox and others that leaving the EU will allow the UK to
become a ‘champion of free trade’. You cannot be a champion of
free trade, and have sovereignty in the form of taking back control.
It is not a
contradiction, of course, if you are happy to accept the regulatory
standards of the US, China or India. That appears to be the position
of Leave leaders like MP Jacob Rees Mogg. Ellie Mae O’Hagan spells
out what this may mean in practice. Lead in toys - bring them in so
we can sign a trade agreement with China. And you can be sure that
this will be the nature of the discussion every time a trade deal is
signed. In each case we will be told that we have to accept this drop
in regulatory standards, because British export jobs are on the line.
This is the point of
Dani Rodrik’s famous impossible trilemma:
you cannot have all three of the nation state, democratic politics
and deep economic integration (aka free trade). His trilemma
replaces sovereignty, by which in meant in this context the nation
state being able to do what it likes, by democracy. In the past I
have always found this problematic. Surely a democracy can decide to
give away a bit of its sovereignty in return for the benefits of
international cooperation (in the form of trade deals, or indeed any
other kind of international cooperation). After all, every adult in a
relationship knows that this relationship means certain restrictions
on doing just what they would like.
At first sight, it
would seem as if the Brexit vote shows Rodrik is right. Democracy
voted to take back control, which means reducing trade integration.
But I think it is becoming increasingly clear that this is the wrong
interpretation. Voters were told they could take back control and be
no worse off, and polls make it clear that message was believed by
many Leave voters. As it becomes clear that people will be worse off,
as depreciation induced inflation cuts real wages, opinion is
changing. Polls already suggest
that if the vote was held again, we would get a different result.
Polls
also suggest more voters want to prioritise favourable trade deals in
negotiations, not curb immigration. Over the next year or two this
will only intensify, as prices rise, as companies make plans to leave
the UK, as the problems caused
by declining immigration emerge, and as the UK’s weak
negotiating position becomes clearer.
Leavers know this,
hence the attempts to remove
any kind of democratic oversight from the Brexit process. At present
MPs appear transfixed by the light of the Brexit vote, even though
most know
Brexit is an act of self harm. But it was utterly predictable from
the day that Corbyn was re-elected that we would see a revival of the
Liberal Democrats. As they chalk
up election victories, it might just be possible that we could yet
see some democratic oversight of the Brexit process. [1]
To see a model of
what could and should happen, look to Switzerland, where referendums
are part of political life. In February 2014 Switzerland voted to
restrict immigration from the EU, even though this jeopardised their
trade relations with the EU. Since then the EU has insisted that its
bilateral trade deals with Switzerland depend on free movement. As a
result the Swiss parliament has backed down, and just passed
measures which greatly diverge from the referendum proposal, even
though in Switzerland referendums are (unlike the UK) meant to be
constitutionally binding.
So we see in
Switzerland, and perhaps we will see in the UK, that parliamentary
democracy can be compatible with trade integration. Rodrik is right
that deep trade integration (the pressures from which will continue,
as Richard Baldwin outlines)
puts pressure on the ability of nation states to decide on their own
laws, but a democratically negotiated compromise is possible. (After
all, national languages are
a barrier to trade.) Perhaps the examples of the UK and Switzerland
suggest two things: first that these negotiated compromises should be
out in the open rather than done behind closed doors, and secondly
that what is very difficult to mix are trade integration with
national referendums.
[1] The conventional
logic is that MPs would go along with Brexit because the Remain vote
is concentrated in too few constituencies. But outside Scotland the
Leave vote is now split three ways (Conservative, Labour and UKIP).
Labour may mock
the LibDems as Brexit deniers, but as the LibDems get the votes not
only of people who deeply care about being part of Europe (see the surge in Remain identity noted here) but also of
those that voted Leave but are now getting concerned, they will be
the ones with the last laugh.
