Brexiteers subscribe to an outdated economic theoryby Ian Dunt / February 6, 2018 / Leave a comment
For decades, Brexiters railed against Brussels red tape. It was their core message. Bananas couldn’t be bendy and lawnmowers couldn’t be loud. The world had gone mad. Brussels was lost in a frenzy of petty bureaucratic intrusions. On and on it went until eventually Britain voted to leave the European Union.
The underlying assumption behind these stories was that British industry was a roaring tiger, waiting to trade confidently with countries around the world, if only these eurocrat shackles could somehow be torn off.
That basic idea is at the heart of the current debate about whether we stay in the EU’s centre of gravity or not. The free market Brexit lobby believes that doing so will stifle Britain’s great trading future, just as they felt Brussels red tape suffocated it in the past.
Their error here is a fundamental one and one that speaks to how heavily influenced they are by nostalgia. They think about trade as if it were the Victorian times. What they don’t understand is that European regulation often encourages trade.
It is understandable that there is some confusion. Regulation can, after all, act as a significant “non-tariff barrier.” Say a country has certain rules about the use of recyclable content of food packaging. When another country tries to export to it, those goods have to be stopped at the border and checked to see if they comply with that law. This gets in the way a bit, meaning that trade becomes more difficult.
But here’s the thing. One of the chief aims of trade negotiators over the last few decades has been about melding rules together. If two countries have the same rules—and especially if they have the same institutions making decisions on whether they’re both following those rules—goods can cross the border without being checked. Everything moves freely and you can do more business. The European Union is one of the purest examples of this principle in action.
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So while some forms of regulation hinder trade, others can help maximise it. So far, so straightforward. But to really see the effects, consider an example.
Take aviation. Britain is currently a member of…