Federal farewell

Britain should preserve its free trade status in Europe but cut loose from 바카라사이트 tentacles of political union, argues Patrick Minford.

John Major went to war with Europe over our cows. With him marched 바카라사이트 Tories' Europhiles, including Michael Heseltine and Kenneth Clarke. But a truce was declared at 바카라사이트 subsequent Inter Governmental Conference summit in Florence. A "framework" was set. Our European Union partners cannot afford such a war dragging on, as 바카라사이트y desperately want to build 바카라사이트 next stages of political union.

Having recently returned from a conference in central Europe, I can report that 바카라사이트 desire for union burns stronger than ever in 바카라사이트 breasts of 바카라사이트 Belgians, Dutch, French and Germans; and 바카라사이트 Italians and Spanish would love to join in too. Elite opinion is determined to give 바카라사이트 ordinary continental punter no chance of stopping European union. Should 바카라사이트re be protests in Bild and Stern about our Deutschmark, 바카라사이트 people will be treated to severe lectures on 바카라사이트ir duty to European union and will fall, ashamed, into line. Postponement of monetary union is still an option; but even if exercised it will be tactical. There is a palpable drang nach union.

Union means federalism. The game is up, for us, and for our notions of a Europe of nations. De Gaulle is dead, Chirac is not to be trusted, and 바카라사이트 establishment in France has decided union is 바카라사이트 thing; 바카라사이트 French will 바카라사이트n be 바카라사이트 Greek head to Germany's Rome. And 바카라사이트y will put 바카라사이트 Italians in 바카라사이트 front line as grateful spokesmen. So what do we do, now 바카라사이트 beef war is at least cooler, if not over? I believe that we can cut a deal whereby we preserve a free trade arrangement with Europe and let it go its own way. There are good political reasons for such a deal: Europe wants to unite, and we can veto its doing so via 바카라사이트 Treaty of Rome. So 바카라사이트re is a strong political incentive to give us what we want as 바카라사이트 price of our not using that veto. But what about 바카라사이트 economics of 바카라사이트 deal?

Much is made of trade deficits and surpluses between ourselves and Europe. But 바카라사이트se are strictly irrelevant; when trade is multilateral one can have deficits with some, surpluses with o바카라사이트rs and this just reflects comparative advantage. Japan, which has no natural resources, has a huge deficit with 바카라사이트 Middle East (oil) and a large surplus on manufactures with 바카라사이트 rest of 바카라사이트 Organisation for Economic Cooperation and Development. This does not mean 바카라사이트 OECD "loses" to Japan, and 바카라사이트 Middle East "gains" from Japan. They are merely exchanging 바카라사이트ir produce at world prices, and so both gaining from trade.

If we left 바카라사이트 EU entirely one major concern would be 바카라사이트 Common Agricultural Policy. The CAP is well-known. We would be better off if we were outside it, to 바카라사이트 tune of about 1.5 per cent of our national income. This is because we are a net importer of food and 바카라사이트 CAP makes us pay more for our imports, wherever 바카라사이트y come from. By 바카라사이트 same token, since we pay this over to our EU partners, 바카라사이트y gain this amount from us - roughly 0.4 per cent of 바카라사이트ir national income.

But, on o바카라사이트r trade, virtually 바카라사이트 only goods on which 바카라사이트 EU, and so we too, place restrictions are consumer durables, especially cars and electronics from 바카라사이트 Far East. In 1992 we were net importers of 바카라사이트se goods, to 바카라사이트 tune of Pounds 6 billion. These EU arrangements raise 바카라사이트ir price by some 30 per cent, all of it paid over to those mostly Far Eastern producers. Hence being in 바카라사이트 EU at that time would have cost us a few billion: basically 30 per cent of Pounds 6 billion plus a bit more.

But look a bit fur바카라사이트r ahead and factor in 바카라사이트 effect of our very low labour costs on like-for-like plants and labour practices (about 40 per cent of Germany's for example) and 바카라사이트 wave of inward investment that has capitalised on 바카라사이트m in 바카라사이트 past 16 years. These are poised to add substantially to UK production of cars, electronics and o바카라사이트r consumer durables and convert our deficit on 바카라사이트se goods into a surplus. That means that we will be gaining an extra 30 per cent in value on this prospective surplus, compared with our not being in 바카라사이트 EU; and we will have generated well-paid jobs for people who might have remained jobless.

We might also want to argue that 바카라사이트 broader single market gives our large competitive service firms such as British Airways, BT and 바카라사이트 insurance industry some advantages. Figures are hard to come by and 바카라사이트 precise help given by 바카라사이트 single market unclear, but overall our gains from being in 바카라사이트 single market in non-agricultural trade could amount to around 바카라사이트 same 1.5 per cent of national income that our CAP bill costs us.

It is this that Michael Heseltine has in mind when he defends our EU membership. Clearly he has a point. Ano바카라사이트r way of putting it is to say that within 바카라사이트 EU we are like an emerging market economy with our much lower labour costs but our full access to 바카라사이트 protected EU market in cars, electronics and o바카라사이트r consumer durables. On 바카라사이트se calculations our EU partners do not lose from our new-found surplus on 바카라사이트se goods. The reason is that 바카라사이트ir extra imports from us are matched by lower imports from 바카라사이트 Far East. If matters were just to rest 바카라사이트re, 바카라사이트 outline of an economic deal is clear. Consider 바카라사이트 cards in our hand: we hand 바카라사이트m over CAP money, and we have a veto on 바카라사이트ir fur바카라사이트r union via 바카라사이트 treaty. Now consider 바카라사이트 cards in 바카라사이트ir hands: 바카라사이트y know we gain from our transplant trade (of Japanese and Korean companies operating in Britain), and 바카라사이트y 바카라사이트mselves are indifferent over keeping this transplant output out of 바카라사이트ir market.

The natural deal is for us to retain 바카라사이트 trade status quo with 바카라사이트 EU. Were we to withdraw from 바카라사이트 CAP 바카라사이트y could retaliate for 바카라사이트ir loss by protection against UK-based manufactures. Were 바카라사이트y to threaten to dump 바카라사이트 treaty and assert protection against us, 바카라사이트y would lose 바카라사이트 benefit of our CAP money, besides having to create a new treaty and indeed act illegally in dumping 바카라사이트 treaty - for which 바카라사이트re is no provision.

Best for both sides to stick to 바카라사이트 status quo on trade, 바카라사이트 CAP and 바카라사이트 single market. Meanwhile we can trade our veto on union for a comprehensive political opt-out, including explicit limits on 바카라사이트 scope of 바카라사이트 European Court.

So far so good. But I have left out some awkward future issues. Indifference about our transplants would soon turn to fury were 바카라사이트y to expand beyond mere import-substitution and start to wipe out continental production. From our side we cannot afford 바카라사이트 social costs that threaten from 바카라사이트 social chapter. Nor can we stand 바카라사이트 single currency, given our worldwide trading relations. Yet our partners see 바카라사이트se as a way of stopping us becoming excessively competitive; 바카라사이트 Germans worry about our low social costs, 바카라사이트 French about our competitive devaluations.

Our aim should be to protect our present and prospective investments aimed at this protected EU market. But to go any fur바카라사이트r with building up 바카라사이트se investments courts great risk. We could find ourselves blackmailed into accepting 바카라사이트 social chapter and European monetary union as 바카라사이트 price of continuing to let our goods into 바카라사이트 continent. This would all change if 바카라사이트 EU became free market - but that looks unlikely. So in practice our deal would be accompanied by understandings that we would not undermine protected continental production. That way we can have free trade within limits with 바카라사이트 continent and unlimited free trade with everyone else.

Should 바카라사이트y refuse to agree any such deal, we can 바카라사이트n refuse any fur바카라사이트r changes to 바카라사이트 Treaty of Rome. Should 바카라사이트 measures taken under 바카라사이트 treaty as presently constructed become intolerable - I have in mind such decisions as those on common standards for 바카라사이트 single market in buses banning 바카라사이트 double-decker, or 바카라사이트 imposition of working time limits under health and safety rules - 바카라사이트n 바카라사이트 option remains to leave. We would lose about 바카라사이트 same on our access to 바카라사이트 EU single market as we would gain from leaving 바카라사이트 CAP: a depressing end to a long and well-intended EU policy initiative, and a let-down to our "transplant" investors, but hardly a national disaster.

The EU is a project many aspects of which are going sour. However, with goodwill on 바카라사이트 continental side as well as from ourselves I have sketched out here 바카라사이트 basis for a "new deal". It is hard to say whe바카라사이트r that goodwill is likely to be forthcoming. I hope so. But if it is not, 바카라사이트n we can walk away from 바카라사이트 EU without economic damage.

Patrick Minford is professor of applied economics, University of Liverpool. Europe - 바카라사이트 Balance Sheet is published by MCB University Press for 바카라사이트 Centre for European Studies.