How A (Cowardly) Sovereign UK Will Be Subservient To The EU?

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Economist and writer Liam Halligan claimed the EU currently believes it has a “kind of colonial relationship” with the UK over fishing and is demanding this is maintained after Brexit. Britain [Specifically Edward Heath] gave up control over its fishing waters in 1972 when it joined the European Common Fisheries Policy (CFP).

John Redwood believes “Right from the start of the endless and so far fruitless negotiations between the UK and the EU there has been a fundamental divide. The UK has proposed a Free Trade Agreement between a sovereign UK and the EU, just as the EU has with countries like Canada and Japan.
The UK has always been clear we wish to leave the single market and customs union, to be free to run our own international trade policy and to determine our own laws.

“Under Mr Johnson and Mr Frost we are assured the position has been clear. We want to be an independent country and are willing to be good friends and to offer a free trade area which would assist the EU more than the UK given the large imbalance in trade in their favour.
There is no need for the UK to give them our fish, or to accept their laws, or to agree to arbitration of disputes entailing subservience to their court. Anyone of those would be a violation of the purpose and spirit of Brexit.

“I did not expect to be still writing such obvious and necessary words this late in the year. I trust the government sticks to its promises. The EU has to make up its mind. If it is negotiating in good faith it will need to accept a Free Trade Agreement, not continued membership of the single market. It will have to abandon its wish to make our laws after we have left, and accept it will not arbitrate any future disputes in the ECJ.

“The EU Treaty states the EU should pursue good neighbourliness and prosperity with neighbouring states, and should encourage the progressive abolition of restrictions on international trade. It’s a pity they do not think this applies to their relations with an independent UK, and a pity they have torn up the clause in the Political Agreement which states the future relationship will be based on a Free Trade Agreement”.

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The European Union is seeking a ‘level playing field’ with the UK after Brexit. One of the key issues concerning the EU is ‘dumping’. It is worried that the UK will become a super-competitive, de-regulated ‘Singapore-on-Thames’, undercutting the prices of products produced in the EU in the same way China does globally.

In fact the opposite is the case. It is the nineteen EU member states operating a single currency, the euro, that are dumping their goods onto world markets ‒ in particular the UK ‒ because the euro is a structurally undervalued currency.

We know that Germany is desperate for a trade deal with the UK. Looking at its massive trade surplus with the UK we know why. The chart below shows that in 2019 the UK had a trade deficit in goods with 16 EU member states. Germany leads the list with £29bn, mainly in automobiles. Even allowing for potential quality differences between British and German cars, a key explanation is again the undervaluation of the euro. Germany’s trade surplus is, of course, our trade deficit.

If the UK maintains the close economic ties with the EU that the EU wants, the UK will remain a captive market for German and other EZ member goods and will be unable to address the structural disadvantage which it finds itself in. The UK could impose an anti-dumping duty of over £65bn on the protectionist EU.

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The euro is undervalued against sterling by 15-20% on a PPP basis. Had the euro been correctly valued, then EZ exports to the UK in 2018 would have been lower by between £67.2bn and £88.4bn. The UK would therefore be entitled to impose an annual anti-dumping duty on the EZ in this range. The EU is following a classic ‘beggar thy neighbour’ strategy. This is where a country or trading bloc follows a protectionist trade strategy that adversely affects its trading partners. Typically, this involves tariffs and quotas, but in this case the EU’s weapon is a structurally undervalued currency.

Why do I want to see Boris Johnson grow a pair and tell Barnier and the EU “thank you and goodbye”? Probably because he promised to do it. But he’s a politician!

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