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Thursday, 4 February 2016

Brexit: Memoirs of a Frustrated Interloper - Part Two

The second in a series of blogs on the EU Referendum - By Alex Davies, Research Analyst at Greater Manchester Chamber of Commerce.
In the coming blogs I will break down some of the statistics and arguments most commonly used in the debate. I aim to clear up any common misconceptions, prove that numbers can be made to show almost anything based on the underlying assumptions made, and to show how the lines from both sides on the very same issues often contradict one another. If I seem to give more time to one side than the other, it is because their numbers or assumptions are riper for scrutiny, or reveal something more complicated.

A commonly cited figure is the 3 or 4 million jobs that are “linked to trade with the rest of the EU”. These essentially are any jobs in exporting industries or those linked to the wages arising from such industries. It’s certainly a nice figure to bandy about but what does it actually mean? Within the context it usually appears in it seems to mean: “If we leave the EU 3,000,000 people will lose their jobs”, or maybe: “3,000,000 jobs have been created as a result of being in the EU”, or the slightly less apocalyptic: “If we leave the EU 3,000,000 jobs may be at risk”. In reality the figure is pretty much meaningless in relation to the debate. These figures are not calculated with the intention of reflecting the impact of the UK leaving the EU, as they are linked to our exports rather than our membership status. The researchers at South Bank University who originally reported figures in this ballpark stress that “we do not seek to test this counterfactual hypothesis”; a similar paper from the National Institute of Social and Economic Research (NIESR) warned that: “there is no a priori reason to suppose that many of these [jobs], if any, would be permanently lost if Britain were to leave the EU.” Would the demand that creates these jobs really just disappear if we leave?  Retaining access to the single market will undoubtedly be a priority if we do, and article 50 of the Lisbon Treaty ensures we would have at least two years to conclude an agreement. Even so, if we were able to set our own trade regulations how much would we realistically be able to or want to deviate from current standards? “EU” regulations are far from the only ones affecting us, and most essentially bundle together and enforce a whole bunch of wider international agreements, standards and protocols. We would still need to adhere to such standards and accept global convention in order for us to remain an attractive country to trade with. Even if we strive to achieve more bargaining power in such negotiations, we would unquestionably do everything to avoid risking jobs in export industries.

There are many misconceptions surrounding article 50. The idea that the UK will “not be in the room” during any exit negotiations is false: Clause 2 states that an agreement will be negotiated and agreed upon with the withdrawing country, clause 3 states that the two year negotiation period will be extended until a unanimous agreement is made and clause 4 states that the withdrawing country will remain a full part of EU institutions during negotiations. Another often heard line is that the referendum puts our free movement status at risk. This is also not necessarily true. The referendum concerns our membership of the EU, whereas the free movement of people, goods and services results from us being a part of the European Economic Area (EEA). We should have no qualms about retaining our status within the EEA – if we so wish - if we vote to leave. This would be part of what is often referred to as “the Norwegian option” - just one of multiple exit strategies that will be discussed in later editions of this blog.

If your company trades with the rest of the EU please let us know your take on the issue. How does our trade relationship with the EU affect your business? What reforms should we be fighting for? What are your concerns about the result of the referendum?
More numbers in the next post.

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