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"Brexit, Trump and the Trade Challenge" Breakfast Briefing
Doltone House, Sydney
Thursday, 30 March 2017
Transcript of the Rt Hon Peter Lilley
Thank you Nick and thank you for the privilege of coming here this morning. I congratulate the Menzies Research Centre on their extraordinary foresight and knowledge of the events! In the best sense of timing, they had gotten me here the morning after the triggering of Article 50. I certainly, when I received the invitation from Nick, accepted with alacrity.
I hope I wasn't quite as overeager as one of my colleagues who’d languished unnoticed on the backbenches of the House of Commons for about 20 years before he finally received an invitation from the BBC to take part in the television programme, and the letter said there’d be a fee of £25 and he wrote back saying he’d be delighted to take part and enclosed a cheque for £25. I promise not to reveal how much I’ve had to pay for the privilege of coming here this morning. Mind you, it is always daunting to speak here atbreakfast. I heard the definition of the difference between a somnambulist and an after-breakfast speaker - a somnambulist talks in his own sleep and an after-breakfast speaker speaks while other people speak, so please feel free. I’ll say a few words and then Janet, I think, will elicit from me a few things I've been trying to hide.
There are just two or three questions which have arisen during my visit to this part of the world.
The first is was the vote for Brexit motivated in the same way as the vote for President Trump? Well, there was undoubtedly an overlap between the motives of the voters in the two countries particularly in as far as a sort of rejection of the elites who had shown pretty good contempt for the masses, so they were rejected by the masses and particularly also a concern about mass immigration, but in one respect the two elections were totally different. The Trump victory was based very much on an appeal to protectionism and a rejection of globalisation. The Brexit vote was not. The exit polls taken on the night of the vote showed that of those who voted leave, over half said the main reason that they voted leave was to get back control over our laws. A third said the main reason was to get control of our borders, i.e. to be able to control immigration, and the remaining sixth said it was to get back control of our money. A very large contribution we have to pay for the honour of belonging to the European Union every year.
The notion of trade and protectionism did not feature, and all the leaders of the leave campaign, including myself, are strong free traders and our Prime Minister has made it clear that she wants Britain, post-Brexit, to be a beacon for free trade and try and provide a counter-current to that set up by President Trump in the direction of protectionism.
The second question I'm asked is what will the outcomes of the negotiations be? Now I don't know whether any of you are practitioners of Zen Buddhism but if you are, you will know that the Zen master asks the disciple out of the middle to describe the sound of one hand clapping. A very difficult thing to do, but I can describe the sound of one hand negotiating. It’s the sound that emanates from the House of Commons or any television studio in Britain when discussing the negotiations we’re about to begin on. It focuses exclusively on the British negotiating hand and there’s no mention, or very little, of the negotiating hand of our partners.
Now actually the situation is quite simple, there are only two options for the outcome as far as trade agreements between ourselves and Europe is concerned. Both of them are easy to negotiate and actually the choice will be made by our partners in Europe, not by us.
The only two options are either that we reach a free trade agreement with Europe which effectively perpetuates what we've got already, zero tariffs and the minimum of new non-tariff barriers. Or, we don't get such an agreement and we move to trading with our European partners on the basis of World Trade Organisation rules with most-favoured-nation tariffs, the same as they apply to you and no discrimination against us. Those are the two options, and both are very simple.
People say oh!, negotiating a trade agreement with Europe can take years. It can, if you start with tariffs against each other and you’ve got to negotiate their removal, but if you start with zero tariffs and you want to end up with zero tariffs, there’s no reason why it should take more than 10 minutes. And if you start with identical rules and regulations and standards, and the day after Brexit, we are going to have identical rules and regulations and standards because we’re incorporating them all in our law. Maybe changes in the future. All you have to negotiate is the mechanism that will apply if our rules do diverge and such mechanisms exist in trade agreements elsewhere and they may take a few weeks to negotiate, but essentially it is quite simple.
Likewise, if we move to trading on ‘most-favoured nation’ tariffs and no discrimination under the World Trade Organisation rules, that happens if there is a complete breakdown of negotiations and doesn't require any negotiation at all is what happens, so both are simple. Actually both are quite acceptable to the UK. We would prefer, and Mrs May has made that clear in her letter to the EU, we would prefer an agreement that continues free trade with the EU, no tariffs and no new barriers, but if they can't accept that then we will be content enough to move to trading on World Trade Organisation terms and rules.
The cost to us will be relatively small, the World Trade Organisation’s ‘most favoured nations’ applied to Britain would be an average tariff of 4%. Since a year ago, we have seen a 15% improvement in our competitiveness from the movement of the exchange rate of the pound against the euro so the vast bulk of British exporters will still be better off post-Brexit, with no agreement, than they were a year ago and we will get back the £10 billion a year that we currently give them net. We actually give them £18 billion and £8 billion comes back in various forms. So we give them a net fee for belonging to the EU of £10 billion, we will no longer have to pay that and that £10 billion is equivalent to the value of 7% of our exports, so we're paying a penalty of 7% to avoid a penalty of 4% which is not a very good deal as you can appreciate, so we will be better off out on either terms.
We’d like a free trade deal, we hope for one, but if there is none, so be it, we will still prosper. The choice will be made by our European partners, if economics prevail, we’ll get a free trade deal because we are the biggest single market for the goods of the European 27 countries, bigger than America. We import more from them than America does, America exports more to them than we do, despite having faced tariffs whereas we don’t, and they’ve got a huge surplus in trade with us, so if they are motivated purely by economic self-interest, there will be a free trade deal but it is quite likely, in my view, that they will find political imperatives override economic self-interest and that they will say we can’t give Britain a free trade deal, or agree to a free trade deal. They wouldn’t be giving us one because they would gain more from it than us but we can’t agree to a free trade deal because it is necessary to cause some difficulties to the UK in order to discourage our voters from voting for eurosceptic parties or even from any governments thinking of following Britain's good example, and so quite probably, there’ll be no free trade deal, and so be it, we will prosper.
But all the attention focus is on Europe. Europe is our biggest customer but it’s declining in importance. In the beginning of the century, 55% of our exports went to Europe, last year it was just over 40%, it’s projected to be down to 30% by the year 2030 even if we stay within the European Union. Over the last decade, our exports to Europe rose by 4%, our exports to the rest of the world rose by 42% and that's where we as a country will be looking for the growth and opportunities for ourselves and it won't just be a question of whether or not we got a trade deal with the EU but what sort of arrangements can we reach with the rest of the world, not least with Australia.
And I was delighted to meet Steve Ciobo and see him repeat on television what he told me in extreme confidence when we met, that he is very eager for a trade deal with Britain, that he believes it can be done quickly, that he believes it can be done in parallel with your negotiations with Europe and he’s not fussed about the fact that the European Union says we can't negotiate any trade deals until we leave. Legally, that's the position, but we can discuss them. If they want to take us to the European Court and have a lengthy legal battle on the difference between a discussion and a negotiation, so be it, but we’ll be out of the EU before they ever reach a conclusion in the European Court…So we want to be in a position to announce trade deals, you know, a minute past midnight on Brexit day in a couple of years’ time and I hope we will be able to do so with Australia, with other friends, with America.
President Trump has offered a trade deal with us even though he is unenthusiastic about the rest of the world and we hope we can thereby wean him off protectionism and set him on the direction of a freer trading world. I think the opportunities for Britain from Brexit are enormous but I think also the implications are good for Europe, because Europe will no longer be held back by us. We’ve been the drag anchor on them doing things they need to prop up the euro and make themselves succeed. We’ll also be, I hope, a benefit to the world in that we will be able to give a new impetus to free trade and offset the winds of protectionism which otherwise have been blowing.
So I am very grateful for the opportunity to meet you here. I am enormously grateful for the opportunities the Menzies Centre have given me to meet officials and leading lights here in Australia and I look forward to discussing this with Janet in a minute on the sofa. Thank you.