The reason that the area which could potentially become CANZUK looks bad in present statistics is…
Liam Hillman
1

Obviously the fact that we have a very deep level of economic integration with the rest of the EU and we don’t have FTAs with Australia and New Zealand (CETA is actually being provisionally applied at the moment, for the most part) will cause some level of trade diversion to the rest of Europe. But it’s massive overkill to say our trading ties with CANZUK would be anywhere near our ties with the rest of the EU if only we’d had FTAs since 1973.

Canada is particularly instructive. There was some attempt, especially in the 1950s, to diversify from dependence on US trade after World War II. It wasn’t an especially successful exercise. The bottom line is that a much larger economy next door was pretty irresistible in terms of the gravity effect — one of the best-attested economic effects we have. The same logic applies to the UK: we are always likely to be more dependent on trade with larger and nearer markets, unless things take a very protectionist turn indeed with our nearest neighbours.

In Australia and (especially) New Zealand’s case, the entry of the UK into the EU and thus its customs union did cause significant economic dislocation in 1973. But they haven’t been waiting for us to pick up the phone ever since: they found new markets. And while we should worry about recent protectionist shifts around the world, tariff barriers in particular are much lower now than they were in the 1970s. This is of course why non-tariff barriers — regulatory differences, agreed standards and so on — are the focus of more modern trade deals.

Given the distances involved, it’s much harder for us to trade in services than goods with Australia and New Zealand, too: it’s hard to trade in things people do rather than things they make across so many kilometres and timezones. And of course, they just aren’t very large markets: Australia has 24.3 million citizens and New Zealand has 4.6 million.

Finally, the EU isn’t uniquely protectionist by any means. It’s far from perfect, of course. It has 28 member states and trade deals have increasingly been treated as ‘mixed agreements’, requiring national ratification as well as EU ratification. (We await a Court of Justice ruling on the EU-Singapore FTA to see how necessary this really is.) But the EU is actually working on modern trade deals and has struck a fair few in recent years (Canada, Korea and Singapore are three examples).

The advantage of the customs union is the EU’s collective heft in trade talks: it may take longer than the UK would, but it’ll get a better deal. CETA took a very long time, yes, but it’s also one of the most ambitious FTAs ever struck. Even as matters stand, the EU, EEA and EU FTAs cover well over 60% of UK trade. Meanwhile, the attitude of both presidential candidates to trade in the US and the failure of the Doha Round gives the lie to the idea that the EU is a protectionist behemoth in a world of nimble free-traders.

Anyway, we’re leaving the EU, unwise though I think that is. My point in this piece isn’t to rehash whether we should leave it — it’s what our trading and geopolitical priorities are and should be, in or out of the EU.

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