Brexit Conference at ZEW Sparks Heated Debate

The impending departure of Britain from the EU means a reshuffling of the trade policy cards held by both sides. A range of economic and legal arguments can be made to support alternative views on who will ultimately profit from the Brexit negotiations, and in what form. At the conference “Trade Relations after Brexit: Impetus for the Negotiation Process”, held on 25–26 January 2018 at the Centre for European Economic Research (ZEW) in Mannheim, economists and policymakers debated the most efficient way forward in the Brexit process.

The two-day event, which was jointly organised by the Mannheim Centre for Competition and Innovation (MaCCI) at ZEW and the University of Mannheim, as well as the European Research Centre for Economic and Financial Governance (EURO-CEFG) at the universities of Leiden, Delft and Rotterdam, brought together international experts from research institutions and the European Parliament. Over the course of a number of presentations and panel discussions, the attendees analysed the negotiating positions of Great Britain and the EU, and also explored the future of trade relations while considering the potential impact on the economy on a macro-level and on specific industries.

After all, one positive aspect of Brexit was that the European patent granted by the European Patent Office (EPO) in Munich would not be affected by the UK’s exit from the EU, according to Dr. Georg Licht, head of the ZEW Research Department “Economics of Innovation and Industrial Dynamics”. Instead of being an EU institution, the classical European patent is based on an agreement between around 40 countries in Europe. Once granted, a European patent becomes a bundle of nationally enforceable patents, which is why Brexit does not cause any immediate adjustment pressure in this area.

Professor Wolf-Georg Ringe (Institute of Law and Economics, University of Hamburg) suggested that the handling of Brexit in EU law is sure to be creative and flexible, as was the case for the Greek bailouts and banking crisis in Italy. Some members of the audience took issue with this argument, and the discussion ultimately turned to the normative effects of Brexit in connection with the lax application of self-imposed rules within the European Economic Area.

Points of debate: the effects of immigration on Britain’s low-wage sector

On the issue of immigration, directly opposing arguments were posed by Professor Patrick Minford from Cardiff University, who advises the Brexit Steering Group of the European Parliament, and Elmar Brok MEP, who is a member of the Brexit Steering Group as well as the foreign policy coordinator of the European People’s Party (EVP). Minford asserted that in comparison to the EU, Great Britain would profit enormously from Brexit, as it would experience less immigration to its low-wage sector. This would lead to higher wages, which would particularly benefit poor British households. Furthermore, Brexit would mean more extensive trade with Commonwealth countries.

By contrast, Elmar Brok argued that Brexit would not limit immigrants from entering the British social security system, and that Britain already has tools at its disposal as an EU member to limit such impacts. Alongside the US, the EU – and particularly Germany – would remain Britain’s most important trading partners, Brok asserted. By way of example, Brok noted that the German state of North Rhine-Westphalia conducts twice as much trade with the UK as all of India.

The free trade agreement between the EU and Switzerland: a model for future relations?

In his presentation, Professor Clemens Fuest, president of the ifo Institute and former president of ZEW, stressed that Brexit would set precedents with long-term consequences that would be nearly impossible to predict. Fuest noted that, while there are various scenarios for managing Britain’s departure from the EU, all of which have negative effects, the impacts would be most severe for Poland, Ireland, and the UK, depending on the solution that is implemented. A “hard” Brexit would have significant negative effects, as it would not only impair the flow of goods, but also disturb other transactions, thus creating enormous costs, Fuest argued. He noted that while economists can use models to approximate the costs of a disorderly Brexit, these models are hardly capable of taking the full complexity of reality into account.

Drawing on the example of Poland, Professor Stefaan Van den Bogaert of the European Research Centre for Economic and Financial Governance drew attention to the fact that while some EU Member States benefit from EU subsidies, they fail assume responsibilities in other policy domains, such as the refugee crisis. These problems were adding fuel to the Brexit negotiations, Van den Bogaert asserted. Concerning the trade regime that would apply following Brexit, Van den Bogaert recommended the adoption of a free trade agreement similar to that with Liechtenstein and Switzerland, so that certain trade privileges could remain in force. However, this would come hand-in-hand with a significant administrative burden, Van den Bogaert conceded.