Dr Richard Wellings of the Institute of Economic Affairs said that: “Britain should not take the warnings from Japan very seriously because they [the Japanese] are well known for terrible mismanagement of their own economy, economics are not their strong point….The corporate sector in Japan is very unlike the western equivalent. They don’t like any kind of uncertainty, they don’t really like a dynamic free market like we aspire to western countries….One reason why the Japanese came out with all these warnings at the G20 summit is that they are possibly taking a lead from the United States which is very keen for the UK to remain deeply integrated in the EU, mostly for geopolitical reasons….If The US loses its influence in Europe, potentially it becomes a periphery economy, as the growing population centres and markets are actually in China, India and Asia.”
Surely the Japanese’ point that they will have to pay double tariffs; export duties into EU countries for goods made in the UK, and also import duties for spare parts for cars, for example, made outside the UK, is valid, John Harrison asked? Dr Wellings relied by saying that “there are various options available to the UK….there is the more extreme option of unilateral free trade, as in Hong Kong or Singapore, then Japanese car firms would be able to benefit from being able to source components very cheaply from all around the world, or the ‘softer’ Norwegian version, whereby the UK would still be part of the European Economic Area, in which case nothing in particular would change for these firms. Let’s not forget that you can buy foreign cars in the EU. As long as production costs are not too high, tariffs are not an insurmountable barrier to trading in the EU.”
But for international companies wishing to trade with the EU, surely they will now relocate to the continent to avoid tax duties?, John Harrison argued. “I disagree,” Dr Wellings said. “They may be looking further afield at places like India where you are going to get real cost savings. In the long term, Europe is not going to be an attractive place to produce cars because the cost base is too high, and the regulations are not so tough. India also has a huge potential domestic market, this is important.” Dr Wellings continued, “It is important that the UK makes the most of leaving the EU, in terms of deregulation, and makes trade deals with other parts of the world, particularly with developing economies. There are enormous opportunities available here, it just depends in what precise direction the UK government decides to take.”
The Japanese brought up another issue, concerning pharmaceuticals, namely the EU’s European Medicines Agency is in London. This has been crucial for the UK’s medical research. Dr Wellings said: “The UK’s leadership in pharmaceuticals long pre-dates that EU agency. The key here is to deregulate because the EU’s regulations are actually a major barrier to a lot of pharmaceutical development. Switzerland has a massive pharmaceutical section, and that is outside of the EU. Companies would actually prefer to work in a less regulated environment….UK pharmaceutical companies are already exporting to Japan, the US and other countries, and are used to dealing with the medical regulations for each country. They might have to wait a little bit longer to gain access to those particular markets. I can't see how it will make a lot of difference. There is more than just the cost factor. The UK has a cluster of smaller firms and expertise which give it a bigger competitive advantage in some of these areas including pharmaceuticals.”
What about the city? “The city was getting increasingly worried about the rising tide of EU regulations, and also an anti-finance philosophy which was prevalent among a lot of the EU bureaucracies. Particularly coming from France, the anti Anglo-Saxon sort of mentality. We are talking about the bonus cap and a transactions tax as well, but, meanwhile, London’s main competitors aren't from the EU they are from global financial centres like Hong Kong, Singapore, Dubai, New York and so on, so I would have thought that free from the EU straightjacket, the city will thrive….There is still a massive amount of business inside the UK, pension funds and so on. The EU’s share of the world economy is declining, and will probably be down to 10-15% of the world economy by 2030. So it is really not that important in terms of global financial markets.”
“Isn’t the UK playing it a bit rich? We are saying we don't want to be in the EU, but we still want to be in the single market, and we are making other demands. Meanwhile, EU countries want us out?,” John Harrison asked. Dr Wellings answered: “I think the EU elite will want to punish Britain for leaving to avoid other countries leaving. But I think the reality is that the big businesses, the banks etc., their bottom line is far more important for them, they are going to pressurise their politicians to come to a favourable deal for both sides. The EU might want to play it tough, but vested interests are too powerful. Let’s face it, a lot of EU economies are in such bad states, particularly Italy, Greece, and Portugal, that they can't really deal with a trade war with the UK, which is a huge market for them…..A trade war might completely destroy the EU.”
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