M Y S AY OF BREXIT, TREND BLIPS AND GLOBAL SUPPLY CHAINS By Gary Hartley Brexit has sent shockwaves through global financial markets. But out in the ‘real economy’ where goods and services are made and traded, the United Kingdom’s decision to leave the European Union (EU) will very likely be just a blip in the longterm trend towards greater economic integration worldwide. 10 JULY 2016 I offer no view on the rights or wrongs of the Brexit referendum outcome. I would also not want to dismiss the pain caused by financial market upheaval, or by political chaos and social division in the UK. But anyone wanting to assess the longer term economic consequences of Brexit should take a deep breath and consider three key aspects of current reality. First and most obviously, future legal arrangements for trade and commerce between the UK and the EU are unknown: These are up for negotiation once the UK has given notice of leaving the union under Article 50 of its 2007 Treaty of Lisbon (or perhaps before such notice is given). The negotiations – note that the New Zealand Government has offered to lend the UK our trade negotiation expertise – will certainly clarify the mutual benefits that have accumulated since the UK joined the then-European Economic Community (EEC) in 1973. Given that largely positive history, future arrangements will surely perpetuate close economic ties of some form. The impact on the UK of its leaving the EU will certainly be less than the impact on New Zealand of the UK joining Europe! At that time, this country earned 40 per cent of its export income from sending agricultural products and some manufactured products to the UK. Our economy stumbled heavily as EEC tariffs and quotas curbed this country’s access to the UK. Between 1975 and 1980, the New Zealand economy grew just 1.9 per cent (contrast that with 27 per cent growth in the second half of the 1960s). Second, key areas of law and regulation are today standardised across the EU including the UK. That is an outcome of how the European Parliament and the EU Commission have functioned. The Lisbon Treaty explicitly gave them exclusive or shared ‘competences’ to set EU-wide directives across a range of core areas of government policy. These included commercial policy, market competition rules, and regulation on aspects of energy and environmental policy. Of course Brexit has come about partly because of Britons’ frustration with how the EU policy-setting mandate has been applied in certain areas; the Common Fisheries Policy for example. Post-Brexit, the UK can be expected to roll-back European influence in fisheries and elsewhere, and adopt UK-specific solutions. But many other policies and practices will surely remain standardised because they make so much sense for UK companies, consumers and regulators. And that will also serve the cause of economic integration. The third reality is simply this: The world trading system, of which the UK and the EU are but a part, is far more resilient than it was in 1973 or even 2003. Attribute that to the proliferation of trade agreements and other governmental actions, but also to the relentless cross-border endeavours of industries and firms themselves. The global economy works through competition and collaboration between businesses – and such collaboration has been bringing economies closer together for decades. International trade in goods and services is promoted and sustained by many factors beyond the legal arrangements between governments. This is especially so where economies are market-based and governments are democratically elected. Standardisation in how businesses operate and competition rules will help the transition into a post-Brexit era for the UK and the EU. They will also help industries and firms replace Brexit-disrupted trading relationships with new international linkages that may prove even more beneficial over time. Looking back, New Zealand’s initiative to join EAN and rapidly embrace global data standards and solutions through the 1980s coincided with this country’s economic liberalisation and its drive for export diversification. Today, the UK accounts for just four per cent of our exports. That rupture in 1973 does, indeed, appear as just a blip. Global standardisation of identification and data has certainly supported New Zealand’s integration with other economies – and it will continue to do so for us (and for the UK). Gary Hartley is general manager of GS1 New Zealand.
FT-Jul16
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