How the EU renegotiation strategy of a Tory-led administration should work

So far, it has been Labour that has sought to make the UK’s membership of the European Union a General Election issue, using its commitment to remaining in and its rejection of a referendum on membership as evidence of its support for business. But is it really as simple as that?

Business for Britain has shown that the majority of UK Businesses support a referendum and the recent announcement by Honda of yet more investment into its British production suggests that manufacturers have not got the cold feet Ed Miliband suggests.

Open Europe has conducted its own research into what would be optimal for the UK, and has recognised that “it is probable that the UK economy could do better than the current EU status quo”. (So there’s nothing holding back the Prime Minister from marking out what he believes the best commercial arrangement would be for Britain – so that he can then measure against that benchmark any reforms that he might gain if he returns to Downing Street and is able to renegotiate membership.)

But how can we establish what would be the best arrangement for the UK?

First of all, it must be recognised that hearts and minds will not be won by arguments based on statistics, but by a logical and credible explanation of how the real world works. This is because there is only so much that economic modelling can tell us about the consequences of new arrangements with the EU, since the outputs that arise are a direct consequence of the formulas used – and these are based on a wide variety of assumptions. In short, you can design economic models to give you practically any outcome you want. The result is that there will be a never-ending debate about whose figures are right.

The key to understanding what is likely to happen following Brexit is to examine the legal and constitutional basis that the politicians and judiciary would operate under, and to consider the likely political motivations of decision-makers.

It is thus all very well for the likes of Nick Clegg to suggest that domestic car manufacturing will do very badly following Brexit, but such scaremongering ignores the complex nature of today’s car industry, and the self-interest of the almost exclusively foreign-owned manufacturers in ensuring there are no EU tariffs introduced that would disrupt their UK-based trade.

The industry is complex because car manufacturing is now about international supply chains and assembly. And it is self-interested because, for example, BMW does not want the many parts they import into Britain for their Mini assembly line to become subject to retaliatory UK tariffs that could be introduced because the EU has (illegally) placed import duties on completed Minis coming into the EU following Brexit.

The same realpolitik applies to other manufacturers, such as Renault, which part-owns the UK Nissan plant in Wearside – and which last year opened a new production facility outside the EU in Algeria, as if to underline how globalisation is breaking down barriers quicker than luddite politicians can put them up.

Such corporations take a long-term view, and understand the World Trade Organisation rules that have reduced international tariffs to an average of 1.09 per cent – making the economic case for the EU single market obsolete. Politicians such as Angela Merkel and Francois Hollande have a vested interest in keeping these existing and emerging markets open and their electorates employed, prosperous and content.

Earlier this year, Global Britain and the Democracy Movement co-published “The Scaremongers” to show why the many warnings about Brexit are unjustified and undignified.  The reasonable and rational expectation must be that an EU-UK trade war is not a likely result of the UK leaving the European Union.

Understanding this allows us to have a rational and business-like debate rather than the scaremongering of Ed Miliband, Clegg and the leadership of the CBI. It should also allow David Cameron to identify a positive case about the UK trading with a greater focus towards the rest of the world rather than worrying about its access to the declining EU market.

To help with any post-election deliberations, I co-authored a review of the four most likely Brexit scenarios to identify the optimal business case in “A Global Britain”.  The Norwegian Option, the Swiss Option, the Canadian Option – all these suggested outcomes would be preferable to remaining inside the EU, but it was the Global Britain Free Trade Option that came out best. If the Prime Minister cannot show in the wake of a renegotiation how agreed reforms are better than any of these scenarios, he should recommend Brexit.

Through our Free Trade Option, the UK could become a leader of international free trade by adopting zero tariffs on all imports and operating under World Trade Organisation rules – instead of relying on the goodwill of others. By being able to retake our seat on the WTO that we gave up at GATT after we joined the EEC, we would have more say in global trade talks. We would also be able to have a direct seat on numerous other important international trade bodies that operate above the EU.

Sovereign control and accountability would thus return to Westminster. Currently, over 64 per cent of laws and regulations are forced on the UK economy by the EU. Under our Free Trade Option, UK businesses would be able to grow, sensibly regulated and lightly taxed, without bearing the damaging EU costs and controls that make us less competitive.

Those who say that this could not happen should look to Article 8 of the Treaty on European Union, which states: “The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.” Are the supporters of EU membership at all costs claiming that it would break its own rules?

The consensus is now established that the UK can be a success outside the EU, based on the seminal research of Business for Britain, Open Europe and Dr Gerard Lyons, Boris Johnson’s Chief Economic Advisor. The scaremongerers must be confronted with their exaggerations, and the economic and constitutional realities that protect the UK’s interests must be championed.

It is time to recognise that a UK trading freely with the world offers a future with greater prosperity than the costly membership of an outdated political project that will become an ever-tightening straightjacket. This is the benchmark against which David Cameron should model his proposed reforms. Without such a comparison, how will we know that anything has been agreed is actually worth supporting?