Brexit and Global Trade Governance: notes from a Max Weber Programme interdisciplinary workshop

by Aydin Yildirim (MWF-RSC 2017-19)

Why were certain businesses in favour of the British exit (Brexit) from the European Union (EU)? Were trade models unable to explain the results of the Brexit referendum? Can international political economy scholarship help us assess and understand Brexit? What are the implications of the UK’s decision on European trade policy?

In this Max Weber interdisciplinary workshop, titled ‘Picking up after Brexit: Explaining and assessing the British exit from the European Union’, we tried to provide at least a partial answer to such questions with the expertise provided by three guest speakers. Gabriele Spilker from the University of Salzburg, who currently conducts research on individual preference over trade policies, Manfred Elsig from the World Trade Institute, who has published extensively on trade policy and the politics of the World Trade Organization (WTO), and Arlo Poletti from the University of Trento, who works on international political economy (IPE) and interest group politics, presented their work and their assessments on the different aspects of Brexit related to international trade.

Gabriele Spilker gave us a picture of individual-level preferences over trade and Brexit. Her presentation was especially useful in pointing out the commonalities between individuals’ Brexit vote and trade preferences. In other words,

many individual-level characteristics that help us explain people’s attitude towards international trade also help us explain British citizens’ pro or anti-Brexit attitudes. While lower income levels, lack of social capital, and a nationalist ideology have been shown to associate with more antagonism towards international trade by individuals, the same reasoning also applies to support for Brexit.

In addition, Spilker provided the audience with a framework to assess trade preferences, which at the same time can play an important role in understanding British individuals’ preferences to leave the EU. Borrowing from traditional trade theories, she demonstrated the conditions under which economic as well as non-economic factors foster attitudes catering to Brexit.

Carlo Poletti and myself picked up on an important point raised by Gabriele Spilker; why did certain businesses that trade with the EU support Brexit? We proposed that the insights borrowed from IPE scholarship can give us an alternative understanding of the reasons why certain business interests in the UK were in favour of Brexit, despite the obvious hurdles they will have to face in trading with the EU when the UK leaves the single market.

In the face of the growing skepticism towards scholarship and its supposed inability to explain the outcome of the Brexit referendum we provided an alternative view. We essentially aimed to show that two particular factors could help us unpack the reasoning behind the surprising business preferences for Brexit.

First, considering the growing fragmentation of production and the rise of global production networks, we demonstrated that, on average, the British economy has increased its reliance on extra-EU trade. In comparison to its trade profile with the EU, quite a number of sectors are more interlinked with non-EU economies than they are with EU countries. The increase in British exports and imports of intermediate products has been substantially higher for non-EU countries. This means that pro-EU business interests have been in relative decline in the UK, which might help explain why mobilization of pro-EU forces was unable to counterbalance the preferences of pro-Brexit interests. Second, certain multinational companies (MNCs) happened to side with protectionist interests, stemming from their hyperglobal international trade preferences. In order to avoid the ‘red tape’ Brussels supposedly demands, MNCs in various sectors – such as the pharmaceutical sector – publicly supported Brexit in order to have more regulatory autonomy and go after their trade objectives globally without the interruption of the EU.

Manfred Elsig further brought a bigger picture into our workshop and explained the connections between Brexit, the WTO, and trade politics in general. His presentation pointed out largely underestimated issues that both the EU and the UK will face in matters of trade policy post-Brexit. From the side of the UK, Elsig highlighted that

the British will need to find ways to set up a national trade policy and build capacity to negotiate as well as implement trade rules on a global scale. Similarly, UK policymakers will need to fulfill the demands made by European trade partners that are part of EU Free Trade Agreements (FTA), such as Mexico, Korea, and Turkey.

The policy space left after the UK leaves the EU will not only give an ‘opportunity’ to the British government but will open up EU trade partners to be able to re-negotiate the terms of their agreement. From the side of the European Union, as Professor Elsig pointed out, one of the most important challenges is the departure from the EU of a liberal trade champion.

With the exclusion of the UK, the EU is likely to face additional problems sustaining support for trade agreements as well as dynamism to bolster trade.

In sum, the participants in the workshop pointed out a multi-level approach to assess and understand Brexit. Moreover, several avenues for future research to explain and move ahead from Brexit were also highlighted. It seems that the individual preferences on trade, politically-relevant constituencies’ mobilization on rules and regulations, and the overarching concerns over EU and UK trade policies vis-à-vis third countries might prove useful to understand how to move ahead with Brexit negotiations and make the transition smooth.