G-7 Leaders Warn of "Brexit" Risks to Trade, Investment Ahead of June Vote
Leaders from the G-7 coalition of major advanced economies issued a harsh warning last week over the ramifications a “Brexit” would have on the global economy, including for trade and investment, with less than a month remaining before UK voters go to the polls.
Gathering in Ise-Shima, Japan, from 26-27 May, the group placed a strong focus on the state of the global economy, tying in areas ranging from climate and energy to the advancement of various trade liberalisation processes both in the form of regional trade deals and the WTO system.
“Global growth is our urgent priority,” leaders from Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union said on Friday.
“Global growth remains moderate and below potential, while risks of weak growth persist,” they added, citing both economic difficulties as well as possible non-economic factors, ranging from geopolitical conflicts to terrorism.
Arguing that this group of nations has a “special responsibility” in helping address these issues and various others, they touted their continued ability to “make tangible progress on a broad range of economic, security, and development policy issues,” both in the present and in the long-term.
The “Brexit” possibility took a prominent role in the section of the G-7 communiqué involving the state of the global economy, given that the planned UK referendum on the subject is scheduled for 23 June.
G-7 leaders warned on Friday that “moderate and uneven” growth continues to affect international and domestic efforts at a recovery from the economic and financial crises from a few years ago, adding that trade has also struggled significantly during that time.
“Trade and investment are key drivers of growth, the prosperity of our people, and the achievement of sustainable development worldwide,” they said.
Given this context, they cautioned, “a UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth.”
Analysis by the UK Treasury has suggested that the cost per household domestically of leaving the European Union could run up to £4300 annually. Pro-Brexit economists, for their part, argue that leaving the 28-nation bloc could actually boost output and cut unemployment.
At the international level, the chorus of warnings against a “Brexit” has grown significantly in recent weeks, with WTO Director-General Roberto Azevêdo also weighing in on the subject in an interview last week with the Financial Times.
According to the WTO chief, “pretty much all of the UK’s trade would somehow have to be renegotiated,” given that the country’s current WTO membership is under the EU umbrella. Such a move, he told the Financial Times, would be unprecedented and extremely complex, with Azevêdo urging UK citizens not to take the possible challenges of a Brexit lightly.
Recent polls by YouGov, a UK-based polling website, now put the “Remain” camp four points ahead of the campaign for leaving the European Union. With 44 percent in favour of staying, these numbers mark the highest for that side since last August.
Given the current state of the global economy and the potential risks posed by Brexit and other sources, G-7 leaders placed a premium on advancing a series of trade and investment-related objectives, both at the multilateral level and among smaller country groups.
“In order to further boost free trade, we commit to strengthen the rules-based multilateral trading system and promote WTO negotiations,” said the group on Friday.
Among the various objectives that leaders outlined in reference to the WTO, this included calls for a “swift entry into force” by year’s end of the Trade Facilitation Agreement (TFA), which was adopted in December 2013. (See Bridges Daily Update, 7 December 2013)
The deal will enter into force upon ratification by two-thirds of the WTO’s 162 members – in other words, by 108 members. To date, 81 members have submitted their instruments of acceptance to the organisation, with Sri Lanka marking the latest addition.
Leaders also raised various desired outcomes from plurilateral trade processes, such as clinching an Environmental Goods Agreement (EGA) by the G-20 leaders’ gathering in Hangzhou, China, this September, along with finalising negotiations for an “ambitious, balanced, and mutually beneficial Trade in Services Agreement (TISA) in 2016.”
What to do about the WTO’s future negotiating agenda was also raised in the G-7 leaders’ communiqué, in light of the decisions made during the global trade body’s latest ministerial conference last December in Nairobi, Kenya.
“At the same time, we promote forward-looking post-Nairobi discussions with our partners in various fora, addressing outstanding and new issues as well as new formats of negotiations,” they said.
The group also noted a need for “urgency” and constructive engagement going forward in order to “restart negotiations” in the WTO context, suggesting that these could yield a host of benefits, including in supporting private sector needs.
The reference to the private sector, including smaller and medium-sized businesses, comes as part of a long-running policy discussion over how to make it easier for companies to engage with the intergovernmental organisation and better use its rules and other functions.
Indeed, on Monday 30 May various business leaders convened at WTO headquarters in Geneva to discuss what they hope to see out of the global trade body’s processes, calling among other outcomes for developing an investment facilitation framework and improving e-commerce transparency and non-discrimination. They also indicated an interest in more multilateral WTO pacts, as well as plurilateral and sectoral deals, such as on chemicals.
Along with describing their goals for WTO-based and plurilateral talks, leaders also focused on four major regional trade pacts as having important potential for growth, referring to these as a “useful complement” to the multilateral system.
The four deals referred to are in different stages in the negotiating process. Of those agreements, three of them involve the European Union – leaving open the question of what a “Brexit” could mean for those processes going forward.
“We also encourage trade liberalisation efforts through regional trade agreements including the Trans-Pacific Partnership (TPP), the Japan-EU Economic Partnership Agreement (EPA), the Transatlantic Trade and Investment Partnership (TTIP), and the Comprehensive Economic and Trade Agreement (CETA),” the group continued.
The TPP is a 12-country deal among various Pacific Rim nations that includes the US and Japan, and has already been negotiated and signed. It does not include the European Union. While not referring to a timeframe, G-7 leaders did urge that TPP signatories complete their respective processes for ratifying the deal domestically – a task that is expected to prove difficult for some countries, particularly the US, given the current political climate ahead of the November 2016 presidential election. (See Bridges Weekly, 25 May 2016)
Meanwhile, the CETA between the EU and Canada has been negotiated, but has not yet been signed. The latter step is tentatively expected during a summit between the two sides this coming autumn, which G-7 leaders welcomed in their communiqué. However, the ratification prospects thereafter are highly uncertain, particularly given the expected opposition by the national parliaments of some EU member states. (See Bridges Weekly, 19 May 2016)
G-7 leaders also pledged their commitment to using the “necessary political will” to conclude the TTIP talks between the US and EU “as early as this year.” The pact is still under negotiation, but has hit some significant roadblocks in recent months, due both to the public fall-out within the European Union regarding the deal’s potential content – following the leak of purported TTIP documents last month – as well as the US political dynamic on trade. (See Bridges Weekly, 4 May 2016)
Regarding the EU-Japan EPA/FTA, that agreement is also in the negotiating process, with leaders from both sides affirming on the margins of the G-7 gathering that they hope to clinch a political deal later this year. (For more on EU-Japan, see related story, this edition)
ICTSD reporting; “WTO warns on tortuous Brexit trade talks,” FINANCIAL TIMES, 25 May 2016; “Leave campaign hits back with its own economists,” THE GUARDIAN, 28 April 2016.