The birth of the buyer’s premium may shed light on UK/EU trade deals

How the Milwaukee Journal reported the protest against the introduction of the buyer's premium in 1975.

How the Milwaukee Journal reported the protest against the introduction of the buyer’s premium in 1975.

Self-interest among EU member states will prevail in the end, if history is anything to go by

Whatever your views on the big EU vote on June 23, now is the time to deal with its aftermath. Brexit leaders who left the stage almost the moment the fight was over did not do their supporters or anyone else any favours as they failed to provide the direction they had promised.

David Cameron announced his resignation but said he would steady the ship of state until his successor was in place. Having announced this, however, he left it as rudderless as all the others.

Andrea Leadsom let down her supporters by demonstrating instantaneously just how unfit she was to take on the mantle of PM, which fortunately meant that the anticipated summer limbo of the Conservative Party leadership election came to a swift end with the coronation of Theresa May. Like her or not, her appointment means more immediate stability and direction, providing the country with a leader that other European heads of state feel they can negotiate with.

Beyond the politicians, Bank of England Governor Mark Carney has not exactly covered himself in glory. Instead of being the voice of calm reassurance, he has consistently talked the economy down. He should know better than most that the best way to create a recession is to talk your way into it.

As I write, Angela Merkel has endorsed May’s decision not to invoke Article 50 until 2017, so as to allow for the groundwork to be done on the way forward. Both Australia and, most importantly, the US have started talks on trade deals, with Secretary of State John Kerry expressing enthusiasm for getting on with the job and telling the world that leaving the UK adrift now would be a bad idea for all. The German industry association has already called for existing trade deals with the UK to be ongoing without hindrance or penalty.

The FTSE 100 – ok not as good a bellwether on Brexit as the 250, but still – has just risen above 6700, and the pound has climbed back to $1.31 as the Bank of England has announced that there is “no clear evidence” to show a sharp Brexit slowdown and warns against a kneejerk interest rate cut, especially as consumer spending, in general, has held up.

Market researchers Gfk, who specialise in measuring consumer confidence, reported a sharp fall immediately following the vote – the sharpest since 1994 – but only to levels at or above historical averages.

Looking beyond the cloud of gloom

Let’s be clear on this: it’s way too early to declare the bumpy ride over, and potholes along the road may be deep and rocky. But with growth forecasts for the UK outperforming the EU by some margin for the year ahead on top of all the other good news mentioned above, maybe we should spend at least some time looking for the silver lining rather than insisting at pointing relentlessly at the cloud.

Legally, the UK and others cannot sign off new trade deals independently while we are still members of the EU, but as John Kerry stated, that doesn’t mean we can’t start negotiations now. What’s more, we can take those negotiations a long way down the road.

As for the desire to punish the UK for its decision to leave the EU, just how far will Eurozone countries go? Some facts we do know.

We know, for instance, that the UK has the fifth largest economy in the world. We also know that in 2015 the UK accounted for 17% of the EU GDP, second only to Germany at 20%. And we also know that the trade gap between the UK and EU stands at around £24bn and is growing to the EU’s advantage.

All of these facts tell us that punishing the UK over trade deals would do more harm to the EU than to the UK.

However, some argue that for sound political reasons the EU must hold firm and punish the UK on tariffs: let the UK off lightly and others may well follow the Brexit route.

This thinking fails to take account of two factors, however: the rest of the world and national interest.

Let’s take the rest of the world first. Taking the view that Brexit is at least partially about gaining freer access to a much bigger market, it is not unreasonable to assume that the UK’s ability to negotiate better trade deals independently with the US and burgeoning Far Eastern economies will lead to some redirection of both exports and imports. Less favourable terms from our EU neighbours are likely to encourage us to increase two-way trade with these other partners, for instance by importing more Japanese cars than German ones.

The net result is that the EU will be the loser. Punishment of the type that has been mooted only works if the UK has no alternative, but here it clearly does.

This means that it will not be that long before the balance of power on EU trade deals shifts towards the UK, which can then demand far more favourable terms than before.

National interest and the buyer’s premium

Now let’s look at the national interest. For all the talk of the EU being a convocation of nation states working towards a federal union, the evidence shows that national interest among members is as strong as ever. One only has to look at what is happening in Italy, with Matteo Renzi’s stand-off against Brussels over injecting state money in to the economy, to show what the EU is up against.

Interestingly, the art market and its reaction to the introduction of the buyer’s premium in 1975 provides one of the best examples of what can happen when trade interests come together to make a principled stand.

Dealers protesting against Sotheby’s and Christie’s decision to introduce the buyer’s premium at Sotheby’s organised selective boycotts of sales. At a pre-arranged signal, they stood up in the saleroom and tore up their catalogues before leaving in protest. However, self-interest paved the way for the BP’s establishment and survival because, as legend has it, so many of these same dealers had quietly ensured that they had placed someone in the room to bid for them after they left.

So it is likely to be with the EU. Technocrats in Brussels may make a lot of noise, and national leaders may announce firm stands for the benefit of media outlets and their electorates, but be sure that behind closed doors they will all be scrabbling to win the best deals with what remains – for now, at least – the EU’s second biggest economy.

Those who say that such jockeying for position among member states on trade is impossible under EU rules should remember which two countries first broke EU fiscal rules: Germany and France. And they have both continued to do so, with France again predicted to break Eurozone budget deficit rules by some margin this year.

Is this a cynical view of the world? Maybe, but I would argue it is also a fairly realistic one. For all the grandstanding, talk of treaties and unbreakable rules, a lot of the talk coming out of Brussels is little more than demagoguery.

The UK may have a limited time left in the EU, but it will always be part of Europe and thank God for that. The British may dislike bullying from Brussels, but when it comes to individual nations and their peoples, I find that we are pretty big fans on the whole and long may that last.

If individual nations states within the EU attempt to put themselves at a competitive advantage over trade with the UK in future, then they will simply be trying to do their best by their electorates.

In the end, that’s just human nature and we would do well to remember it.

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