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Why the EU Must Be Generous to Britain

MUNICH – British Prime Minister Theresa May has confirmed it. The United Kingdom will, without a doubt, leave the European Union and negotiate new trade agreements. The question is what kind of agreement the EU will accept.

Britain, May has made clear, doesn’t want an arrangement like that of Switzerland or Norway, because that would require it to cede some control over its immigration policy. Submitting to the jurisdiction of the European Court of Justice, which UK leaders accuse of delivering judgments based on vested interests, is not an option, either.

But the EU is not ready simply to allow the UK to drop whatever it doesn’t like, at least not without paying a price. The EU’s leaders insist that the UK cannot have free trade with the single market without allowing free movement of people. This stubbornness arises partly from the fear that, if the UK secured such a lopsided deal, other EU countries would attempt to do the same. But the desire to punish the British, if only to deter other member states from bolting, is surely also a contributing factor.

This approach is all wrong. While it is undoubtedly regrettable that the UK is leaving, the truth is that free trade with the EU does not have to be accompanied by free movement of people. As pure trade theory shows, the economic effects and welfare gains resulting from free trade are substituted, not enhanced, by those of free movement of labor.