The pressing and immediate task of whichever candidate the Conservative Party elects as its new leader and Prime Minister will be to achieve Brexit and deliver the results demanded by the 17.4 million people who voted to Leave the EU in 2016.
That task requires a new start. It should not involve an attempt to renegotiate the Withdrawal Agreement (‘WA’) which resulted from Theresa May’s disastrous negotiations with the EU. Such an attempt would be futile, since the EU has set its face against any ‘reopening’ of the WA. The EU even extracted a formal commitment from Mrs May not to try to reopen the WA as a condition of the European Council decision to grant an extension under Article 50 of the UK’s membership to 31st October 2019.
And negotiating changes to the WA with the EU, and then getting the necessary legislation through Parliament in time to leave the EU on October 31st, would be quite impossible. The 175-clause Implementation Bill (still kept under wraps) is a horror story packed with contentious clauses. It effectively unrepeals the 1972 European Communities Act, and gives supreme status in our own courts to the WA and the EU laws which it would continue to apply to the UK.
The opposition parties and the Tory ultra-Remainers would make havoc opposing or delaying the Bill in the hope of again deferring our exit from the EU. Or, worse, hijacking it by inserting amendments: such as for permanent customs union membership or a second referendum. Even on the optimistic assumption that the changes to the WA were enough to bring on board the DUP and the Tory opponents of the WA, it is hard to see that the Bill would ever get through in unmolested form, let alone by October 31st.
But not having a Withdrawal Agreement under Article 50 does not mean having “no deal” with the EU.
The Withdrawal Agreement – the problem is not just the backstop
The WA (of which the Northern Ireland “backstop” Protocol is ‘an integral part’) is just a draft treaty which has been negotiated but not legally agreed. The WA would become legally binding in international law if it were ratified by the UK and the EU Parliaments. The WA contains a series of remarkable features which are detrimental to the UK and which would make ‘Brexit’ illusory:
(1) It would perpetuate the doctrines of ‘direct effect’ and supremacy of EU law over UK law (including supremacy of new EU laws on which the UK would have no voice or vote). Under these doctrines, UK courts are required to strike down Acts of Parliament if found to be inconsistent with EU law or vaguely drafted treaty provisions. The doctrines apply to the provisions of the WA itself and also would apply to any long term relationship agreement with the EU that would replace it.
(2) The WA would perpetuate the jurisdiction of the European Court of Justice either directly, or via a backdoor mechanism modelled on the EU’s agreement with Ukraine, under which the supposedly neutral arbitral tribunal set up under the WA would be bound on matters of EU law by decisions of the ECJ. Meanwhile the ECJ itself after Brexit would have become an entirely foreign court with no British judge.
(3) The WA has uniquely stringent mechanisms for breaches by the UK, which would make the UK subject to financial penalties or even to discriminatory trade sanctions. Any attempted recourse by the UK to WTO disputes procedures would be prohibited.
(4) The WA requires the UK to use ‘best endeavours in good faith’ to negotiate terms for a long term future agreement in line with the principles set out in the Political Declaration (PD).The absence of an exit clause from the backstop Protocol would trap the future Prime Minister into having to negotiate against the genuine and formidable threat of the UK falling into the backstop if it did not agree to the EU’s terms. The scope for negotiation on any future long term deal is severely reduced by the concessions that have been made by the UK in the terms of the PD.
(5) The WA has no exit clause from the backstop Protocol except with the agreement of the EU, making it unique amongst international treaties.
(6) Even in the wholly unlikely event that the EU were to agree to remove the whole backstop Protocol from the WA, the rest of the WA would still contain serious constraints on the UK and little or nothing of value. For example: (a) Its ‘long tail’ jurisdiction would lead to UK companies being subjected to State Aid or competition proceedings for many years after the UK had left the EU and after the transition period; (b) It contains an obscure clause on ‘geographical indications’ which would severely disrupt future trade negotiations with other countries.
If the WA were to come into force, even if the UK had nominally left the EU, it would still be subject to all EU laws (including new ones), the jurisdiction of the ECJ, the decisions of EU institutions such as the Commission and EU Parliament, and nor would the UK be entitled to submit ‘proposals, initiatives or requests for information to the (EU) institutions’: WA Art 128(5)(b).
Because Article 184 of the WA requires the UK (and EU) to use best endeavours to negotiate a long-term agreement which conforms to the principles set out in the PD, the UK cannot attempt to negotiate for any future agreement that departs from those principles. A failure to agree a long-term relationship in accordance with those principles will mean that the UK is locked into the backstop Protocol terms with no way out and no legal means of complaint. This constraint does not appear to have been appreciated by either Mrs May, her advisors or many of the Conservative Party leadership candidates.
But a Withdrawal Agreement under Article 50 is not necessary to leave, or for a trade deal
There is no requirement that a Withdrawal Agreement has to be concluded in order for a member state to withdraw from the EU under Article 50. Given the position we are in, any attempt to conclude a Withdrawal Agreement should be abandoned. The EU will not agree any changes and the current version will not be agreed by the UK Parliament. Instead, the future Prime Minister should concentrate on addressing the longer term relationship between the UK and the EU.
An exit from the EU without a Withdrawal Agreement under Article 50 does not mean leaving the EU without deals of any kind, unless the EU refused to enter negotiations, despite the UK’s willingness to do so.
In the absence of a trade agreement between the UK and the EU, WTO rules prima facie require that the EU must charge its Common External Tariff (CET) on goods imported from the UK and the UK must charge its standard external tariffs (those charged on imports from the rest of the world) on goods imported from the EU. Contrary to common belief, the UK is not obliged to continue to charge tariffs at EU levels – it will be free to reduce them or remove them on sectors of goods where they are not warranted. The UK Government envisaged doing so pre-29th March 2019.
Further, and contrary to claims made by certain committed Remainers, the Most Favoured Nation (MFN) principle does not require that the UK’s customs border procedures need be identical at its ports and airports and at the UK’s only land border, that between Northern Ireland and the Republic. Nor does the MFN principle or WTO rules require customs rules to be enforced by physical checkpoints on the border.
A Civitas study demonstrates that the total value of tariffs charged on UK goods imported into the EU, and subject to the EU’s CET, would be approximately 4.5% on average. This does not amount to a swingeing increase in the price of UK exported goods to the EU. The tariffs borne by UK exports would be less than half the net contributions that the UK makes to the EU budget each year.
What to propose – bridging arrangements on tariffs
The future Prime Minister should propose the continuation of zero tariffs on goods between the UK and the EU. The mechanism would be a simple temporary Free Trade Agreement, to apply until a fuller long term FTA can be negotiated and ratified. A draft (complying with GATT rules) has already been prepared by Dr Lorand Bartels of Cambridge University. This simple FTA satisfies the requirements of Article XXIV of GATT, and does not need to be satisfy the additional requirements for so-called ‘interim’ agreements under that Article.
Such an offer would be hugely beneficial to the EU, since the tariffs which would be borne by EU exports to the UK are likely to be more than double those on UK exports in the opposition direction. This is because EU goods exports to the UK are £95 billion per annum higher than the UK’s goods exports in the opposite direction, and also because EU goods exports are more highly concentrated in high-tariff sectors such as agriculture, clothing and motor vehicles.
Such a bridging arrangement would be preferable to the elaborate and highly constricting ‘transition period’ envisaged by the WA, under which the UK would be subject to all EU laws (including new laws on which it would have no vote) and could not implement any trade agreements with third countries. By contrast, this bridging arrangement would be compatible with the immediate negotiation and implementation of trade agreements with third countries such as the USA.
As for the suggestion that there would have to be a closed land border in Ireland to deal with tariffs, it must be recalled that both the Channel ports and the Irish land border are already fiscal borders for the imposition of VAT and Excise Duties on goods imported into the UK. VAT is currently satisfactorily collected by businesses filing electronic returns with periodic inspection to ensure compliance. The same process can be applied to any collection of trade tariffs (if there are any).
Overcoming regulatory barriers
As for regulatory barriers post-Brexit, under the terms of the 2018 Withdrawal Act, the UK’s post Brexit regulations relating to goods will be the same as the EU’s, unless and until divergence occurs in particular areas. Moreover, UK law (the 2018 Withdrawal Act) lays down the default rule of continuing to recognise EU goods as conforming to British standards. There will be no legal barrier against the continued importation into the UK of goods made and certified under EU standards and rules. Stories of ‘shortages’ of food and medicine are wrong.
Arrangements on regulatory recognition are normal between trading countries whether or not they are in any preferential trade agreement such as an FTA. Mutual recognition is mandated by the World Trade Organisation’s TBT and SPS agreements. Thus the EU will be under both legal and practical pressure to enter into arrangements to continue to recognise UK goods as conforming with EU standards.
As for services, the UK is a net services exporter. There are no current plans to change the rules and standards of UK-based services providers, so the EU has no rational basis on which to refuse recognition. In the financial sector, EU industries’ access to the City is important, if not vital. Under the Withdrawal Act 2018 the default position is that EU-based service providers would continue to be recognised and able to provide services to UK customers unless and until UK rules are positively changed.
As previously mentioned, a zero-tariff Free Trade Agreement is hugely beneficial to the EU, having regard to the size of the UK’s deficit in goods trade and the way in which EU goods exports to the UK are concentrated in high-tariff sectors. It would be entirely reasonable for the UK to ask in return for interim access for goods and services into the EU market for as long as relevant rules remain aligned.
In conclusion: what we have proposed is a better way forward than the WA from all angles. Nobody can guarantee how the EU will choose to react, but if they have any sense and if these proposals are pushed by a determined UK Prime Minister then they present the best chance of an optimal exit from the EU.
Martin Howe QC is co-author with Sir Richard Aikens PC and Dr T.D. Grant of Avoiding the Trap: How to Move on from the Withdrawal Agreement (published by Briefings for Brexit/Politeia)
The post How the next Prime Minister can move on from Theresa May’s Withdrawal Agreement appeared first on BrexitCentral.
Only a credible non-cooperative strategy that cannot be blocked by either the EU or Parliament will get us out of the EU by 31st October 2019. And that strategy needs to be executed with ruthless conviction and commitment by the new Prime Minister. To demonstrate his support for Global Britain, his first trip abroad should be to the US to kick-start the UK-US Free Trade Agreement.
As the largest ever list of candidates to offer themselves as the next British Prime Minister has been whittled down to the final two, it is clear that we are in grave danger of validating Einstein’s definition of insanity – doing the same thing over and over and expecting a different result.
Between them, Boris Johnson and Jeremy Hunt have said that they will: renegotiate the Withdrawal Agreement (WA) and the backstop; leave the EU with a ‘deal’ on 31st October; and get parliamentary approval for their new improved deal. They both claim to be skilled negotiators, implying that this makes them ideally suited for the most important job in their career. There are differences, however: Johnson recognises that the WA as a whole is dead and just wants to lift some of its acceptable features, such as on citizens’ rights; while Hunt is prepared to delay leaving the EU for ‘a short while’ to achieve a ‘better deal’.
The naivety of the candidates’ positions is breath taking. Have they not observed how easily the EU has run rings around our current ‘skilled negotiators’? Are they like the Bourbons and learned nothing and forgotten nothing?
The new Prime Minister needs a credible negotiation strategy
It is going to be déjà vu all over again, unless the new PM has a clear strategy to leave the EU on the basis of what game theorists call a non-cooperative solution. That is one that the EU cannot block if it is not willing to cooperate in producing a solution that makes both sides better off.
This means that the starting point for any negotiations with the EU cannot be the WA. The EU says that it will not renegotiate this and it remains completely unacceptable to the vast majority of the British people. As Chairman of Lawyers for Britain, Martin Howe QC, says:
‘I can’t think of any clause in the WA end-to-end which is actually in the interests of the UK. The only neutral part of the agreement is the reciprocal rights of UK and EU citizens, in which the clauses on substantive rights are acceptable. However, even those are surrounded by completely unacceptable requirements that the treaty must perpetually have direct effect and must (as interpreted by the courts) override future UK Acts of Parliament in our own courts, and must be “interpreted” by the European Court of Justice for about 10 years by direct references and thereafter via a back-door mechanism in an international arbitration clause’.
His devastating criticism of the WA is here: Avoiding the Trap – How to Move on from the Withdrawal Agreement. How a British Prime Minister could collaborate with the EU to produce this document and how so many MPs could subsequently vote for it is beyond me. The WA is nothing less than a venus flytrap. It therefore needs to be avoided at all costs.
In any case, the WA does not offer a ‘deal’ about a future relationship in any meaningful sense. For example, there is nothing on services which account for 80% of UK GDP. Trade in services will be negotiated after the UK leaves the EU. It is completely bizarre for MPs to object to leaving the EU without a deal, when the WA itself involves leaving the EU without a deal.
A non-cooperative solution requires the UK to specify both the terms under which it will leave the EU and the terms under which it will trade with the EU in the future. And to do so in a way that the EU cannot block.
Theresa May specified the leaving terms very clearly in the Lancaster House speech in 2017. They were to leave the Customs Union, Single Market and the jurisdiction of the ECJ. In other words, a clean Brexit. This was a clear deliverable strategy that did not require EU cooperation. But then Remainer Philip Hammond stepped in and said there needed to be a transition period which would require EU cooperation and this was the beginning of the backtracking that led to the toxic WA and the equally toxic Political Declaration (PD).
The non-cooperative solution involves three steps. And each one has to be credible to the EU
The first step is for the new PM to restate that the clean Brexit set out in the Lancaster House speech will be implemented by 31st October 2019. This is credible and does not require EU consent.
In parallel with this, the new PM should immediately inform the US President that the UK will enthusiastically take up his long-standing offer to negotiate rapidly a US-UK Free Trade Agreement (FTA). This also is credible and does not require EU consent once we leave. During the few weeks that remain before 31st October, the UK can make much progress in setting the stage for post-Brexit negotiations – a task that the International Trade Secretary, Liam Fox, has consistently dragged his feet in doing. This will send an electric shock to the EU that will tilt every aspect of subsequent negotiations with the EU in our favour. The prospect of us concluding an FTA with the US when the EU has been struggling for years to achieve this will motivate the EU to conclude an FTA with us. They will fear the fact that the UK would be able to import virtually all of its requirements from the US and at lower world market prices. This would signal to the EU that we can leave them behind if necessary.
The second step is to set out in a new Departure Statement (DS) how the principal issues involved in departing from the EU will be implemented: citizens’ rights, the financial settlement and the border between Northern Ireland and the Republic. The PM can guarantee the rights of EU citizens living in the UK without granting them the special status of the WA. He can agree to pay our financial obligations up to the point of departure. Any additional money is not a strict legal requirement but can be used as a bargaining tool in negotiations about the future trade deal – as the EU is fond of saying, ‘nothing is agreed, until everything is agreed’. Let the EU take the UK to international arbitration if they want. Finally, he can restate that the UK will not impose a hard border. All these are credible and do not require EU consent.
The big advantage of being absolutely clear on the border is that it will force the EU and, in particular, the Irish Taoiseach Leo Varadkar to agree a workable solution that allows the UK to leave the Customs Union and Single Market at the end of October. Solutions exist to protect the integrity of both the UK and EU internal markets without any physical infrastructure on the border or any need for new technology. The Smart Border 2.0 report commissioned by the European Union Parliament from customs expert Lars Karlsson confirms this – as does the more recent report of the Alternative Arrangements Commission. Annegret Kramp-Karrenbauer, Angela Merkel’s successor as leader of the Christian Democratic Union, has said that a workable solution could be agreed in five days of discussions. There were discussions between British and Irish customs officials on creating an invisible border, but Varadkar stopped these when he came to power. In doing so, he politicised the border issue and turned it from being the EU’s Achilles’ heel into the UK’s – ably abetted by collaborating British ‘negotiators’.
It was this single issue that was then exploited in order to propose the backstop comprising a ‘single customs territory between the (European) Union and the United Kingdom’, without rules of origin. Northern Ireland, in addition, would have to abide by the rules and regulations of the EU Single Market. So long as the backstop is in operation, the UK would have to meet ‘level playing field conditions’ that prevented the UK competing against the EU. The UK would not be able to leave the backstop without the consent of the EU.
This, of course, is completely unacceptable. By making it clear that the UK will leave the EU on 31st October, the positions are immediately reversed. Both the EU and Varadkar have said that there will be no hard border. Varadkar would be forced to restart the discussions between British and Irish customs officials. He knows full well how devastating for the Republic’s economy a ‘no deal’ Brexit would be: the Irish Central Bank predicts a 4% cut in GDP and 100,000 job losses. And there are plenty of five-day periods between now and the end of October to agree a workable solution. But it requires the UK side to make it absolutely clear that we are leaving on Halloween, come hell or high water. This too is credible and again does not require EU consent.
The third step is to make a Future Relationship Statement (FRS), setting out the terms on which the UK will agree to trade and cooperate with the EU. Again, this has to be done in a way that cannot be blocked.
There is only one set of trading terms that the EU cannot block. Under WTO (World Trade Organisation) rules – which almost all international trading arrangements follow – we are free to set the tariffs and product standards for trade with the EU, so long as these are the same as for all members of the WTO under MFN (Most Favoured Nation) rules, unless we have a FTA with any country or group of countries. This is the default position, so is also credible and does not require EU consent.
We can actually do better than that and offer the EU to continue trading in goods on current zero-tariff terms under Article XXIV of GATT (General Agreement on Tariffs and Trade) and in services under Article V of GATS (General Agreement on Trade in Services) – while a full FTA is negotiated. But if they refuse, we can temporarily revert to the MFN rules under Article I of GATT.
The EU will ultimately agree to a FTA. In the meantime, we need to exploit the fact that the UK has a huge trade deficit with the EU – we are net buyers of goods of around £100 billion, equivalent to 5% of our GDP. Since the customer is king – and we are the customers – it should be us who decides the quality and prices of the goods and services we purchase from not only the EU but from the rest of the world. But what the WA and PD do is to allow the EU to determine these things. The audacity is astonishing. Did the EU and our ‘negotiators’ seriously believe that they could get away with this – and not just in the short term but indefinitely?
Since we will no longer be bound by the EU’s Common External Tariff, we can lower the tariffs we set on goods that we do not produce domestically. But whatever tariffs we set, the EU will be worse off given that they sell us mostly high-tariff goods like cars and agricultural products. We would pay tariffs to the EU of around £5 billion and they would pay tariffs of £13 billion. In addition, we would save the £11 billion net contribution to the EU.
This provides a strong incentive for the EU to agree a FTA, unless they want to continue punishing us for leaving the EU, and in doing so damage the EU economy even more. Given that we have a services trade surplus with the EU of around £30 billion, it is essential that this is secured in a future trading relationship. This means a SuperCanada deal, already offered to us by the EU in March 2018.
But although there is a strong economic incentive to agree a FTA, we cannot force the EU into accepting any deal that works for us in terms of services, and, in particular, financial services. Still this does not prevent us leaving the EU on the basis of the above DS and FRS. There are enough ‘mini deals’ in place – covering visa-free travel, aircraft landing, rail and shipping agreements, road haulage licences, student exchanges, defence and security etc – for the citizens and businesses of both the UK and EU to continue visiting and trading with each other. In addition, a sufficient number of the international trade deals negotiated by the EU have been novated that we can continue trading on the same terms with most of these countries as we do now. A key example is Switzerland which accounts for more than a quarter of our trade under these EU-negotiated deals.
A number of proposals have fleshed out the details of a future relationship along the lines outlined above: A Clean Managed Brexit from Steve Baker MP, The EU, The UK and Global Trade: A New Roadmap from Professor David Collins, A Better Deal from Shanker Singham, Robert MacLean and Hans Maessen, A World Trade Deal from Economists for Free Trade, and the Howe et al report cited above. For example, Baker suggests that we should send a draft UK-EU FTA to the EU – such as the ones proposed by Shanker Singham, Victoria Hewson, Hans Maessen and Barnabas Reynolds or Dr Lorand Bartels of the University of Cambridge – rather than wait until they do the drafting – which was such a disastrous error with the WA and PD. The EU could agree such a FTA under Article 207 of the TFEU (Treaty on Functioning of the European Union) on the Common Commercial Policy on the basis of qualified majority voting.
But unless the strategy is clear about what is needed to deliver these outcomes, we will soon be back wading through the same treacle of compromise and capitulation that have been the hallmark of our negotiations over the last two years. The only strategy that is guaranteed to work by 31st October is the non-cooperative one outlined above.
The new Prime Minister also needs to demonstrate conviction and commitment – and that involves putting Parliament in its place
A credible negotiating strategy is necessary, but this will not be sufficient. The new Prime Minister also needs to have ‘conviction and commitment’, as Dominic Raab has pointed out. But Boris Johnson – the front runner to be PM – has already wavered by first stating categorically that the UK will leave the EU by 31st October and subsequently saying that this is merely ‘eminently feasible’. This change was immediately picked up by EU negotiators, one of whom told The Times: ‘Even the boldest Prime Minister for a no-deal will have to demonstrate that he has had one serious try and that means an extension [beyond 31 October]’. Another told the Daily Mail that the EU believes Johnson will end up trying to sell an amended version of the WA: ‘If people really brief Boris and talk him through the implications of ‘no deal’, I think he will really think twice’. The first view is perfectly plausible and, unless further wavering is prevented, then we are very likely to end up with the second. After all, Johnson supported the Withdrawal Agreement on the third vote. Hunt voted for it three times. Johnson’s declared position, however, is that he is seeking a FTA with the EU and clarified that he will leave the EU by the end of October ‘do or die’.
The new PM also needs to demonstrate conviction and commitment with the other group trying to block Brexit: the British Parliament. It too needs a lesson in democracy. Read our lips: we voted to leave the EU in June 2016 by a bigger majority than any vote that any individual MP has ever received. We understood the decision we made. We understood why we made it. No amount of scaremongering by the majority of MPs who oppose this decision or their friends in the civil service and CBI etc will change this.
So if MPs are still determined to block the deal that the next PM sets or try to insist that the deal is put to a ‘confirmatory vote’ – weasel words for a second referendum to try and get Brexit reversed – then they also need to be blocked. They need to be made to understand that it is the people who are sovereign not MPs. And the people are here for ever, they are not.
If this, in turn, means that Parliament is prorogued until after 31 October 2019, then so be it. Constitutional historians like Professor Jonathan Clark argue that this would not be ‘“unconstitutional”:
‘[It] would be in accord with statute law, but applied in a situation that legislators could not foresee. [Nor] would [it] be “undemocratic”, for the point at issue is the clash between two sorts of democracy, representative and direct. Whatever the merits of these two, Parliament recognised the priority of the People in legislating for the referendum of 2016. Parliament’s claim to control prerogative depends also on public opinion, and support has ebbed away as Brexit has not been delivered’.
However, prorogation might not be necessary since, in June 2019, Parliament voted down a Labour motion to block a no-deal Brexit. Indeed, Maddy Thimont Jack from the Institute of Government argues that MPs have no decisive route – such as legally binding backbench motions, emergency debates, amendments to the Queen’s Speech, or ‘no confidence’ votes – to stop a PM determined from leaving the EU on 31st October.
Only a credible non-cooperative strategy executed with ruthless conviction and commitment by the new Prime Minister will get us out of the EU by 31st October
The message needs to be clear, simple, with no compromises. Theresa May said in her resignation speech outside No. 10 that the next Prime Minister must compromise. Well just look where that got her. Time’s up for doing the same thing over and over and expecting a different result. Only a credible non-cooperative strategy that cannot be blocked by either the EU or Parliament will get us out of the EU by 31st October. And that strategy needs to be executed with ruthless conviction and commitment by the new Prime Minister. Given that both Johnson and Hunt have voted for the WA, the new PM would need to signal his conviction and commitment by appointing a Brexit Secretary who refused to vote for the WA on all three occasions. To demonstrate his support for Global Britain, his first trip abroad should be to the US to kick-start the UK-US Free Trade Agreement. There is no need to make another round of humiliating visits to Brussels or to Europe’s capitals – as Theresa May repeatedly did.
This is an extended version of a blog originally posted on Briefings for Brexit
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It’s funny, but every time one mentions ‘Article 24’ publicly – meaning (using the correct Roman numerals) Article XXIV of the General Agreement on Tariffs and Trade (GATT) which predates the World Trade Organisation (WTO) – you receive a barrage of hysterical abuse from Remainers, often with long academic titles. They are clearly terrified we’re on to something.
They say: ‘The EU would never agree to it!’, ‘The EU would not be minded to do a deal if we leave on bad terms!’, ‘You can’t do it in a no-deal situation’ and ‘We’d have to levy tariffs not just on EU goods but all good from around the world’. This last point was made on Radio 4’s Today programme discussion of Article 24 yesterday morning.
But these claims are wrong. We know they are wrong because collectively we have asked the EU: its Chief Negotiator Michel Barnier, its trade advisers and personnel, and people David has worked with for ten years on the International Trade Committee of the European Parliament doing trade deals. And together we’ve asked very senior people at the WTO and top trade lawyers too, such as the impartial Article 24 expert Lorand Bartels of Cambridge University.
Their conclusion: GATT Article 24 is not only doable, it is desirable. Here are a few facts relating to Article 24:
1) Let’s not confuse what ‘deal’ or ‘no deal’ we are talking about: we are not seeking to renegotiate the Withdrawal Agreement or attempt ratification of that deal by 31st October. Angela Merkel and other EU leaders have made it clear that ‘deal’ is not negotiable.
So this is not a deal based on the Withdrawal Agreement under EU law such as the Lisbon Treaty’s Article 50. Nor is it a trade deal conducted under the EU’s ‘Future Relationship’ or ‘Political Declaration’ provisions either with its binding legislation – it is a separate deal done under World Trade Organisation rules.
2) The World Trade Organisation makes trade rules, not the EU. There’s a clue in the title. The EU quite correctly works within the global rules system on trade via the WTO. Most EU free trade agreements incorporate WTO level agreements like GATS – the General Agreement on Trade in Services.
3) GATT was the predecessor to the WTO and Article XXIV/24 is contained within these global GATT rules which all individual WTO members – that includes the UK as an individual full WTO member, every EU member state as individual WTO members and the EU as an entity – agree to implement.
4) The whole point of the WTO is to promote free trade around the world. The WTO does not like tariffs (taxes on goods entering), quotas (a certain quantity of goods entering at a certain tariff) or barriers to trade (e.g. excessive regulation advantaging home producers or in services). So the WTO will not like it if the UK and EU return to imposing £13bn tariffs on EU goods and £5bn on British goods into the EU. It goes against the grain.
5) GATT Article 24 is there to allow two countries or blocs to move towards a free trade area or a customs union. It basically allows the two countries to level lower tariffs and quotas than what is called ‘Most Favoured Nation Rules’ (MFN). Ironically it is the very basis of the EU’s zero tariff Customs Union which took between 1957 and 1968 to actually enact.
By offering one country a better deal than other WTO members you are discriminating – you are offending the rule that everyone must be treated the same – so you must levy the same MFN tariffs to all. This is such an important rule it is actually Article 1 of GATT. But Article 24 is a specific exemption to this.
Free Trade Agreements (FTAs) are really a licensed form of discrimination where you are allowed to offer better terms to one country over all the others but only if you really free up trade – particularly getting rid of at least 90% of tariffs.
6) So given the WTO hates tariffs (it’s not happy with President Trump and others reimposing tariffs but that’s another story), then it is amenable to ways of avoiding tariffs without disadvantaging its other members.
So if the UK and EU go to the WTO jointly and say that we have agreed to move to a full and comprehensive Free Trade Agreement (what we term ‘SuperCanada’ – that is better than the EU-Canada FTA) – that keeps tariffs at zero with no real change to other members, the WTO is happy to allow us a period of time to keep tariffs and quotas at preferential rates. GATT 24 allows what are called ‘standstill’ arrangements – much remains the same and this is essentially a WTO form of a transition – but is not an interim arrangement as is often claimed.
We can keep tariffs at zero for as long as the two partners need to negotiate the full works: that comprehensive FTA. Legally this could be up to ten years, but most are two to three years to negotiate. That is GATT 24.
7) Yes, GATT 24 needs a temporary agreement between the EU and UK, but frankly it could be written on the back of an envelope. Lorand Bartels has helpfully written a one-page FTA properly that is sufficient to allow Article 24 to apply. This is a ‘basic deal’ or a ‘temporary FTA’. But it is entirely manageable and legally sound.
So to our Remainer friends – yes, you need a deal, but one or two pages of FTA is much easier than the 585-page Withdrawal Agreement to agree.
8) So why would the EU agree?
Well, the UK is the fifth largest economy in the world and the EU’s largest single market – bigger than the USA, China and India. The EU has a £96 billion goods deficit with us (we have a £13bn services surplus). Over a million German jobs alone rely on British consumers buying German goods like BMWs. Without a basic GATT 24 deal, the EU would have £13bn tariffs slapped on its goods – 10% on VWs; 12% on wine, 40% on cheese. They would suffer far more than the UK simply because they sell more to us than we do to them. The EU – particularly Germany, which accounts for nearly a quarter of all EU trade to the UK – does not like the idea of this. Better for everyone surely to keep on an even keel?
There is also the question of money. The UK may well be prepared to pay a fair contribution, if not anywhere near the £39 billion associated with the Withdrawal Agreement, but this would be contingent on such a basic deal. It is also much easier to deliver by the end of October.
In the absence of EU agreement to GATT 24, the UK can unilaterally and universally change its import tariffs, and be open to cutting all tariff rate quotas – but obviously the UK would not be able to control EU import tariff rates.
9) What about services and standards?
Services will be a part of the future trade deal but will be along the lines of ‘Mutual Recognition’ of standards or ‘enhanced equivalence’, not on a harmonisation or rule-taking basis.
10) What about all the the other non-trade elements, such as aviation flying rights?
GATT 24 is not the only basic deal needing to be done if there is no Withdrawal Agreement. It will need an accompanying flotilla of what we call ‘mini deals’.
But – good news – the EU has already quietly agreed most of these through emergency legislation. As an MEP, David has voted on 17 main pieces of legislation to keep trucks rolling, planes flying, trains running, goods flowing, fishing boats sailing, visa costs eliminated, energy efficiency maintained, social security cooperation, the Northern Ireland Peace programme running, Erasmus+ for students allowed, and other affairs. The UK just needs to reciprocate.
The reality is that much of the non-controversial elements of the Withdrawal Agreement can be agreed as separate ‘mini deals’ in exactly the same way – for example, the elements on citizens’ rights – but can be done outside the provisions of the European Court of Justice. This is the case with other EU free trade deals including Canada and Switzerland.
11) What about the Northern Ireland border and Good Friday Agreement?
Iain served as a soldier in Northern Ireland and well knows its challenges, whilst David worked on the Peace Process 20 years ago as a Government Special Adviser. There is no mention of the border in the Good Friday Agreement for a start (rather a sensitive subject!).
With Ireland only checking 1% of goods imported now and with existing trusted trader and other current mechanisms available, such as checks in factories and warehouses, even the EU admits alternative arrangements can be done with the border remaining free. No one wants a hard border. But the detail of this can await the negotiation of the bigger free trade agreement – and is part of that.
What GATT Article 24 represents is a Clean Managed Brexit – and what’s more it is deliverable by 31st October.
The post The facts about GATT Article 24 – and how it can deliver a Clean Managed Brexit by 31st October appeared first on BrexitCentral.
There has been much speculation about what the UK and EU will do in the event of No Deal, focused in the UK on the no-deal planning notices emanating from the Department for Exiting the European Union. What little attention has been paid to the Department for International Trade (DIT) has usually taken the form of criticism that crucial deals for the UK’s external trade will be lost because we will have failed to novate or roll over the agreements with a host of countries we have through the EU.
Any DIT announcement of a successful roll over or novation is usually accompanied by howls of derision from various doomsayers who say that this is a small percentage of the number of agreements the UK has through the EU with other countries outside the EU27. Reference is often made to 60 or 70 agreements that fall into this bucket (it is actually around 40 agreements covering around 70 countries).
When it comes to what we might have if we leave with no deal, the analysis is entirely static, assuming that some mythical gate will come down and foreclose all trade if we have not immediately rolled over all agreements, and assuming that whatever we have when we leave will remain the status quo forever from that point. It is also fair to point out that our trading partners have been confused by the UK’s EU negotiating strategy, something on which DIT has no input, and this has led our trading partners to doubt that we will ultimately be in a position to offer deep liberalisation in the future, because we will be locked into the EU Customs Union or have such high regulatory alignment that we will be unable to have the requisite regulatory autonomy to make us relevant to them.
This uncertainty has certainly impacted their negotiating strategy, and made them more determined to extract as much as possible from us now, because they believe our EU strategy will mean we will be unable to negotiate properly in the future. The more that parliamentary voices lobby hard to take No Deal off the table or extend Article 50, the less incentive these countries have to close these agreements with any urgency, so our own lack of discipline is contributing to the issue.
Despite this hostile working environment, DIT has been quietly and successfully rolling over many of these agreements; and with regard to the ones that matter – and that actually impact meaningful amounts of UK trade (as opposed to say agreements with Andorra and San Marino) – progress is relatively good (with a couple of exceptions which I will discuss below), even in the event of the UK leaving the EU without a signed withdrawal agreement.
First of all, some threshold points. It is often assumed that if 1% of our trade is with country X, and country X has a trade deal with the EU, this means that if that EU-X agreement is not rolled over in favour of the UK, then that means all of that 1% of our trade will fall to zero. But this is not how trade works. Clearly for some products, especially agricultural trade where tariffs are high, failure to novate could have a big impact on our exports (assuming the agreement in question lowers agricultural tariffs for country X, not always the case in the EU-X agreements).
But equally, where the tariffs are low, and industrial goods tariffs are very low (Most Favoured Nation rates for industrial goods are on average 3%-4%), then failure to novate will simply mean a marginally higher tariff that may be compensated for by a host of other factors such as currency fluctuations or tax policy. Right now, even in some of the most established agreements, such as NAFTA and the EU-South Korea agreement for example, some traders still choose to pay the MFN rate and do not take the benefit of the preferential rate because proving origin is more hassle than just paying the low MFN rate.
With that caution, let’s look at progress to date. The agreements that we have through the EU (excluding the recently-signed Japan agreement where tariff cuts only commence in January 2020) account for 11% of our total trade. Looking at how much trade is duty free around the world (or duty free under a GSP programme), it would not be surprising if the trade actually affected – in case the agreements are not rolled over – would be approximately half of that. Of these, the Swiss agreement alone – which has been rolled over – is worth 20% of our trade. Other significant agreements here include CETA, covering a further 12% of the trade under these agreements (almost rolled over), and the EU’s agreements with South Korea and Singapore, each covering around 10% of this trade.
Equally it is worth pointing out that 20 of these EU-X agreements account for only 0.8% of total UK trade. Many of the EU-X agreements are Economic Partnership Agreements (EPAs) that are with small developing countries, not critical to UK trade. We would certainly like to replace these arrangements with UK arrangements, but we should take the opportunity of having a different approach to development here. The EU’s approach to development is to charge high tariffs on the products that developing countries produce (often with significant tariff escalation), and to compensate by lowering that rate through its preference programmes such as GSP, and GSP+ which are conditional (and could be lost by the developing country for any number of reasons outside of the control of individual traders and exporters), and to limit the unconditional programmes (Everything But Arms) to only the poorest of the poor.
A smarter approach for all sides is for the UK to actually be genuinely open to the products of these countries, but to compensate them on a one-off basis for the preference erosion that this will cause. We should also eliminate tariff scalation from our schedules so that these countries are incentivised to go up the value chain and garner more value for their producers – a key element of development. Notwithstanding this, the UK and the Eastern and Southern African states have now rolled over their agreement with the EU.
The UK is very close to rolling over the EEA agreements which cover around 2% of UK trade, mostly with Norway, as Liam Fox pointed out in a ministerial statement last week. We have also rolled over a series of nuclear safeguarding agreements. The UK has acceded to the Common Transit Convention. Although the UK is a member of the WTO by right, and does not have to re-accede to it, it does have to accede to the WTO Government Procurement Agreement, and is in the process of doing so. The recently-signed Swiss agreement also contains important cumulation provisions covering goods originating in the EU, EFTA and Turkey. Crucially, goods that would have been considered ‘of community origin’ by either the UK or Switzerland will remain so.
But trade is also more than just about trade agreements. The UK has been able to roll over a number of mutual recognition agreements (MRAs) that are very important to facilitate trade. MRAs make it easier for people to trade and easier to prove that their products satisfy the standards and regulatory requirements of the other party. The UK has already signed MRAs with the US, Australia, Israel and New Zealand. There are sectoral agreements on insurance with the US and Switzerland, on wine with Australia, and the US. A range of air services agreements have been signed with the US, Canada, Switzerland, and Israel to name a few. The UK and New Zealand have rolled over the UK-NZ veterinary agreement. A distilled spirits mutual recognition agreement with the US (with whom there is a rapidly growing whisky trade) has been signed and a similar agreement is due to be signed shortly with Mexico.
It is true that there are issues with the Japanese and South Korean novations, but it is important to understand why this is the case. In the case of Japan, the Japanese recognise that the EU deal is not an ideal agreement in terms of Japanese trade policy. Japan has made concessions on data that do not suit its IP-based economy that relies on data flow. The Japanese would rather have the UK in the CPTPP arrangement rather than simply rolling over the agreement, and that would be in our interests too. They rightly don’t want the new EU-Japan agreement to be the basis for the UK-Japan trading relationship going forward. This is because Japan is particularly concerned about countries like its large neighbour, China, which are increasingly pushing anti-competitive and prescriptive regulations domestically and on the rest of the world. This would stifle their own innovative industries.
Like many global supply chain managers, Japan needs an open trading, pro-competitive regulatory environment. It sees the UK as potentially moving in that direction, and if the UK accedes to the CPTPP, it also sees a possibility that the US will one day return to the TPP fold. If the UK, US and new accession countries like Indonesia and South Korea accede to the CPTPP, then it will command 45% of the world’s GDP, and include the fastest growing countries in the world (compared to the EU27’s 20% assuming static performance over time, whereas it is likely that on current trends the EU27 will decline from this 20% figure).
Indeed, the Japanese may also think that their current negotiating position will prevent a “No Deal” situation arising. There is also a specific nuance with the EU-Japan agreement because it is a new agreement and the tariff cuts are only just starting, and the MFN rate applies to all UK and EU trade until January 2020 anyway. Whatever else is said, the Japanese are committed to a better agreement with the UK than the EU, but only want to go to the Diet for approval once with a better agreement. Other countries have complicated legislative processes too.
In the case of South Korea, they want to see more liberalisation from the UK than they secured from the EU, which is also to be expected. The UK can liberalise more than the EU, but does need a base line from which to operate. It is fair to say that the Koreans have been particularly affected by the confusion in Parliament regarding an extension of Article 50. Why should they negotiate with any urgency, if in fact there is no need to do so?
Additionally, both the Koreans and Japanese have given confused messages – on the one hand seeking more liberalisation either directly or through CPTPP accession, while maintaining that the UK should disturb their UK-EU27 supply chains as little as possible – two inconsistent positions. It would be better for all if these managers of global supply chains took the position that they wanted maximum trade openness between the UK and EU through a comprehensive, advanced FTA consistent with allowing their global trade ambitions of more liberalisation and pro-competitive regulation to be simultaneously fulfilled.
With regard to Turkey, the hysteria is even more divorced from reality. We could never negotiate anything with Turkey until we have actually left because Turkey is in a partial customs union with the EU. Nothing has changed there. It is not news that this particular agreement won’t be rolled over by March 2019.
Of course, if a deal can be agreed, the EU-X deals would continue to apply in their entirety until the end of the transition period. No-one wants a no-deal scenario, but the UK has made sufficient progress on rolling over some of the existing FTAs, MRAs and other sectoral agreements such that leaving without a deal would not be the disaster that some have painted.
We would of course continue this process after we have left the EU, and extend it to include further and deeper liberalisation. However, amendments like Cooper-Boles force other countries to assume that No Deal is in fact off the table, and so there is no point in drawing down political capital with their own legislatures if it not necessary – another example of the UK shooting itself in the foot, but that’s a mistake that is being made by those voices calling for No Deal to be taken off the table or for Article 50 to be extended. It cannot be laid at the door of the DIT. It’s a bit like sending your army into battle, but deliberately taking away its weapons.
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More attention is needed to be given the tariff policy Britain must adopt on leaving the EU on 29th March. It now looks likely that this will have to be without a withdrawal agreement. However, this has the advantage that Britain can shape its tariff policy from day one.
This is a responsibility that British governments have been able to avoid during the period of EU membership. Now they are regaining that responsibility, they must seize it promptly.
Before the end of March, the Government should publish a White Paper explaining that:
- It has sought to negotiate a withdrawal agreement, but unfortunately no acceptable agreement could be reached, so while the UK remains open to agreement, European leaders have ruled out further negotiation. This means the European Treaties cease to apply to the United Kingdom on 29th March 2019. Britain’s trade with the EU will then be governed by the World Trade Organisation agreements, which govern most of Britain’s trade already.
- The WTO agreements are international law and Britain will honour them in full. It expects the EU to do likewise.
- The EU will now be obliged to apply its Common External Tariff (CET) to British exports, treating the UK on equal terms with other third countries, on a Most Favoured Nation (MFN) basis. Tariffs must be accepted as a disadvantage, but it has now become a very minor one: on industrial exports from the UK to the EU, the CET averages about 3%.
- As far as British imports are concerned, Britain will not be obliged to charge import duties; but where it does so, it must charge a rate which treats all WTO members equally. Absent a withdrawal agreement the EU must be treated on the same basis as other WTO members. Britain will inherit tariff bindings, as a result of which its import duties cannot exceed those of the European CET.
- Importantly, however, Britain will be free after 29th March to reduce or eliminate import duties whenever it sees fit (see below).
- Apart from tariffs, the rule of the WTO for all other aspects of trade is non-discrimination. Non-Tariff Barriers are prohibited by the WTO so far as they afford protection to domestic production (GATT Art. III.1). So far as they arise out of the operation of internal laws (industrial safety etc.), all such laws must be applied equally: they must accord imports treatment “no less favourable” than that accorded to products of national origin (GATT Art. III.4). They cannot discriminate against imports from other WTO members.
The White Paper will explain the application of these rules carefully, emphasising that they are tried and tested by many years of practice worldwide. It will emphasise three key facts:
(a) that most of the UK’s trade is already conducted outside Europe, most of it under the WTO rules;
(b) that Britain trades more successfully outside Europe than within it; and
(c) that most of the EU’s trading partners worldwide trade with it under the WTO rules, and do so with success.
FIRST PHASE OF TARIFF POLICY: KEEPING TRADE FLOWING
After 29th March, the immediate priority will be to keep trade flowing in an initially uncertain environment. During this phase, the Government should suspend all import duties from all sources. The WTO rules allow this, provided the suspension is on an MFN basis.
This will mean that no inbound consignments are interrupted for tariff reasons.
SECOND PHASE OF TARIFF POLICY: ELIMINATING HARMFUL IMPORT DUTIES
Then, as it becomes clear that trade is flowing smoothly, import duties would be selectively reinstated, selectively reduced and selectively eliminated. This is the stage at which Britain’s trade policy will begin to take shape. It is important to emphasise that Britain will have no freedom to raise tariffs above their CET level. It will be tied by WTO bindings not to do so. Trade policy will take the form of selective reductions and eliminations of import duty, below their present CET levels – cuts which Britain can now make (and has hitherto been prevented from making) include the following:
- Foodstuffs will be imported free of all duties. Note that this is one of the principal benefits of Brexit. The present CAP duties are very high, often above 50%. Eliminating them would bring major reductions in food prices, to the benefit of families. It would restore the traditional British policy of leaving food untaxed. Many countries in the world are exporters of food. The return of Britain as a buyer of food in world markets will be seen as a major advance towards freer trade from the EU’s protectionism.
- Clothing and footwear. Duties should be cut to a maximum of 5%. Under the EU’s CET, these currently attract duties up to 20%. Again, the UK is a substantial net importer of these items and eliminating duties on them will bring major reductions in prices, to the benefit of families.
- Automotive components, parts and sub-assemblies. Duties should be removed. These currently attract duties of around 5%. Eliminating them will help UK assembly plants relying on supplies from Europe and Japan on a “just-in-time” basis.
- Semiconductors. These attract CET duties of 12%-15%. These should be removed. British IT industries are substantial net importers of semiconductors and are currently burdened by duties intended to protect continental suppliers.
- Other industrial intermediates, materials, components, sub-assemblies etc. Duties should be removed wherever the UK is a substantial net importer.
- Other products of any kind not made in the UK. Duties should be removed.
THIRD PHASE OF TARIFF POLICY: PREPARING FOR FREE TRADE AGREEMENTS
While it is making these unilateral tariff cuts, the UK should also announce its willingness to conclude free trade agreements with any willing partner on a basis of reciprocity, eliminating all import duties in both directions. This should apply to all the UK’s trading partners worldwide, not excluding the EU.
The detail of each negotiation will of course take time to tie down. However, the WTO Agreement allows GATT (Art. XXIV) the formation of interim agreements which can be brought into provisional application, and thus given early effect. In this way, tariffs can be eliminated in advance.
Negotiating priority should be given to:
a) suppliers of products which the UK needs to buy, where the European CET is high and where the British aim is to secure more affordable prices (e.g. foodstuffs from Argentina, New Zealand, clothing and footwear from China and India); and
b) promising markets where import duties against British exports are still high (as with India and China). One may note in passing that the EU comes into neither of these categories: EU duties against British industrial exports will be low (average 3%). A free trade agreement eliminating these will be of modest value and not worth paying too high a negotiating price to obtain. Meanwhile, Britain will have no need for expensive European food once supplies are available duty-free from other more reasonable suppliers.
Thus Britain will make important tariff cuts unilaterally, and others will follow free trade negotiations. Together they will add up to a significant liberalisation and a clear declaration that Britain, on regaining the right to direct its own trade policy, intends to drive it strongly in a liberalising direction. These tariff cuts would establish Britain as once again a beacon of freer trade, to its own benefit and to the benefit of its trading partners worldwide. It is important to send this signal immediately on Britain gaining the freedom to do so.
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In the aftermath of Parliament’s rejection of the draft Withdrawal Agreement, there is a way forward for the Government which allows a smooth transition into a No Deal scenario after 29th March, if found necessary, and then allows the UK to negotiate its desired comprehensive Free Trade Agreement with the EU without having to impose tariffs or quotas in the interim. There is a mechanism to ‘manage’ a No Deal scenario; one that works within existing WTO rules, and that is not widely known about.
This is essentially an alternate transition or interim period, but within WTO rules without having to levy tariffs or (arguably) pay membership fees to the EU, but requiring some customs forms levied on the 7% of UK businesses (400,000 out of 5.7 million UK private registered businesses) that actually trade with the EU. This is the deal with the EU used by China, the USA, India, Australia and New Zealand for example.
These recommendations are based on my nearly ten years of experience as a member of the European Parliament’s International Trade Committee, working on EU trade deals such as those with Canada, New Zealand, India, South Korea, Japan and Columbia/Peru, and drawing on high level discussions I have had with senior trade representatives for the EU and the World Trade Organisation (WTO).
In the event of No Deal, there is a strong case to maintain preferential tariff and quota rates at zero between the UK and the EU for a limited period – thought to be around two years. There are a number of arguments for exemptions to what are termed ‘Most Favoured Nation’ (MFN) rules, which require the same treatment in terms of tariff rates and treatment between WTO members to avoid discrimination. They are:
1) It is to the advantage of fellow WTO members to minimise disruption between our two large markets, which would reduce knock-on impacts to their imports/exports to the UK or EU markets. WTO members have to show financial harm to justify objections to practices (or tariff schedules). Civitas calculate that £13 billion of tariffs would have to be levied on EU goods entering the UK and £5 billion on UK goods entering the EU Single Market if standard tariffs are levied under No Deal. This is one justification for keeping preferential rates of tariffs for a period whilst a full trade deal is finalised.
2) There are exemptions under National Security grounds such as over the issue of Northern Ireland, which the IEA have argued as a case for an exemption, but this is less appealing given its association with US and Russian cases for exemptions, such as over US tariffs on Chinese steel.
3) Exemptions to ‘Most Favoured Nation’ (MFN) rules under Article 24 of the General Agreement on Tariffs and Trade (GATT) 1947. This appears to be the most substantive argument. WTO rules state that preferential benefits, such as tariffs and quotas for goods which are more favourable than MFN treatment, may only be extended to another country if it is part of a customs union or a free trade area. The ultimate legal authority to grant such preferences is Article 24 of GATT , incorporated into the WTO regime when that body commenced operations in 1995.
Article 24 is helpfully the ultimate basis in international law for the existence of the EU itself as a preferential trading bloc, which grants preferential treatment to its members within the Customs Union.
If the UK accepts Donald Tusk’s offer of a free trade agreement along the lines of CETA+++ or what I propose as ‘SuperCanada’, then the UK and EU will be in the process of moving towards creating a free trade area – Tusk has offered a tariff and quota free deal plus services (whilst leaving the EU Customs Union) – so qualifies under this criterion.
There are two under-appreciated aspects of Article 24 which have direct relevance to our situation, and which provide reassurance.
Firstly, Article 24, para 3 states:
The provisions of this Agreement [i.e. the requirement to extend MFN treatment equally to all] shall not be construed to prevent:
(a) Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic
- This has direct relevance to the position of Northern Ireland, and our adjacent country of Ireland. Some commentators have claimed that a sensitive and appropriate management of trade which respects and upholds both the letter and the spirit of, for example, the Good Friday Agreement would be in some form an unauthorised infringement of MFN treatment. That claim is clearly untrue.
- There is also no obligation under WTO rules to erect a so-called “hard border” on 29th March. Government may continue discussions with our counterparts in Dublin to arrive at adequate and effective technological measures for the management of trade with minimal friction. You will have noticed the encouraging signs that the Irish Government already appreciates this fact. (See, for example, “Ireland has no plans for hard border after Brexit, says Varadkar”, from The Guardian of 21st December 2018)
- We can expect that there will be considerable international sympathy for measures which support the situation in Northern Ireland, and hence a reluctance on the part of third countries to lodge objections. Although given the sensitivities this should not be stressed too heavily, such an exemption falls into ‘National Security’ related actions.
Secondly, Article 24 not only authorises member states to operate lower/zero tariff free trade agreements, it also permits them to offer lower/zero tariffs pre-emptively during the course of negotiations. The relevant provision, Article 24 para 5, is worth quoting at length, with emphasis added to the critical wording:
Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of… a free-trade area or the adoption of an interim agreement necessary for the formation of… a free-trade area; Provided that:…
(b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and
(c) any interim agreement referred to in subparagraph… (b) shall include a plan and schedule for the formation of such… a free-trade area within a reasonable length of time.
(A WTO declaration, the Understanding on the Interpretation of Article 24, 1994, clarifies that the ‘reasonable period of time’ in para 5(c) will generally taken to be no more than 10 years.) I estimate based on EU trade deals to date, that a UK-EU comprehensive Free Trade Agreement could take around two years, especially given the unique reality that the UK is starting from a convergent position with the EU, with zero tariffs and quotas and with our laws and standards currently harmonised.
- If, before 29 March, the UK has reached an ‘interim agreement’ with the EU to pursue negotiations towards a comprehensive free trade deal, both sides would be permitted under WTO rules to continue with the present zero tariff/zero quota trading arrangements. There would be no disruption to the man or woman on the high street. No Deal would mean No Change, as the cost of goods would not go up.
- In the present situation the ‘interim agreement’ would not have to be an extensive document running to hundreds of pages. The schedule of items covered by the negotiations would be all goods, as already envisaged in our discussions with the EU. The plan which the document sets out would have to amount to little more than a timetable for regular meetings and an ultimate deadline, some years hence, by which point negotiations will have to be concluded.
- An ‘interim agreement’, then, need be little more than an agreement to continue talks – while also continuing zero-tariff and zero-quota trade on both sides – plus a deadline no later than 29th March 2029. I accept that the EU has so far declined to agree any deadlines (other than 29th March) but since the absence of a final cut-off point has been a major contributing reason for Parliament’s rejection of the Draft Withdrawal Agreement, perhaps the EU will now reassess that stance.
- Whilst legal challenges at WTO level might be expected from an unhelpful member, the reality is that any such challenge is unlikely to get to the WTO ‘court’ – its appellate body – for at least two years and possibly longer, and only if that body finds the UK non-compliant would any compensating actions be authorised such as tariffs. This is within WTO rules, and if any challenges arise a fully compliant Free Trade Agreement should already be in place by the time any appellate body were to meet. The EU is now under extreme pressure from EU27 industry and commerce who enjoy a £96 billion surplus with the UK.
- You will recall that the draft Political Declaration indicates the EU want to reach a comprehensive Free Trade Agreement with the UK on the basis of zero tariffs and quotas (see paras 17, page 5, and para 23, page 6) and extending to services (para 29, page 7). Those provisions are fully in line with numerous public statements made since the 2016 referendum by Donald Tusk, President of the European Council, and Michel Barnier, European Chief Negotiator – offering a CETA+++, or what I term a ‘SuperCanada’ trade deal, on 7th March 2018, 30th August and 6th October 2018.
It is significant that Heiko Maas, Foreign Minister of Germany, has already indicated a willingness to continue talks (see “Germany says EU ready to talk if UK rejects Brexit deal” on Reuters, 15th January).
This approach would continue the pre-29th March status quo in trading arrangements and patterns without interruption, justified by an explicit provision of the WTO regime. The possible grounds on which any third country could lodge an objection to this are extremely slight (unlike for schedule changes).
An ‘interim agreement’ would therefore be an important component of a ‘Managed No Deal’ outcome from 29th March. It permits trade between us and the EU to continue without tariffs or quotas under No Deal while creating a space for negotiations to be reset and recommenced on the basis of reaching a SuperCanada or CETA+++ trade treaty.
I urge the Government to now adopt this course of action, as it will mitigate the main impacts of a ‘No Deal’ Brexit and eliminate the task of having to assess and charge tariff rates on 19,753 MFN tariffs under the EU Customs Union, thereby substantially reducing friction at borders.
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The below is an extract from Economists for Free Trade’s new report, No Deal is the Best Deal for Britain
Leaving the European Union without a Withdrawal Agreement under Article 50 is not a step into a legal vacuum. Still less does it amount to going over any kind of “cliff edge”.
What happens is that our international trade with the European Union will become subject to the same legal regime which currently governs the majority of our export trade to the rest of the world. That is trade under the World Trade Organisation rules-based system.
The three key elements of the WTO system that will affect our post-Brexit trade with the EU are its rules on tariffs, its rules on non-tariff regulatory barriers to trade and its rules on the facilitation of customs procedures.
The WTO’s rules on tariffs allow members to charge tariffs on imported goods up to certain limits, but, subject to limited exceptions, any tariffs must be imposed equally on goods from all countries – the so-called Most Favoured Nation (MFN) principle. The EU will therefore impose its standard external tariffs on goods imported from the UK, unless and until a future free trade agreement or interim agreement leading to an FTA is agreed.
This is not a big deal. These tariffs will come to £5-6 billion per year, less than half the UK’s current net budget contribution to the EU.
The UK will be obliged to charge the same level of tariffs on imports from the EU as it does on imports from the rest of the world. But, contrary to much ill-informed comment, the UK is not required to charge the same tariffs on its imports as it currently charges under the EU-mandated Common External Tariff. We will be free to charge lower tariffs, or zero tariffs, as we judge appropriate, so lowering the cost of basics in household budgets.
The WTO agreement on Technical Barriers to Trade will require the EU to recognise UK-based goods certification procedures and allow entry to the EU Single Market for UK goods which comply with UK rules until such time as they are changed to become different from the EU’s rules. At the same time, the Withdrawal Act mandates that the UK shall continue to recognise EU rules and EU certifications on goods unless and until this is changed by secondary legislation. This means for example that medicines made in the EU will continue to be recognised as conforming to the UK’s import rules and arguments that there will be shortages are pure mythology.
The WTO Trade Facilitation Agreement will apply to smooth customs procedures between the UK and the EU. It mandates for example electronic pre-clearance of imported goods, avoiding the need for physical inspections at the point of entry except in exceptional circumstances.
In an ideal world, we would progress forward to a full Free Trade Agreement with the EU. But there is no need to rush it – our trade relations with the EU will operate just fine under WTO rules for as long as necessary.
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The current political turmoil and constitutional crisis has so many twists and turns that it makes House of Cards look pedestrian.
Of course the real issue comes down to what happens when – rather than if – the proposed deal is voted down on tomorrow, 11th December (or even dropped).
Here there is a clear gap opening up between media reports and hard legal reality – what the actual effects are of the political manoeuvring of Dominic Grieve, Sir Keir Starmer and their merry conniving bands. There have been desperate media reports that ‘no deal’ is off the table, when it is actually remains the ‘default position’ as Andrea Leadsom told Radio 4 just last week.
Let’s assume Conservative MPs think there is enough turkey on Christmas menus not to be part of the required two-thirds majority needed to vote for a General Election, and that the EU have indeed ruled out any major renegotiation.
The bottom line is that the various options being desperately pushed by those who want ‘anything but a true Brexit’ are just not viable. There is:
- ‘Norway Plus’ – even worse that the slavish EEA, which adds back membership of the customs union, thereby killing all future UK trade deals, and with no control of immigration, no say over EU laws, and large payments;
- A ‘Second Referendum’ – with its totally confused offer: ‘tell us if this final 2,000-page deal is better than staying in the EU when we’ve already left. Oh, and by the way you will have to join the euro and lose the rebate’. Pointless too in that Leave is predicted to win again; or
- Extending Article 50 to allow more muddle time – which will either mess up the EU by landing the Brexit issue right in the middle of European Parliament elections in May or mess up all the groups, chairmanships and procedures of the European Parliament in the farcical situation of British MEPs being elected for a few months.
But all such amendments to the motion are not legally binding anyway – they can only be advisory. They might bring political pressure, but they do not have legal effect. As the Commons Chief Clerk, Sir David Natzler, confirmed: whatever MPs vote on by way of motion “has no statutory significance”, as they do not constitute “a vote on whether to accept or reject no deal.” That requires new legislation. The actual law – in the EU Withdrawal Act – states clearly that we will leave on 29th March 2019.
Given that reality, and bearing in mind how rash it is to try to indicate a way forward in this maelstrom, this is what I propose now as the best next steps:
1) Assuming the vote fails on 11th December, or is put off, I believe the Government should make a statement immediately saying that preparations for a ‘no deal’ option – better called a ‘Clean Global Brexit’ or ‘World Trade Deal’ – will go into SuperDrive. Sorry, but defer Christmas!
Where there’s a will, there’s a way: in the Falklands War, the Ministry of Defence managed to put together a task force of 100 ships in just 48 hours. We can manage this process, and thousands of civil servants have been on the case for years. Like the Millennium Bug, claims of Armageddon and planes falling out the sky gave way to nothing happening on 1st January 2000.
2) The UK should then go back to Brussels, not to renegotiate this current draft Withdrawal Agreement, but to agree a pared-down, bare bones emergency series of bilateral agreements covering only the essential ‘must haves’: aviation, customs, citizens’ rights, medical products, European Investment Bank assets etc. The beauty of this is that if one agreement falls, then the others are not lost. The DUP’s Arlene Foster has proposed bilaterals. These bilaterals could be agreed by Westminster and the EU by March, and would any sane MP or MEP dare to seek to derail any such vital preparation in these circumstances? They should hold all further Westminster business, such as the Immigration and Trade bills, that may be hijacked.
3) The UK should also formally advise the EU that it wishes to accept the offer made not once but three times by the EU: that of a SuperCanada/CETA+++ Free Trade Agreement with 100% tariff- and quota-free access to the EU Single Market plus comprehensive services (first offered by Donald Tusk on 7th March), and which we could start negotiating from the day we become a ‘third country’ – 30th March next year.
We can build on the three pages on trade in the more appealing draft Political Declaration, but drop all notion of a ‘Single Customs Territory’ – the UK must firmly leave the EU’s Customs Union and Single Market. We are in a unique position to negotiate an FTA fast – as all our laws are convergent at present and we don’t have to spend years wrangling over which tariffs to keep or get rid of, as others do.
4) Having initiated moves to agree a SuperCanada FTA, the UK and EU can now jointly notify the World Trade Organisation (WTO) that in the light of working to agree a comprehensive FTA and future Political Declaration, we are invoking Article 24 of GATT (the General Agreement on Tariffs and Trade).
This is important because Article 24 allows us to maintain the same tariff-free access to both our markets without breaching WTO discriminatory Most Favoured Nation (MFN) laws. Article 24 allows “an interim agreement leading to a formation of a free trade area” and allows “a reasonable length of time” – up to 10 years – to negotiate it.
So, we whilst we will need customs declarations under WTO, we will be able to maintain the same zero tariffs as now with the EU – the free trade area will remain. EU exporters to the UK would save £13 billion in tariffs (and our consumers too) and UK exporters £5 billion. We will also be free to lower tariffs for other trading partners as we wish – something specifically excluded in the Backstop. Nor should there be any Non-Tariff Barriers (NTBs) either under WTO agreements.
We can also enact the WTO’s Trade Facilitation Agreement which recently came into force that obliges the EU27 to adopt measures like authorised economic operators (trusted traders), which are part of the solution for the Northern Ireland border issue along with electronic declarations and remote checks away from the border.
5) As a sign of Britain’s free trade intent, we can now immediately initiate full and unfettered negotiations with international trade partners such as the USA, China and India, without these deals being torpedoed by being tied into the EU Customs Union, Chequers or the Backstop. The picture would be clear at last, and not be delayed by unending years of transition. Similarly, we will seek to build on current work to ‘roll over’ the benefits and obligations of existing EU trade deals such as that with South Korea.
6) So, on 30th March the UK can be cleanly out of the European Union and back into the world, with an acceptable and managed World Trade Deal option in place, free of years more wrangling over transitional arrangements, cost demands, alternative models and heightened business uncertainty – and with negotiations underway for a closer SuperCanada trade deal. We can reallocate much of the £39 billion payment lost by the EU to compensate UK-based companies legally in terms of R&D, regional aid and transport infrastructure – helping to stimulate our economy.
Like an operation we know needs doing, let us get on with the surgery quickly and speed up the recovery process.
This is indeed a Clean Global Brexit. Brexit could be over in a few months, rather than drag on for years on end.
And, for all our sakes – both Remainer and Brexiteer – let’s just get it done.
The post How to get Brexit back on track when the Withdrawal Agreement is rejected by MPs appeared first on BrexitCentral.
It is often claimed that a no-deal Brexit would cause chaos at UK ports, with long delays at critical bottlenecks such as Dover and motorways turned into vast lorry parks. Indeed, we are told that any weakening of our ties with the EU would inevitably disrupt supplies of time-sensitive goods, such as fresh foods and medicines, and cripple businesses that rely on complicated cross-border supply chains. Fortunately, all these warnings have more than a dash of ‘Project Fear’.
Let’s start, though, with the element of truth. There are some potentially valid concerns about the non-tariff barriers (NTBs) that would be erected if the UK exits in March 2019 without a deal. These include logistical barriers, such as delays caused by physical customs and regulatory checks, and additional administrative hurdles, including the need to comply with ‘rules of origin’ and new licensing requirements for vehicles and drivers.
Most attention has focused on Dover, which handles 17% of all UK trade in goods worldwide. According to evidence compiled by the House of Commons library, Dover processes up to 10,000 incoming and outgoing freight vehicles a day. Currently, 99% of these originate in the EU and are processed in around two minutes, but checks on non-EU trucks typically take 20 minutes. The UK Freight Transport Association has estimated that an additional two-minute delay, on average, could cause a 17-mile queue on both sides of the Channel.
These risks obviously need to be taken seriously. Indeed, the Government is already beefing up contingency plans to keep the M20 flowing in the event of any future problems at Dover, and recommending that suppliers add to precautionary stocks of critical goods, including medicines. Car makers have also suggested that they might reschedule planned maintenance shutdowns to coincide with the period of maximum risk.
Nonetheless, fears that ‘no deal’ would result in substantial disruption at ports (or Eurotunnel) are exaggerated. The key point is that they assume a significant proportion of lorries crossing the Channel would be subject straightaway to the same checks as those from non-EU countries. This is very unlikely, for three reasons.
The first is legal. It has been argued (notably by Economists for Free Trade) that new UK-EU NTBs would be unnecessary, and even illegal under WTO rules, given that exports from both sides will still be made to the same standards immediately after the UK’s departure from the EU. Others have countered that some additional checks would still be required, or else the parties would be in breach of the WTO’s Most Favoured Nation principle. But there is at least broad agreement that checks could be limited. There is certainly no legal requirement to inspect every vehicle, or to carry out every check at the border itself. It is also not as if there are currently no checks at all.
The second is economic. Even French officials have stressed that it would be in their country’s own economic interests to minimise any additional delays. In particular, they have dismissed fears of a Calais ‘go-slow‘ and suggested that as few as 1% of UK lorries would be subject to a physical check (my own crude calculation is that an additional two-minute delay, on average, would require at least 10% of UK lorries to be subject to a 20-minute check).
The third reason is practical, and may well be decisive. Put simply, neither the UK nor the EU has the physical infrastructure, or enough officials, to check every vehicle anyway, or even a significant proportion. In this respect at least, the lack of preparedness could actually be a blessing in disguise.
A more pragmatic approach could also help solve other problems. For example, in the absence of any alternative arrangements, UK haulage companies would no longer be able to operate in EU countries under existing EU rules. This is much the same as the problem facing the aviation industry: if no mitigating action is taken, ‘lorries cannot be driven’, in the same way that ‘planes won’t fly’.
However, the EU has already made a reciprocal offer to the UK in respect of air traffic rights and the validity of aviation safety certificates in the event of ‘no deal’. The EU has continued to take a tough line on road transport, but an important precedent has been set. A similar solution could presumably be found if existing rules on road transport would significantly disrupt trade from which both parties derive large economic benefits.
What’s more, any initial disruption should be short-lived. For example, border delays could be reduced in future by the sort of ‘maximum facilitation’ (MaxFac) proposals that many have already suggested as a means of reducing the costs of customs clearance. The recent parliamentary testimony from customs experts Hans Maessen and Lars Karlsson should be required reading here (and for those who still believe membership of a customs union is the only way to avoid a hard border in Ireland).
Crucially, too, any problems created by a ‘no deal’ in March 2019 do not have to be permanent. Leaving on WTO terms could simply be an alternative stepping stone to a comprehensive free trade agreement that would keep any additional frictions to a minimum, rather than the standstill ‘transition period’ and Irish backstop proposed in the current Withdrawal Agreement.
Of course, I’m not suggesting we should dismiss the concerns of UK businesses entirely. Leaving the EU in March without a deal would clearly create a lot of challenges. But there are also many good reasons why even the initial disruption at ports should be much less than feared.
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