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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Just as we thought the orchestrated fog of confusion around the Withdrawal Agreement was about to lift, there were reports that Theresa May might even postpone the meaningful vote again while she seeks “reassurance” from the EU about the Northern Ireland backstop.
Whatever fudge is cooked up in Brussels to try to bolster support for her “deal”, it is very unlikely that the EU will delete the backstop. Why? Because it is a crucial element of the Withdrawal Agreement’s “triple lock” structure designed to stop Brexit. “Withdrawal Agreement” is an Orwellian misnomer, of course. This agreement keeps Britain in chains.
Voters may believe we need it in order to leave the EU. We do not. They could be fooled by the Prime Minister’s repeated claims that there might be “no Brexit” unless it is passed – when of course Brexit will happen by default without it under the terms of the European Union (Withdrawal) Act. Voters might also be forgiven for believing that the Withdrawal Agreement settles our future trade relationship with the EU. Not in the slightest. Future trade talks remain just that – in the future – while May’s “deal” keeps the UK legally shackled to a moribund EU economy which it must attempt to revive with vast sums of British taxpayers’ money for an indeterminate number of years.
Project Fear has been in overdrive since the Withdrawal Agreement was published, with spin, misrepresentation and blatant untruths deployed to sell it to a rightly suspicious nation. But once people open the Withdrawal Agreement tin, they seem more inclined to spit out its contents than swallow them whole. It’s rather like buying a can labelled “tomato soup” and finding it contains a concoction of deadly nightshade.
But credit where it’s due: EU officials (ably abetted by their British allies) have produced a devilishly clever draft treaty which, if passed, would end Brexit and get Britain ready to board the express train to a United States of Europe. The political takeover of the UK represented by the Withdrawal Agreement is an audacious attempt to reverse a damning popular vote of discontent with the European Project and provide fresh impetus for the federal superstate that is the EU’s raison d’être.
The EU’s triple lock guarantee is so constructed that never again will Brussels be troubled by an explosion of democracy in the United Kingdom. Parliament has one last chance to escape total eclipse – and it is now, by rejecting the Withdrawal Agreement in its entirety.
The first lock: the transition period
The first lock is the transition period, which lasts until at least 2021. We must hand over an estimated £39 billion for nothing, be bound by EU law and take orders from an unelected Joint Committee operating under the jurisdiction of the European Court of Justice. Will the EU27 agree an equitable free trade agreement before the end of 2020? Unlikely, since all the goodies they want in the “future partnership” are set out in the Northern Ireland backstop, which kicks in automatically on 1st January 2021 unless superseded by a “partnership” agreement. Full ratification by all Member States is required before any such agreement can come into force. Achieving this in time to avoid entering the backstop would be nothing short of miraculous, even if the EU agrees to extend the transition period for one or two years. So it is more pay with no say and a likely doubling of the Brexit bill to £80 billion, to be paid with no reference to British MPs.
The second lock: the backstop
The backstop is intended to be inescapable. It prepares Britain for the final destination set out in the political declaration, as a permanent satellite state of the EU. By which time, of course, it is doubtless hoped that we will be so fed up with our vassalage that we decide to rejoin the EU as a full member – with greatly increased budget contributions and a whole swathe of new EU law to obey. The United States of Europe will have taken shape during our “wilderness years” using our money (“Britgeld” seems to be an appropriate term), but without our political input. No taxation without representation? What a joke.
Not only does the backstop carve out Northern Ireland as an EU province and set a border in the Irish Sea, it creates a partial “customs union” that requires us to implement EU trade tariffs and policy with no decision-making powers. Under highly restrictive “non-regression clauses”, the UK also agrees to implement all EU environmental, competition, state aid and tax harmonisation laws, with the unelected Joint Committee and the ECJ once again able to punish us for any perceived backsliding. British farmers will be locked into a subsidy regime well below support received by EU27 farmers, who nevertheless retain tariff-free access to the UK. British agriculture would be decimated. It means we could not support British businesses, give ourselves a competitive edge in new technologies where we excel, strike independent trade deals or diverge in key policy areas such as goods regulations and tax. Free EU access to UK fisheries is set down as a marker for negotiation in the future “deal”.
The third lock: the “future partnership”
Anyone expecting the EU27 to give up the immense advantages they gain under the backstop is delusional. Retaining tariff-free access to the UK market and effective control of UK trade and competition policy must be nirvana for them. To ensure they reap the full benefit, there is the third and final lock in the Withdrawal Agreement. Unless we agree to a “future partnership” as set out in the political declaration, the backstop will endure in perpetuity.
The Political Declaration replicates all the onerous “non-regression” clauses of the backstop and requires even more surrender of sovereignty via participation in and funding of the EU’s aerospace and defence programmes, free access to UK waters for EU fishermen, a full customs union and common trade policy, free movement by the backdoor under “mobility” clauses, EU control of UK agriculture via the state aid rules and in general full adherence to the acquis communautaire in all policy areas.
Thank you for your triple lock guarantee, M. Barnier. The Withdrawal Agreement cage conforms to the highest EU safety standards.
But could I have my Sovereign Tomato Soup now, please?
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This is the text of a speech delivered by David Davis to Economists for Free Trade on 28th November
The cliché that Britain stands at a crossroads is, for once, true. The decision we take in Parliament in a couple of weeks’ time will shape the future of our country for decades to come. To borrow a line from the Prime Minister, Brexit is within our grasp but perhaps not as she intends it.
If we reject the Prime Minister’s proposed agreement, we can take back control and set ourselves on the path to reclaiming our independence.
If we accept her agreement, we would repudiate the declared wishes of the majority of the British people. Wishes expressed in a referendum in which more voted than at any time in our history. The damage that would do to our democracy is incalculable. Trust in the political process and politicians would be dealt a cruel, crippling blow.
It will come as little surprise to you to learn that I will be voting against the agreement. From the beginning of the year there has been a long struggle, in government, between two views of Brexit. On one side, there are those who hope that extreme conciliation would buy a cooperative response from the EU. On the other stand those of us who take a more robust view of the economic freedoms needed to crystallise the benefits of Brexit. Much of this surfaced in the first clash at Chequers, in February, when the Cabinet Committee agreed we should insist on the “right to diverge.” I strove for a deal that would respect the outcome of the referendum.
After the decision at Chequers in July – Chequers 2 if you like – I knew that was not possible. I resigned to continue the fight on a different battleground. I acted to ensure that Brexit did indeed mean Brexit, and that Britain would resume her place in the world as an independent nation state free to shape its destiny.
I do not dispute that Theresa May has fought tirelessly and genuinely for what she believes is a good deal for Britain.
But the Government’s favoured road away from this crossroads is a denial of the restoration of sovereignty that underpinned the vote to Leave. It keeps us in the customs union potentially indefinitely. It makes us subject to the rules of the EU’s single market while denying us any power to influence those rules. It annexes Northern Ireland, part of our sovereign territory, into the Single Market regulatory structure. It will cost us £39 billion and rising. It sets the European Court of Justice, a foreign court, superior to our own.
It deprives us of one of the chief economic benefits of Brexit by preventing us striking free trade deals with fast-growing countries and markets across the globe.
Worst of all – it makes us prisoners of a Hotel California customs union. We can check out any time we like but we can never leave. This gives them unbelievable negotiating leverage on every single issue – as the EU negotiators have bragged to Brussels ambassadors.
And the other road? I will not pretend it is free of bumps and turns. But these are essentially short-term obstacles. We should press for an exit on a Canada-plus-plus-plus free trade basis. If that is denied to us by the intransigence of Brussels, we will have to leave on World Trade Organisation terms.
At this point all the choking tentacles of the EU fall away. No customs union. No backstop. No single market. No denial of new trade deals. No money paid over. No threat to the integrity of the Union.
These are the two main choices facing Members of Parliament as they prepare to pass judgement on the Government’s proposals next month.
Today, I want to look into the critical few weeks ahead, offer my view to the British public and to my parliamentary colleagues of what to expect, and urge them to stand firm in the face of the propaganda onslaught that is about to be unleashed.
The Government cannot currently expect to win the meaningful vote on their deal. To date, over 90 Conservative MPs have publicly declared an intention to oppose the agreement. With Labour, the SNP and the Liberal Democrats also lined up against – and with the DUP infuriated by the threat to the Union – defeat for the Government seems inevitable.
This may be so. But a couple of weeks in politics are a long time. And as Charles Moore observed in The Daily Telegraph at the weekend, parliamentary rebellions have a habit of melting away.
And, of course, Downing Street, the whips, the Treasury and the rest of the establishment have yet to do their best – or worst.
We are on track for a condensed version of the referendum campaign of 2016, along with all the lies, half-truths, exaggerations, spin and scare tactics.
Ultimately, this time, the decision rests with Parliament. This includes a Commons and a Lords that was overwhelmingly for Remain a couple of years ago.
Nor are the public to be left out of the propaganda operation. Downing Street has noticed that many of its troops are deserting to the Brexit camp, so the Prime Minister has headed for the airwaves. She’s doing more phone-in programmes than Nigel Farage.
Her aim is to appeal over the heads of recalcitrant Tory MPs in the hope that the public will pressure dissidents into backing the deal. The first shots came at the weekend with headlines about a new post-Brexit crackdown on unskilled migration from the EU.
Maybe, or maybe not, I think. Migration policy is a matter to be decided after the Withdrawal Agreement has been enshrined in law. It is covered by the non-binding – and decidedly woolly – Political Declaration. It is also almost certainly destined to become a bargaining chip, used by the EU after the legally binding part of the deal comes into effect.
“Want to protect your fishing grounds? Then relax the cap on Romanian workers.” This is the kind of haggling we can confidently expect.
In any case, I have my doubts about the wisdom of Downing Street’s strategy. Of course, our inability to control EU migration was a significant factor in the vote to leave. But it was not the fundamental reason – that was all about reclaiming national independence from Brussels. This was never just about immigration. It was always about control. It was always about democracy.
Like last time, the decisive battle will be fought on the economy. The bullets will fly fastest when we come to argue about the relative merits of the Government’s Brexit in Name Only approach and the Clean Brexit favoured by those, like me, who are determined to respect the referendum result.
Downing Street and the Treasury believe that they are on their strongest ground when they are lined up alongside Big Business and the City. These multinationals and big corporations, led by CEOs with multi-million pound bonuses riding on the next couple of years performance, unsurprisingly favour absolute stability in the short term over long-term opportunity. And, of course, they find that the current EU arrangements work splendidly for them – not least because they help to freeze out competition from smaller, more nimble firms.
Project Fear is set for a last hurrah.
The Treasury and the Bank of England will later today be issuing new forecasts comparing the Government’s Fake Brexit deal with a WTO exit.
I don’t often quote the FT, but I will do it this time: “Theresa May is preparing to use an economic assessment of her much-criticised Brexit deal to try to win over sceptical MPs.”
The FT makes no comment about the reliability of the Treasury’s last attempt at playing Mystic Meg.
My point is simple enough. The Treasury’s forecasts in the past have almost never been right and have more often been dramatically wrong.
The Treasury forecasts for the effects of a Leave vote made in May 2016 are these. They said that in the 18 months after the referendum the economy would contract by at best 0.1 per cent and at worst 2.1 per cent. What happened? It grew by 2.8 per cent.
The Treasury was wrong to the tune of between 2.9 – 4.9 per cent. This is a sum of up to £100 billion. Quite a lot of money. Quite a big mistake.
Of course, not all of us are brilliant at computing percentages of GDP, so George Osborne spelled out the numbers in starker terms. Unemployment would jump by 520,000 under the “cautious” projection and by 820,000 if the exit was on WTO terms. Voting to leave the EU would, over time, render the average UK family £4,300 a year worse off.
Osborne also used a visit to B&Q’s head office to predict a “Do-It-Yourself” recession as a result of a Leave vote. He prophesised falling house prices and severe damage to the public finances. A “punishment Budget” featuring tax rises and spending cuts was on the cards immediately after a Leave vote. Astonishing idea, of course, to respond to an expected downturn by clamping on a tight fiscal squeeze.
Needless to say, none of this spine-chilling nonsense came to pass. Families are no worse off and the economy has since grown by around 4 per cent. Unemployment has fallen by hundreds of thousands.
Earlier this year, the Treasury leaked its “Cross-Whitehall Brexit Analysis” in the shape of 24 PowerPoint slides to the website Buzzfeed. It caused quite a buzz – not least because it now predicts a huge 7.7 per cent of GDP hit to the economy in the event of a WTO exit. An exit with a Canada-plus deal was forecast to be painful, too, with GDP 4.8 per cent smaller than would be the case if we stayed in the EU.
Quite why the Treasury and its offshoots get things so wrong is an intriguing question.
The truth is that the Treasury is more often wrong than right. And the same goes for the OBR. They missed reality in 2009 by almost 6 per cent. That is equivalent to a miss of £120 billion today.
George Osborne was initially predicted to be more than 50 per cent likely to eliminate the deficit. The productivity growth forecasts of 2010 were 6 times larger than reality. The UK was supposed to enter a recession if there was a vote to leave the EU.
And just this year it emerged that the OBR’s previously predicted borrowing for 2017/18 would be £16 billion more than the out-turn. It is amazing the amount of money Whitehall finds down the back of the sofa.
Unsurprisingly, the dramatic numbers take the headlines, and people fail to notice that they are caused by forecasting errors.
Take Osborne’s £27 billion windfall in 2015, for example. The Chancellor hurriedly moved to spend it on tax credits and departmental budgets.
But, just a year later, he had to take it back. The OBR had undershot their borrowing forecasts by some £58 billion. As the OBR boss, Robert Chote, said at the time, “what the sofa gives, the sofa can also take away.”
But don’t take my word for it. I see from the Prime Minister’s interview with the Sun that she also has doubts about the Treasury and its forecasts. After all, and I quote, “they don’t always reflect every factor that can be taken into account… these things are always based on a set of assumptions.”
And it is notable – and frankly disgraceful – that the Chancellor has done his studio round today without publishing the underlying assumptions. Remember: forecasts are not facts: and theses are just polemical projections.
Professor Minford, of the Economists for Free Trade, has sought to explain the forecasting errors. First, he believes that the Treasury’s past reliance on the gravity model of trade has led it astray. A word on the gravity model, this assumes that trade flows are highest – and the economic benefits are greatest – when trading partners are in close geographical proximity. Europe is on our doorstep, ergo trade deals with the EU are of more value than those with more distant lands. This was possibly true when the commodities were bulky, heavy and of moderate value – coal, steel, wheat, sugar, for example – and the cost of transport was a significant proportion of the product cost. But not today.
The alternative model, the classical one developed by Ricardo in the 19th Century, assuming high competition across world markets, better fits the modern facts and predicts bigger gains from global trading on WTO terms. Transport costs are a tiny fraction of the cost of, say, an iPhone – or a near zero fraction of trade in services. This has the effect of making the entire globe the market in which we exercise comparative advantage.
Other things matter more than distance – a common language, for example, or communication links.
The good news is that – following strong criticism – the Treasury claims to recognise the limitations of its gravity model and has now switched to an improved alternative. But it has undermined its own work. If they are the same as previous work this year the assumptions it has fed in to this new model are faulty for three crucial reasons.
Firstly, the Treasury’s Cross-Whitehall analysis has made pessimistic assumptions about the positive effects of free trade on UK growth. If the UK were to adopt global free trade, the forecast predicts modest long-term gains of as low as 0.3 per cent of GDP.
This is extraordinary. One of the few things upon which economists agree is the great beneficial effect of free trade. Australia’s trade liberalisation delivered a 5.4 per cent long-term boost to GDP. This figure corroborates the Economists for Free Trade calculation of a 4 per cent boost for the UK.
The Treasury seems to assume that free trade matters when it is with the EU, but not when it is with anybody else.
The second flawed assumption in the Whitehall analysis is that there will be high border costs, from processing customs declarations and rules of origin certificates. They believe there will be extensive physical inspections at the border, even under a UK-EU free trade arrangement. This belies the way modern computerised pre-declared border procedures actually work. After all, only two to three per cent of goods are ever inspected.
Unlike the 6 per cent cost assumed by Whitehall, modern border costs are typically well under 1 per cent of the value of goods – and Switzerland measures its actual cost to be only about 0.1%.
Finally, Whitehall’s third flawed assumption is the belief that various non-tariff barriers will spring up immediately after Brexit. But after decades of integration, it’s absurd to suggest the EU will suddenly decide that our regulations aren’t good enough.
Whitehall assumes the cost of such NTBs will be equivalent to a 16 per cent tariff if we have a free trade agreement and 20 per cent if we leave under WTO rules.
These figures are truly massive. The total effect of Whitehall’s assumptions is that the UK – beginning with identical product standards and regulations – would face an effective EU tariff of about 30 per cent under WTO rules. This is about one and a half times the actual tariff faced by the US. Of course, given that we currently have shared product standards, this would be illegal under WTO rules.
These flawed assumptions have led to Whitehall’s central forecast – a 6% loss of GDP under WTO rules. Using the same modelling approach but with more reasonable assumptions, Economists for Free Trade calculates a GDP boost of about 3 per cent.
This helps to explain why the Treasury’s latest stab at forecasting produced a result fully in line with the 2016 version of Project Fear.
The Treasury insists that leaving the Single Market and customs union would do grave damage to the economy due to the loss of trade. However, it also insists that signing FTAs with other major world economies would do little good. Talk about facing two ways at once.
There is another problem with the Whitehall analysis that must be considered. There is a consistent overestimation of the positive impact the Single Market has on the British economy.
The Single Market was touted as a “vital national interest” during the referendum campaign. Project Fear constantly pushed doom-laden messages of economic ruin following a Leave vote.
However, this belief has no basis. The Single Market’s regulations are much less beneficial than assumed for the British economy.
Its rules are rigged in favour of big corporations. It suppresses innovation, competition and growth.
Sober analysis of the trading relationship between the UK and the EU spectacularly dispels the myth that the Single Market is vital for the British economy.
The researcher, Michael Burrage demonstrates that growth of UK exports to the EU has been lower during the era of the Single Market than it was during the common market decades between 1973 and 1992. Our export growth to the EU lags far behind much of the world. We are surpassed by many countries that trade with the EU on WTO terms.
Moreover, UK exports to non-EU countries under WTO based rules have grown four times faster than UK exports to the EU.
As Burrage’s work shows, EU-UK trade has been steadily declining whilst UK trade with the rest of the world has been rapidly increasing. The future of the UK economy does not lie with the European Union but with the wider world.
Contrary to the Whitehall dogma, the Single Market has not been the accelerator claimed for the British economy. We must stop worshipping at the altar of false gods.
Everyone supports evidence-based policy-making, but only the Treasury supports policy-led evidence.
Of course, apocalyptic Treasury forecasts of the grim effects of leaving the EU’s orbit are only part of Whitehall’s armoury of intimidation.
Plenty more will be hurled in the direction of MPs considering voting against the Government’s deal. Cheered on by the establishment media, we will be warned against “crashing out” of the EU and tumbling over a “cliff edge”.
They’ve claimed that planes will be grounded, and hauliers will suffer unprecedented delays. There’s been vehement insistence that Kent will become a lorry park, and hysteria over the rationing of food and medicine. Even Mars Bars will apparently become a thing of the past.
For example, the Healthcare Distribution Association has claimed that the UK will run out of insulin. However, when Channel 4’s Fact Check spoke to the UK’s leading suppliers (Sanofi, Novo Nordisk and Lilly) the companies all said that they don’t expect significant problems in the event of a no-deal Brexit.
Another foolhardy claim is that the UK will run out of food “within days”. Allegedly this would be because of a paralysed Port of Dover. Nothing, apparently, would be able to get into the country.
We’ve had long-term stoppages before, such as 26 days through the summer of 2015. Whilst this was costly, it was not as crippling as the wilder claims have inferred.
As my colleague John Redwood has pointed out, this is all nonsense. The EU is running a near £100 billion a year trade surplus in goods with the UK. The implication of this is just as we work to eliminate problems at the border, so will our European colleagues in Calais, Zeebrugge, Antwerp and Rotterdam.
If Parliament rejects the Governments’ current proposal, then the Government can press for a Canada-plus free trade deal backed by technical solutions on the Irish border. If intransigence from Brussels denies this, we should announce an exit on WTO terms and accelerate preparations for such an outcome.
I am afraid we must be ready for Project Fear 2.0. In a desperate attempt to reverse the result of the 2016 referendum, we are undoubtedly going to hear the most hair-raising stories and improbable forecasts.
Let’s remind those who might waver that we have heard this all before. Let’s expose the glaring weaknesses of the Government’s Fake Brexit. Let’s highlight alternative analyses showing that a World Trade Deal can work for us as it does the vast majority of countries.
“Trust the people” is an old Tory adage. Well, the people were right in 2016 and they are right today.
The task facing the Conservative Party, the governing party, is to deliver the will of the people as set out in June 2016. That means Brexit – and it means a clean Brexit that ensures a decisive break from the influence of a foreign power.
Downing Street and the Treasury will argue they are delivering a clean Brexit. But the facts point in the opposite direction. The Withdrawal Agreement and the Political Declaration are a bogus prospectus. They will keep Britain in orbit around the EU. We will be nothing more than a satellite state ruled from afar.
It is our duty to reject that prospectus and genuinely take back control
The post Stand firm in the face of the onslaught of Project Fear propaganda appeared first on BrexitCentral.
The Withdrawal Agreement has been drafted by a small number of Remain-inclined civil servants under the direction of a Prime Minister who campaigned for Remain.
It will pay £39bn in reparations without any agreement on a future economic relationship with the EU. It isolates Northern Ireland as a colony in preparation for its future absorption into the EU. Martin Selmayr, the European Commission’s secretary-general, known as the “Monster of Brussels”, admits that this will be the “price” that the UK must pay for Brexit.
It locks the UK into a “single customs territory”, where the UK is subject to the laws of a foreign power without having any influence on how those laws are determined and without any unilateral right to leave – thereby protecting the EU’s trade surplus in goods with us of £95bn. This foreign power would determine the regulations for goods sold in Northern Ireland and for the UK-wide labour markets and would also set common rules for the environment, social standards and state aid “with the aim of ensuring the proper functioning of the single customs territory”.
During the transition period – which could be extended indefinitely – there would still be free movement, we would not regain control of our fisheries, the EU would still send us bills, and it can veto our foreign policy. Parliament would be required to pass laws to ensure public authorities and judges follow EU rules during the transition. The European Court of Justice (ECJ) would have supremacy over not only UK judges, but over the UK government transposing its EU obligations, and would also be the final arbiter of the Withdrawal Agreement.
And it gets worse: the EU can inhibit us competing against it, while it remains free to compete against us. Take financial services, one of our most important industries. For every £1 of financial services we buy from the EU, we sell £6 to the EU. It will now seek to force significant parts of our financial services industry to move to the EU. Further, it has refused to agree a guaranteed enhanced equivalence declaration, so we will have to negotiate that in the transition period, while it continues to poach our business. Indeed, the agreement covering services – where we currently have a trade surplus with the EU of £28bn – will have to be negotiated during the transition period.
In terms of defence, the UK would be required to collaborate on future projects of the European Defence Agency, under conditions of EU law, with a European Army as the ultimate objective. Indeed, it is much more serious than this. The Prime Minister has secretly given away control of significant aspects of UK defence policy to the EU in a way that undermines NATO and our Five Eyes intelligence and security alliance with the US, Canada, Australia, and New Zealand. The clear intention by the EU is to destroy the UK’s relationship with the US and the Commonwealth.
And to top it all, the “single customs territory” will form the basis of our future trading relationship with the EU, thereby blocking any of the trade agreements that Liam Fox’s International Trade Department has been negotiating from ever coming into force. The “backstop” is permanent, thereby locking the UK into certain EU laws indefinitely.
And if we dared to defy the EU on any of this, it has threatened to block our planes flying into and out of our country and stop Eurostar trains from running.
All this amounts to little more than unconditional surrender. Yet the Prime Minister believes with “every fibre of my being” that the Brexit deal is the “right one for the country” – a country with the sixth biggest economy in the world, where only 8 per cent of companies trade with the EU, and where we buy £67bn more in goods and services from the EU than it buys from us.
The Withdrawal Agreement is so full of absurdities that neither Leavers nor Remainers could possibly accept it. It is not just a bad deal, it is the worst possible deal. The clear purpose of the British civil servants who drafted it is for people to think that, if this is what Brexit means, we’d be better off remaining in the EU.
In short, the Withdrawal Agreement is not intended to be the final stage of a transition to a “softer Brexit”, but rather the next stage in the establishment’s campaign – which began the day after the referendum – to reverse Brexit. Confirmation for this comes from comments made by senior EU officials heard by Patrick O’Flynn, the UKIP MEP for the East of England. The plan – fully endorsed by British officials – is to get the UK back into the EU in time for the European Parliamentary elections in 2024, as he recently explained on BrexitCentral:
“Further comments suggested that a ‘purgatory backstop’ would be used to persuade the UK to reapply for membership rather than languish in the equivalent of EU solitary confinement on a diet of bread and water. Far from having left the prison, we would have to beg to go back on the wing and probably only get accepted on inferior terms – no budget rebate, fewer national vetoes – and possibly an undertaking to be absorbed into the euro and Schengen in due course too”.
This clearly has a ring of truth – and it means that the entire British negotiation has been an elaborate charade. Yet this deliberate deception is dangerous and delusional because of the way that the EU is heading.
The EU is an increasingly protectionist trading bloc with big business lobbying Brussels for more regulations to make it more difficult for small companies to enter the market and compete, and a Customs Union which imposes more than 13,000 tariffs on imported goods. As a result, EU consumers are paying an average of 17 per cent above world prices on food.
The EU is a political project that is fundamentally anti-democratic, as a whole range of European leaders have made abundantly clear. Jean Monnet said:
“Europe’s nations should be guided towards the super-state without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation.”
The “purposive” nature of EU law allows the ECJ to interpret and reinterpret the wording of EU laws in line with the European Commission’s (often changing) intentions.
The euro currency is a disaster – and has led to unsustainable trade and capital flow imbalances between the southern and northern states, as well as wrecking the economies of the former. Most of the EU’s big banks are in very serious financial difficulty. There is increasing euroscepticism in the EU – dismissed as “populism” by europhiles – demonstrated by the East/West split over the immigration and internal security crises.
And to top it all, there is massive corruption in the EU, with the EU’s accounts not having been approved for the last 20 years by the EU’s chief auditor in respect of around €100bn of expenditures.
The EU, far from uniting Europe in an ‘ever closer union’, is slowly destroying Europe.
It is now quite obvious that the Prime Minister’s deal would not mean a meaningful Brexit, despite the clarity of her Lancaster House speech and the promise that “Brexit means Brexit”. Indeed, the deal shows complete contempt for the clearly expressed wishes of the British people in the referendum.
And what does a meaningful Brexit look like? Given the fact that the EU is not willing to cooperate in delivering a deal that is in the best interests of all the citizens of Europe, then the only solution is a non-cooperative one based on World Trade Organisation (WTO) rules. This is not “no deal”. It is precisely how we conduct around half of our international trade with the rest of the world. And it works.
According to the IMF’s Direction of Trade Statistics, 15 of the 22 largest exporters to the EU trade under WTO rules and increased their EU exports by 135 per cent between 1993 and 2015. The other seven had bilateral trade agreements and increased their exports by 107 per cent. The 12 original EU members increased their intra-EU trade by 70 per cent, while the UK increased its trade with the EU by just 25 per cent. UK goods exports to the 111 countries with which it trades under WTO rules have grown at 3 per cent pa, three times faster than UK trade with the EU.
In due course, a “Canada plus plus plus” deal might be agreed which involves services, and especially financial services, as well as goods. But none of this can be done under the terms of Theresa May’s Withdrawal Agreement.
Within the draft Withdrawal Agreement (“WA”), 175 pages consists of a Protocol whose formal title is “Protocol on Ireland/Northern Ireland”, together with 10 detailed Annexes which form part of it. Informally it is called the Northern Irish “backstop” protocol. Neither its formal nor its informal title really describes it. It should be called “the whole UK permanent lock-in protocol with extra lock-in for Northern Ireland.”
Most of its provisions do not come into force until the end of the transition period. However, at that point and in the absence of an agreement between the UK and the EU to the contrary, the whole Protocol will come into force and will require the whole of the UK to stay in a Customs Union with the EU – a Customs Union in which the UK has no vote on the tariffs to be charged, or on with whom to do or not do trade deals, but will be obliged to follow the EU’s tariffs at all times. Further, it obliges the UK not to deviate from EU rules on a wide range of so-called “level playing field” areas of policy, including environment, workplace rights, state aids and competition law.
Secondly, it will require Northern Ireland (unlike Great Britain) to be subject to a large number of EU Single Market regulations and directives, and customs and tax rules.
Finally – and this is the most important point – the UK has no right under the treaty either to prevent the Protocol coming into effect or, once it is in force, to leave it, unless the EU agrees. In this regard, the Protocol is unique amongst trade agreements, which invariably contain clauses allowing each party the right to withdraw on notice.
The Protocol can only be stopped from coming into force if the EU agrees with the UK to replace it before the end of the transition period with a trade agreement. If the Protocol comes into force, the UK cannot exit from it without a “joint” decision (meaning the EU has a veto) in the ‘joint committee’ (article 20 of the Protocol). This absence of a clause allowing withdrawal on notice is unprecedented in the EU’s own trade agreements with non-member countries. Under international law, future governments and Parliaments would be locked in and be bound by the treaty concluded by this government.
Because of this lock-in, the Protocol would not operate just as a ”backstop”. In negotiations on the future trade treaty, the EU would have no incentive to offer the UK terms which are any better than the Protocol – since if the UK fails to agree to the EU’s demands, the Protocol automatically comes into effect and lasts indefinitely, giving the EU tariff-free access for its £95bn trade surplus in goods and keeping up the EU’s external tariff wall around the UK market as a barrier against competing goods from non-EU countries.
The Protocol will require the whole UK to remain in a Customs Union at the end of the transition unless there is agreement between the UK and the EU to the contrary.
It will require Northern Ireland (unlike Great Britain) to be subject to a large number of EU single market regulations and directives, and customs and tax rules.
Under the backstop, the UK would have to follow the EU’s external trade policy and apply EU import tariffs. This would kill stone dead the chances of the UK following an independent trade policy after Brexit. We would not be able to offer tariff concessions to free trade partners, so they would have no incentive to offer us concessions on say services which we would want to export to them.
Further, it will render the theoretical right to negotiate third country trade agreements during the transition period totally meaningless. Since we will be unable to tell prospective free trade partners when we will be free to implement such an agreement, or indeed whether we will ever be free to do so at all, they will have no interest in spending time and effort on serious negotiations with us.
This subordinate relationship also applies to so-called trade remedies, where the EU takes action to impose anti-dumping or countervailing duties under WTO rules on non-EU countries. The EU will take these actions in order to protect its own interests, regardless of any negative impacts on UK consumers, and the UK will be obliged to comply with those measures by imposing higher tariffs – even where this is contrary to the UK’s interests. Under Art.4(3) of Annex 2, we will have merely the right to be consulted.
Where dumping affects UK industries, the UK will have no right to take anti-dumping action to protect its own interests. The UK would be totally dependent on the EU to take action. If UK industries but no EU industries are affected, why should we expect the EU to do that?
It is quite extraordinary for one of the leading trading nations of the world to be a complete rule taker on its trade policy in this way. This one-sided Customs Union arrangement would destroy the ability of the UK to take advantage of the freedom brought by Brexit to forge a new independent trade policy and would shackle us permanently to being a dependency of the EU.
The above is Martin Howe QC’s summary of the conclusions of a longer article published by Lawyers for Britain. He will be following up soon with a study of the constitutional consequences of the Northern Ireland Protocol and the way it treats Northern Ireland separately from Great Britain.
The post The Withdrawal Agreement’s Northern Ireland Protocol is neither a “backstop” nor temporary appeared first on BrexitCentral.
After the end, the beginning. The long months of talks in Brussels have brought forth a draft withdrawal agreement to leave the European Union – all 585 pages of it. Amid the drama, the essential themes are clear. There will be a backstop agreement to the deal without an end date and with no ability for the UK to extricate ourselves without the consent of a third party. And there will be a grave threat to the Union.
Northern Ireland will find itself in a different regulatory regime to the rest of our country – to use the analogy that is being deployed about the “backstop within a backstop”, it will be in the deep end of the swimming pool while the rest of us are only paddling up to our knees. This represents gold dust for the Scottish Nationalists, who will seize on a different arrangement for one part of the country to demand a separate arrangement for Scotland.
We will be asked to sign up to all this, and hand over £39 thousand million, in exchange for a flimsy 15-page “political declaration” about the hoped-for trade relationship that would lie beyond this, should we ever be able to escape. That political declaration will be drafted to mean all things to all men, but will lead inexorably to the ultra-high alignment agreed at Chequers in July rather than the Canada-style free trade deal we should be aiming for. There will be so-called “non-regression clauses” to ensure the UK cannot out-compete the EU. This would scupper our hopes of being a global trading titan and bind us into EU manufacturing rules in perpetuity. As humiliations go, this would be complete and unendurable. The Prime Minister will have unerringly delivered a deal that delivers none of the benefits of leaving the EU and none of the benefits of remaining.
85 years ago, Churchill warned:
“All down the centuries, one peculiarity of the English people has cost them dear. We have always thrown away after a victory the greater part of the advantages we have gained in the struggle. The worst difficulties from which we suffer do not come from without. They come from within… from the mood of unwarrantable self-abasement into which we have been cast by a powerful section of our own intellectuals. They come from the acceptance of defeatist doctrines by a large proportion of our politicians… Nothing can save England if she will not save herself. If we lose faith in ourselves, in our capacity to guide and govern, if we lose our will to live, then indeed our story is told.”
Such will be the legacy of Brexit if this deal goes through. The brave decision of the British people to leave the European Union, taken in the largest democratic vote in our history, will have been reduced in two years to a shameful and squalid surrender. This must be resisted at all costs, and I have little doubt that the House of Commons will indeed defeat the deal should matters go that far.
The burning question will then arise: what next?
A deal may still be salvageable, based around the broad and generous offer made by European Council President Donald Tusk in March. This would be an advanced free trade agreement, encompassing services and covering all sectors with zero tariffs and no quantitative limitations. Alongside this the UK would offer deep security cooperation and mutual recognition of practical issues from aviation regulations to driving licences. The EU’s offer, of course, was made to Great Britain and not the whole of the UK. The EU was not prepared to extend its offer to Northern Ireland – hence so much of the tortuous negotiation that has ensued.
But there is a way to deliver such an agreement, in the form of a free-standing treaty on trade facilitation between the UK and Ireland to be negotiated in parallel to the wider negotiations, as it surely could be. Such a treaty would deliver an invisible border that would satisfy WTO rules and could be referenced in the wider UK-EU free trade agreement. There would be no hard border and no need for a backstop beyond this.
This seems to me to represent a deal that could secure sufficient votes to satisfy Brussels and pass the House of Commons. In tandem with this, an immense national effort must be set in motion so that the UK Government and businesses prepare themselves day and night between now and 29th March next year for a no-deal scenario. Every moment that passes without such an effort is a moment wasted, and weakens our hand in securing the good Brexit deal that our country expects and deserves.
The post As humiliations go, accepting this Brexit deal would be complete and unendurable appeared first on BrexitCentral.
The 1998 Good Friday Agreement (GFA) is constructed on the principle of consent, including;
- Consent of the British Government that a part of its territory, Northern Ireland, will be subject to special arrangements, including those with the Irish Republic;
- Consent that any change in the constitutional position of Northern Ireland can only occur if desired by a majority;
- Consent by the Nationalist community there to the present constitutional status, along with a mechanism to change that status, if a majority so desire; and
- Consent of the Northern Ireland Assembly to any alteration in the cross-border arrangements
All these interlacing sets of arrangements are delicately balanced and were arrived at after many years of painstaking discussion and compromises. The Agreement represented no single party or side’s ideal but there was enough consensus there to achieve a durable settlement on the basis of consent.
The hardline demands of the EU today, essentially driven by the Government in Dublin, are light years away from the approach which characterised that of former Taoiseach Bertie Ahern in the late 1990s and made the Agreement possible. The Agreement was designed to usher in a new and constructive era of mature relations between the UK and Ireland. We were to become close partners over a whole series of areas.
The reaction of the authorities in Dublin to British efforts to negotiate a sensible and smooth Brexit has been the antithesis of the process that led to the GFA. Instead of the two Governments’ commitment to “develop still further the unique relationship between their peoples and the close co-operation between their countries as friendly neighbours “, there has been a stubborn resistance to accepting the UK decision to leave the EU. This has been alongside a strong alliance with implacable Remainers in London. This has made the Brexit process much more difficult and fed into the agenda of those in Brussels, and also Paris, who are determined to make an example of Britain for daring to leave their club. It is completely contrary to Ireland’s real national interest and the spirit of the GFA.
This hardline policy from Dublin is now endangering the entire GFA, which can only function as long as the participants in that Agreement are willing for it to do so. Demanding that Northern Ireland is detached economically from the rest of the United Kingdom, without the consent of the population, carries the danger of strongly alienating one side of the community there. Frustrating the UK’s efforts to come to a balanced accommodation with Brussels will inevitably lead to some in London questioning the foundation on which the GFA is based, trust that Ireland and the UK can be close and mutually supportive allies. There is also the damage that is being done to community relations in Northern Ireland.
The GFA recognised that cross border co-operation was dependent on consensus north of the Border. Meetings of the North-South Ministerial Council always had at least one Minister from either side of the communal divide; and the GFA specifically states that any further development of North-South arrangements is “to be by agreement… with the specific endorsement of the Northern Ireland Assembly and the Oireachtas (Irish Houses of Parliament)”. By seeking to bypass the consent of one side of the community, the Irish Government is deepening division and undermining the whole basis on which the GFA was built. This position is developed further in our recent Policy Exchange paper The Irish Border and the Principle of Consent.
The upholding of the GFA is, of course, a laudable aim and is shared by authorities in Dublin, Brussels and London. The maintenance of the present mutually beneficial arrangements on the Irish border is also very desirable. The present policy course by Dublin is unlikely to achieve either. By ignoring the essential element of consent, the Irish Government is placing the progress of decades of good work in jeopardy.
There needs to be a new British/Irish initiative to break the present logjam by making a declaration that the future of the border will not be used to stop the signing of a Withdrawal Agreement. Both the EU and the UK should undertake to use their best efforts to preserve all existing measures to secure an invisible border and to preserve all existing measures of cross border co-operation under the aegis of the GFA. This would allow Brexit to proceed in an ordered manner and the two-year transition period to kick in. The future trade talks would hopefully achieve the above aspiration.
The alternative – a continued impasse, economic damage and resultant ill feelings all round – is in nobody’s interest.
The post The Irish Government’s hardline attitude to Brexit is endangering the Good Friday Agreement appeared first on BrexitCentral.
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