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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A day before her defeat in the Commons on Tuesday evening, the Prime Minister had warned MPs that they must support her deal – or face doing catastrophic harm to voters’ faith in democracy if Brexit were stopped. The voters interviewed outside Parliament after the vote thought otherwise: they said that the MPs’ vote against the deal was right because ‘no one wanted it’. One man, a Leave voter, elaborated: ‘We voted to leave the EU, to leave’, he said. ‘We did not vote for a deal, for any deal, but just to leave, and we should leave’.
Both MPs and voters recognise that her deal would castrate Britain’s economy, bind the UK back into an EU customs union and divide Northern Ireland from the UK, making it a fief of the EU’s Single Market. Worst of all, it would deny the UK exactly the legal right a majority of voters chose to exercise in 2016 – the right to leave.
Yet despite opposition from the country and now from two-thirds of all MPs, including many from her own party, the Prime Minister made clear through her No. 10 spokesman that her withdrawal deal remains the only deal on the table, though she will now talk to MPs, she says, and listen to what they have to say. Few hold out any hope that she intends to do other than the EU’s bidding: it’s either her deal, as she has said time and again, or no Brexit.
A Remainer, like most of her Cabinet, she sees the referendum as a vote against immigration, not a vote for sovereignty or for the freedom to which people aspire. For her, as for most leaders clinging to power, the desire for freedom is neither a privilege to be defended nor a prize to be sought, but an obstacle to be overcome.
In the paternalistic world of power politics through which politicians duck, weave and dissimulate, the people are to be courted with bread and circuses: the equivalent today are immigration controls. The Prime Minister, like many MPs, does not see that when over 17 million people voted for Brexit, they did so to protect democracy from the overweening power of the EU, to preserve UK sovereignty and their freedom to decide their own laws.
Mrs May and her ministers do not seem to understand that democratic freedom matters, nor the corollary – that they must take account of their voters. Mrs May talks of democracy, but without an inkling of its potency for British people.
By their actions since Brexit, Britain’s political leaders have subverted the Leave vote, and damaged the arrangements under Britain’s constitution to protect peoples’ freedom against arbitrary rule. Despite being one of the world’s oldest and most iconic democracies – the strength of which derives partly from acceptance by governments of the electorate’s decision irrespective of their own wishes – things happened very differently since the referendum.
First, Parliament attempted to thwart Brexit. Then the Prime Minister deployed the autocratic systems of unaccountable powers to prepare a Withdrawal Agreement. That agreement was not the work of elected ministers – they were side-lined – but emerged from the backroom bartering of an unelected, unaccountable civil servant, the Prime Minister’s ‘court favourite’.
Ministers as well as MPs had been left in the dark about the deal with only an eleventh hour preview granted to some before the Cabinet meeting, at which those present were given little choice but to agree it there and then. Although two ministers resigned, others colluded to keep the deal alive.
The focus is now on the how House of Commons will respond to Mrs May’s next proposals. But already much has been done to prevent Parliament holding the executive to account. Some ministers have warned of the threat to the economy if the Prime Minister were to respect convention and stand aside for someone who would have the confidence of the country to execute the Brexit for which people voted. Other ministers have bombarded the airwaves and media with scare stories about no deal (that is to say, a WTO deal); bigwigs from the Cameron and Osborne Cabinet talk of the ‘duty’ to avoid ‘no deal’ and senior Tory Remainers have sought to block funds for ‘no deal’ preparations. And on top of all that come the Prime Minister’s threats that the country would enter the ‘unknown’ if there is no deal. This is the corroboration, if any were needed, of the anti-democratic impulses of Britain’s ruler today.
Instead, the UK could now offer the EU a UK-EU Free Trade Agreement which would solve concerns from all sides of Parliament at a single stroke, as David Collins, the International Trade lawyer, now proposes.
If the EU refuses? A ‘No Deal’ brings the freedom for a WTO deal that Canada and the US have both enjoyed, though Canada is now poised to strike a Free Trade Agreement with the EU. Both are Common Law countries with a long tradition of freedom under the law. They too, like Britain are amongst the world’s richest, G7, economies.
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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
It has become clear that Remainers have a big problem: they can find little positive to say for either why we should remain in the EU or for Theresa May’s Withdrawal Agreement. Their total argument has been and continues to be based on ‘fear’. Nowhere has this been more apparent than their invectives about No Deal – i.e. a World Trade Deal where the UK leaves the EU on 29th March without a trade deal under WTO rules.
The Government, together with Establishment figures and the commentariat, have fallen over themselves warning of short-term perils – first, chaos at our ports and second, claims that somehow a host of existing rules and regulations will become inoperative as of 11.01 pm on 29th March. Day-to-day life, as we know it, will cease to exist with regard to travel, business contracts, citizens’ rights and even the ability of performing artists to perform.
This alleged short-term disruption is deemed to be so apocalyptic that it is considered not even worth thinking about if there might be a long-term upside. Thus, the cacophony about the short-term has shouted down any fundamental thought about the inherent benefits of No Deal.
What is the reality?
Disruption in the Ports: What Disruption?
It is claimed that on 30th March UK ports will have seized up due to delays required to process customs declarations. Furthermore, since UK goods will no longer comply with EU standards, onerous inspections will be required – adding to the bedlam.
These claims should not be taken seriously. They do not reflect what actually takes place at ports today and they fail to take into account the legal and competitive environment within which ports operate.
1. Post-Brexit port procedures will not be materially different from those of today and the required changes mainly are in hand. The image of customs officials with clipboards crawling over trucks and stamping approvals on customs forms has not been valid for decades. Today, all customs declarations are computerised and prepared at the facility of the importer/exporter or their designated customs broker. Shipments are pre-cleared by computers talking to computers so that trucks rolling into the ferry terminal essentially are waived through automatically. This is how the many UK ports that deal with shipments from non-EU countries under WTO rules operate today.
To accommodate Brexit, HMRC has adopted a ‘belt and braces’ strategy by which the existing Customs Handling of Import and Export (CHIEF) system has been doubled in capacity to accommodate the increased volume of EU-UK customs declarations. In addition, a new EU-wide customs declaration system (CDS) – which was already in the development pipeline before the referendum – will be run in parallel. HMRC has repeatedly stated before select committees and in its own publications that CHIEF and CDS are already operational and will be ready to deal with EU shipments on 29th March.
A potential issue is that some businesses may not have their software interfaces with CHIEF/CDS operational by March. The service industry of customs brokers should have the necessary systems and expertise to support such businesses (mainly small) that may not have the required internal capability. However, it may be the case that not all customs brokers will be sufficiently up to speed and have the required capacity to fill the gap completely.
To alleviate this risk, there are simplifications to existing procedures that HMRC can authorise and HMRC has already announced that for the 60 per cent of EU trade that is imports, it will ‘prioritise flow over compliance’ – i.e. it will wave vehicles through to avoid queues, even if customs declarations have not been properly completed. As shipments are pre-approved, normally, if a trader has not completed the required declarations, the shipment will not be authorised. The shipment may be delayed but it will not contribute to congestion at the port.
2. Inspection regimes will not change. What about the much ballyhooed inspections that Remainers claim will create delays and miles of parked trucks along the M20? In fact, as HMRC has repeatedly emphasised, there is no reason for much to change. Under WTO rules, inspections are intelligence-led, based on computerised risk assessments and generally have little to do with customs issues. Security, drugs and illegal migration are much greater concerns.
Since there is no reason why these risk factors should change after Brexit, HMRC intends to maintain the existing inspection regime post-Brexit, which currently results in only about 1 per cent of (even non-EU) goods being inspected.
The claim that new onerous inspections at the border will be required after Brexit because UK goods will somehow no longer meet EU standards is hypothetical fancy. After over 40 years with identical product standards and regulations – and contrary to what many doomsayers may wish the public to believe – UK goods will not suddenly become hazardous to the health and safety of EU consumers the day after Brexit. Last week the President of the Boulogne and Calais Ports made clear that the Port of Calais plans no additional inspections relative to what they do today.
So, it is clear there is no practical reason why disruption should suddenly occur in the ports following Brexit.
3. EU recalcitration and discrimination would be illegal. The WTO Trade Facilitation Agreement, the WTO Technical Barriers to Trade Agreement and the Kyoto Convention of the World Customs Organisation commit the EU and all 187 WTO countries to making border processing activities as streamlined as possible. These measures are enforced by WTO Panels and the WTO Appellate Body that are backed by the international legal system.
The WTO Trade Facilitation Agreement mandates a seamless (computerised, pre-cleared) border enabling trade to continue passing through ports with minimal checks, pre-cleared by computer, with all relevant information pre-entered at low cost straight from the loading logs. The EU’s own Customs Code requires customs declarations to be done online and allows these to be entered with as little as one hour’s notice.
There is no WTO requirement for border checks and, where physical inspections are necessary, the Agreements require that they be intelligence-led and not be more trade-restrictive than necessary – i.e. they should conform to the current regime applying to both the EU and the UK where only about 1 per cent of goods arriving from non-EU countries are physically inspected. The WTO’s Agreement on the Application of Sanitary and Phytosanitary (SPS) measures does allow for border checks to ensure the safety of imported food but stipulates that such checks should not be used as a surreptitious means of inhibiting cross-border trade or “arbitrarily or unjustifiably discriminate between WTO members where identical or similar conditions prevail… SPS measures shall not be applied in a manner that would constitute a disguised restriction on international trade”.
With regard to standards, WTO rules on non-discrimination on standards mandate that, once the EU or any other WTO member has announced their proposed domestic standards, these must apply without exception to all foreign exporters.
So, if the EU were to ignore the practical, common-sense reasons for continuing to process EU-UK trade as efficiently as they do today, they would be acting illegally and could face lawsuits. The WTO dispute process is far from toothless, enjoying an excellent compliance record among its many hundred rulings over decades of practice.
4. Competition will keep the EU in check. Even if common business sense fails and the EU is tempted to flout international law, competitive pressures will rein them in. Dover-Calais is the major concern in this regard because it has roll on/roll-off (RoRo) facilities accounting for about 30 per cent of EU-UK trade – and Calais is in the only EU country where political leaders have signalled possible uncooperative post-Brexit actions.
Fortunately, numerous other freight ferry routes – with RoRo capabilities – already exist between several UK and continental ports. Dutch and Belgian port operators have already made it clear that if an EU port – say Calais – were to attempt to complicate border procedures artificially to inhibit UK exports, ports such as Rotterdam, Zeebrugge and Antwerp (amongst others) would be keen to grab the business and quickly fill the gap.
It is estimated that sufficient capacity exists to handle 30 to 40 percent of Dover-Calais freight shipments. The Dutch sensibly have built up their customs facilities, hiring more inspectors and setting aside land at their ports for the limited additional inspections that may be required, primarily for agricultural products.
In practice, it is very unlikely to come to this, as pragmatic local French authorities and port operators have offered assurances for continued cooperation on numerous occasions, aware that they will lose out to their European neighbours if they attempt to frustrate Brexit maliciously. The latest such assurance was on the Today programme on 9th January when the President of the Boulogne and Calais Ports confounded his BBC interviewer by making clear that Calais will be ready for UK business by 29th March and he explained that they plan no additional inspections relative to what they do today and detailed a long list of specific investments and actions they have taken over the past year to avoid any possible congestion or delay.
Brexit will not lead to a blockade in the English Channel, as strangely many wish us to believe.
Life will continue after 29th March
Much of the drummed-up anxiety regarding “crashing out” of the EU has begun to abate as the UK Government, along with its EU counterparts, has ramped up preparations for a No Deal Brexit in light of the impasse in EU-UK negotiations. Despite the tireless efforts of the media and the status quo Establishment which still insist that the UK will collapse into recession and experience a severe supply shock and civil unrest, it is slowly emerging that trading with the EU under WTO terms will be manageable, albeit with some possible ‘bumps in the road’ in the early days.
Thus, work seems to be at last under way, and it should now be stepped up with enthusiasm – remembering that many problems can be lubricated by a £39 billion saving.
For example, an increasing number of the crucial non-WTO “side deals” that commentators gleefully warned were essential to avoid the devastation of post-EU isolation are now materialising. Aeroplane landing rights, drivers’ licences, euro clearing and derivative contract issues are now settled.
Many EU citizens living in the UK are already following the straightforward process for obtaining permanent residency. In recent days, the Dutch, German, Italian and Belgian governments have already announced post-Brexit citizens’ rights for UK nationals living in their countries. And the Spanish are establishing procedures for healthcare to be delivered to UK citizens when in Spain. We also have promises from the EU and Ireland that there will be no hard border, as one isn’t really needed and never was.
Furthermore, Lord Lilley and Brendan Chilton’s excellent report, 30 Truths about Leaving on WTO Terms, has detailed a long list of agreements that have emerged in recent weeks between the UK, the EU and EU member states affecting day-to-day life. These cover a wide range of areas including, for example, ‘micro’ trade agreements, medicines, clean water, air travel, aircraft manufacturing, haulage, agricultural and animal products, mobile telephones, auto type approvals and VAT rules. And – never fear – even British opera singers, musicians and other performers will still be able to tour the EU.
It is becoming ever more evident that civil servants – in spite of their public comments being constrained by ministers – have been working quietly behind the scenes to ensure minimal post-Brexit disruption.
Thus, it appears the closer we get to the alleged ‘cliff edge’, the more countries on both sides of the Channel are facing up to their responsibilities. The ‘cliff’ now appears to be turning into a grassy slope.
Remember the Millennium Bug? Perhaps we have been here before.
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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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Fear of leaving the EU without a deal, and of trading with the EU thenceforth under WTO terms, has been created primarily by the much-cited series of predictions of severe adverse economic consequences by HM Treasury. It is therefore of some importance to decide whether their predictions are credible.
One set of their pre-referendum predictions referred to the adverse consequences within two years of a vote to Leave the EU rather than leaving itself. Since we have now lived through the period they covered, we now know that apart from one minor point, the fall in the value of sterling, they were all false. Every other prediction they made, on GDP, (which was predicted to fall rapidly by between 3.6% and 6.0%) on employment, house prices, wages, inflation, FDI and public finances, was wrong, often by risibly large margins, and always in the same direction. This suggests they were deliberately manipulated to give a politically helpful result for the then Government-backed Remain campaign. They naturally raise questions about the Treasury’s other three sets of predictions about the long-term consequences of Brexit itself.
These cannot be tested by reality until 2030 or beyond, but since they rely on a number of highly improbable assumptions and estimates, they are no less contrived than their short-term predictions, and no more credible. These assumptions and estimates cannot all be examined here, but we can identify the most improbable and incredible, the ones that have contributed most to the Treasury’s characterisation of trading under WTO terms as the worst possible post-Brexit option.
Their first set of long-term predictions was published in April 2016, and depended to a large extent on the assumption that future UK intra-EU trade in goods would increase at the same rate as that of all other members. This was followed by the estimate that by 2030, if it remained a member then, UK trade in goods would have grown by 115%. If, by contrast, the UK left to trade under WTO rules, it would not enjoy any of that 115% growth, and primarily for this reason, its GDP in 2030 would be 7.5% smaller than it would have been if it had remained a member.
This seems to have prompted Remain supporters to describe the transition to a no-deal exit as a cliff edge, a car crash, or a leap in the dark, and trading under WTO rules as chaos, catastrophe and Armageddon. Since most of world trade, and much of UK trade, is routinely conducted under these self-same WTO rules, the aptness of these metaphors is questionable, but what matters here are the assumptions on which the Treasury prediction was based.
Questions about it might first have been raised with the Treasury itself since a rare piece of in-house classified research conducted in 2005 had shown, like more recent studies, that the rate of growth of the UK’s intra-EU trade during the Single Market has differed greatly from that of other members, most especially from those in Eastern Europe. This HMT research also showed that over the 31 years from 1973 to 2004 it had grown by only 16%, while later IMF/DOTS figures showed that over the 22 years from 1993 to 2015 UK exports to the EU 14 had grown by 25%. To then ‘estimate’, as the Treasury authors do, that over a mere 15 years to 2030 UK-EU trade in goods would suddenly increase by 115%, may be reasonably called absurd, or even a deliberate manipulation to produce a highly misleading prediction. A recent re-examination of the same evidence, using the same gravity approach as the Treasury, but referring to the UK alone, estimated the likely increase of trade in goods with the EU by 2030 to be ‘in the range 20-25%’.
The Treasury was a contributor to the second set of predictions, the EU Exit Analysis Cross Whitehall Briefing of July 2018. Its wildest assumption was that UK goods trading with the EU under WTO rules would immediately incur tariff, non-tariff and customs charges with a total tariff equivalent value of 30%. It qualifies as wild because the total tariff equivalent value of the goods exports of United States and Japan to the EU have been reliably estimated to be just 20%, or only two thirds as much as those the Treasury predicts for UK exports after a no-deal Brexit, even though its product standards are identical to those of the EU.
Patrick Minford analysed these non-tariff and customs charges in considerable detail, and pointed out that some of the barriers conjured up by the authors of these predictions would be discriminatory and therefore illegal under WTO rules, which the EU generally respects. Why UK civil servants should assume that their EU counterparts would deliberately ignore them post-Brexit is unclear. However, with the help of the 30% total tariff equivalent value, leaving with no EU deal and trading under WTO rules again emerges as the worst post-Brexit option, resulting in a shortfall in UK GDP by 2030 of about 7.7% versus what it would have been had the UK remained an EU member.
The third set of predictions was published in November 2018 specifically to inform Members of Parliament about the long-term economic consequences of various future relationships with the EU in advance of their fateful ‘meaningful vote’ on the agreement negotiated by Mrs May. It contrives, as Andrew Lilico observed, to show the ill-effects of trade under WTO rules by the simple ploy of exaggerating all the future gains of EU membership and minimising all the possible gains that might follow the UK taking back control of immigration, regulation and trade policy.
The outstanding example of the latter is the 0.2% gain to GDP that it estimates would result from FTAs that the UK might conclude with the US, Australia, Canada, India, China and 12 other non-members. It qualifies as an absurdity because the European Commission had previously estimated that the gain to EU GDP of concluding agreements with a similar set of countries would be 1.9%, almost ten times as much therefore as agreements negotiated by the UK alone which would, one imagines, be better tailored to British exporters.
By repeatedly making other estimates in a similar manner, the report arrives at the desired prediction. Indeed, the final prediction that made the headlines, a 9.3% shortfall in UK GDP by 2035-36, was reached simply by assuming that there would be zero immigration from EEA countries until 2035-36, a proposal that no one has ever made. The recently published White Paper suggests it is far removed from any likely future government policy.
The remarkable thing is that any of these Treasury predictions have been given any credibility whatever and were not dismissed with a laugh, just as the predicted immediate consequences of a vote to Leave have often been. Part of the explanation must be that specialist publications like The Economist and the Financial Times, and specialist correspondents of other media such as the BBC, Sky, The Guardian and The Times did not check and flag these and other questionable assumptions and estimates on which these predictions depend.
Perhaps they did not have the time or maybe they welcomed Treasury support for the Remain cause, but a further reason one suspects, is that, like the rest of us, they wanted to trust Treasury mandarins. They saw them as honest, upright, non-partisan experts performing their duties by providing entirely trustworthy and reliable evidence to inform ministers and public debate.
Unfortunately, on European issues at least, this image is woefully mistaken. The Treasury has never regularly and dutifully conducted impartial research on the impact of EEC/EU membership on the UK economy. And it has never been asked to do so by any government since 1973, probably because ministers were usually engaged in persuading the ever-sceptical British public of the merits of European integration and doubted that empirical research would be an altogether reliable ally.
Since 2000, the Treasury has, like other departments, been obliged to conduct impact assessments of proposed legislation derived from EU regulations and directives, but it never sought to translate them into a meaningful national cost/benefit analysis. In 2003, at the time of the debate on joining the euro, Treasury mandarins searched the world for experts on optimal currency areas and debated and published their differing views shortly before the Chancellor announced his decision. The research conducted in 2005 and mentioned above was a one-off, and remained classified until an FOI request in 2010.
When they were asked to make the case for Remain, Treasury mandarins therefore had no historical analyses to draw on, apart from the 2005 one they wanted to forget. And they did not instantly assume a quasi-judicial impartiality. Apart from the one month purdah periods before the 1975 and 2016 referendums, they had never been asked to be impartial on this issue, and they evidently felt under no obligation to be impartial with respect to the division of opinion in the country at large. Hence, they immediately showed themselves to be fervent, unabashed advocates for continued EU membership and produced predictions to delight their all those who shared their view.
All of us have paid, and are still paying, a high price for the Treasury’s failure to conduct and publish impartial analyses of the impact of EU membership on the UK economy over the preceding forty-plus years in accordance with our image of them, and with their own core values and rule books. Had they done so, the referendum debate would have been rather more informed and enlightening than it was. Instead of constructing Project Fear for the Remain side, they might have tried to match Business for Britain’s superbly documented case for Leave in Change or Go.
In the course of such research, they would necessarily have had to understand and explain why the exports of countries trading with the EU under WTO rules, like the United States, Canada, Australia, Singapore and a host of emerging societies have been growing so much faster than the supposedly frictionless ones of the UK over the life of the Single Market. American exports to the EU, for example, grew by 68% from 1993 to 2015, and the smaller British exports by just 25%. If trading with the EU under WTO rules has proved so successful for others, why would it be the worst possible option for the UK after Brexit?
They might also have been able to explain why it is that UK exports to 111 countries around the rest of the world under WTO rules have also grown so much faster than its exports since 1993 to the EU itself, and to those countries with which the EU has negotiated trade agreements from which the UK was supposed to benefit. These are questions that the Treasury mandarins have preferred not to address.
Much relevant evidence to determine whether or not trading under WTO rules is the worst post-Brexit option could be obtained from UK companies which currently trade with the EU from a member country and with the rest of the world under these rules, since they are able to make direct comparisons. The Treasury is well-placed to conduct such research via HMRC but this is more evidence that it has decided it, or the government, or the country does not need. Some companies have, however, spontaneously testified about their experience of trading under both systems. It directly contradicts the sharp contrast between them which the Treasury has sought, with some success, to make the centrepiece of the debate about the UK’s post-Brexit options.
Lord Bamford, Chairman of JCB, the UK’s largest manufacturer of construction equipment, for instance, recently felt ‘compelled to say this about a no-deal Brexit: there is nothing to fear from trading on World Trade Organisation (WTO) terms… Trading with Australia on WTO terms is as natural to us as trading with Austria on EU single-market terms. John Mills, founder of JML, which sells to ‘80 countries at the last count’, said that ‘about 80 percent of all our international trade is on WTO terms, so we know what the paperwork’s like. Once you’ve done it half a dozen times, you’ve got it all on the computer, it just isn’t that difficult.’
Even more emphatically, Alastair MacMillan, whose company exports to 120 countries in the world including every EU member, points out that ‘there is little difference in the way we handle freight going to the EU compared to the rest of the world. The United States is our biggest market and we compete directly against US companies in their own market, in part, because we deliver next day to anywhere in the United States by 1pm their time, customs cleared. That, to me, is frictionless trade and it is at a cost that is not dissimilar to the same service to customers in the EU’.
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Brendan Chilton is co-author with Lord Lilley of 30 Truths about leaving on WTO terms: Why WTO offers a safer haven than the Backstop, which is published today by Global Britain and Labour Leave.
The tone of the language we so often hear and the words we frequently read associated with trading on World Trade Organisation terms is negative and promotes images of chaos and disorder. All of this is based on deliberate fear.
Phrases such as ‘crashing out on WTO terms’ and ‘no-deal Brexit’ and ‘being forced to revert to the WTO option’ conjure up an image of a future in which the United Kingdom loses out and becomes an economic basket case. The terms are frequently and loudly spouted by those campaigning for a second referendum and are supported by biased voices within the media. Their objective is to determine that the United Kingdom must Remain in some shape or form entangled within the European Union even after the democratic decision of the people to Leave is implemented.
The reality of the situation, however, is that a United Kingdom operating under World Trade Organisation rules will be one of the greatest liberating experiences to achieved by this country in modern times. The United Kingdom always was a global free-trading nation – and now it will be once again, participating in every corner of the world. Far from being a perilous course, World Trade terms are a golden opportunity to reignite the industrial and commercial might of this country and it is a course that the Labour Party should completely support.
The Labour Party is not primarily a liberation movement. It is not primarily a social movement or a movement for emancipation. The Labour Party’s primary and fundamental nature and purpose can be understood by examining the title and description of the party – Labour. The Labour Party has been, is, and always will be a party of labour. Of work.
Its root and brain are an element of economy and its purpose is the representation of labour within the political institutions and a democratic framework of the nation state. Its motivation is the betterment of the lot of labour within the country and the world. Its purpose is to protect the advancement of labour and secure more for labour. This is achieved through an economy that is wealth-generating.
At its heart, Labour is a party of industry and commerce and, yes, of finance too. In the modern world, those factors are units of the economy not restricted solely to Europe but are the norm the world over. Labour’s standard should therefore be world trade and not an obsession with a Single Market serving the most developed, most privileged, most advanced part of the world shielded and protected by a great wall called a Customs Union.
The language of the Labour Party must turn from fear and concern to optimism and hope: the optimism that once again Labour can truly be the party of labour by embracing trading terms outlined under the World Trade Organisation to revitalise sectors of our economy, to embrace new markets, spread the protections and securities our workers enjoy to the rest of the world and ensure a wealth-generating economy improves the lives of people in this country and others.
Labour’s radical economic programme outlined in the 2017 manifesto is one that would restore industry, spread commerce and excite finance. In order for the manifesto to be delivered in the most productive way that manufactures growth, the Labour Party cannot support the Withdrawal Agreement negotiated by the Prime Minister and it cannot support an ongoing relationship with the European Union that grants economic jurisdiction to Brussels. The next Labour Chancellor of the Exchequer must be in a position to exercise all the levers of the state and tools as his disposal to ensure our economic programme can deliver for the many in this country and inspire others across the world in a true act of solidarity.
It is right that the Labour leadership is resisting calls for a second referendum on our membership of the European Union. It is now very unlikely that a second referendum will take place and this is, in part, due to the battle against one being fought by the leadership of the Labour Party. Now victory on that front is in sight, it is the time for the leadership to focus its attention on the next battle in this great struggle for the revival of our economy and the prospects of this nation in the long term.
The Labour leadership now needs to fully embrace with heart and hand a Brexit that enables the United Kingdom to be free from the shackles of Brussels and which allows our country to walk onto the platform of World Trade. By doing this, Labour will set the course for the future, it will demonstrate its ambition and ideals and will ensure that the next Labour government can embark upon a radical national economic agenda that transforms this country from a nation secluded in Europe to a nation manufactured and secured in global trade in the modern world.
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Pulling the vote on its Withdrawal Agreement at the eleventh hour, the Government acknowledged what we already knew: the Backstop proposal is completely unacceptable and the Agreement stood no chance of winning the support of Parliament.
But rather than simply seeking “reassurances” on this issue – which, though a central objective, is but one of many – the Government needs to consider more boldly the possible alternative arrangements which might command Parliament’s support. The President of the European Council, Donald Tusk, offered just such an alternative in March: a wide-ranging, zero-tariff trade agreement.
That deal foundered on the question of the Northern Ireland border, but existing techniques and processes can resolve this.
This view is endorsed by the professional customs body, CLECAT. They recommend we acknowledge the present state of customs technology, using procedures based on intelligence and risk management available in current EU law. These are currently used to manage the border which already exists – for VAT, tax, currency, excise and security – and can form the foundation for continued seamless trade.
From my October meeting with Michel Barnier and senior officials, I know that a willingness exists on the EU side to explore these possibilities more fully. The meeting also confirmed that Tusk’s offer is still on the table.
Rather than cling hopelessly to the Withdrawal Agreement, the Government must return to that offer. By resolving the border question with existing techniques, we can immediately start negotiating an optimal, wide-ranging Free Trade Agreement. I have already presented the Government with a Trade Facilitation Chapter and new Border Protocol to catalyse this process.
In parallel, we must intensify our preparations for trading on WTO terms. This is no cause for alarm, and those doubting this should look to the UK’s booming exports – up by nearly £100bn since before the referendum. The latest ONS figures put exports to non-EU countries at £342bn, compared to exports to EU countries of £274bn.
Much of that boom is through expansion into new markets. Since 1998, UK goods exports to non-EU countries have grown 16 times faster than its exports to the EU.
Yet scaremongering has clouded our perception of WTO rules. We are told that just-in-time supply chains will be unable to continue across customs borders. But in reality the operation of these chains is as dependent upon non-EU goods as on those from the EU. 21% of UK automotive manufacturers’ bought-in supply chain comes from outside the EU – compared to 36% from the EU and 43% from the UK – yet the customs procedures required for that sizeable proportion do not pose an insurmountable problem.
We are told that even minor customs delays will cause unprecedented queues on the M20 and economic disaster. But Operation Stack – limiting access to the Channel Tunnel and the Port of Dover – was activated for seven months in total between 1998 and 2015, without any of the “catastrophes” now imagined.
Responding to these Project Fear claims, we must always ask: why? Why would a rules-based organisation like the EU suddenly start behaving illegally, to the detriment of its people and in defiance of international agreements? As Xavier Bertrand, President of the Hauts-de-France region, has said in dismissing fears of major disruption between Dover and Calais: “Who could believe such a thing? We have to do everything to guarantee fluidity.”
It is true that the EU has trade deals with around 70 countries, which the UK will have to novate. This process has already begun and no country has signalled an unwillingness to co-operate. But remember that many of these agreements are very small. Switzerland alone accounts for half of UK exports to these 70 countries and it, Norway, Turkey and South Korea account for over 75%. Renegotiating a small number of agreements to cover the vast majority of this trade should not be a prohibitive task.
Though not an optimal arrangement, there is thus nothing to fear from WTO rules. Its 164 members represent 98% of world trade. We must be ready to trade on those terms to smooth the transition and demonstrate that we are serious.
That way, we shall be negotiating a Free Trade Agreement with the EU on sure foundations. Realistically, of course, a full agreement will not be reached by March, but this need not pose a problem. So long as progress has been made towards an agreement by then, the EU and the UK can jointly notify the WTO as soon as possible after our exit date of our intent to negotiate an FTA. Under Article XXIV of the General Agreement on Tariffs and Trade, after notification of a sufficiently detailed FTA with an appropriate plan and schedule, we could maintain zero tariffs and no quantitative restrictions for a “reasonable length of time” (exceeding “10 years only in exceptional cases”) without violating the bar on discriminating against other nations under WTO rules.
So, rather than the Withdrawal Agreement’s choice of a transition period ending in “20XX” or a potentially permanent and definitely intolerable backstop, this proposal would provide stability and clarity for the time-limited negotiating period, delivering a zero-tariff, mutually beneficial trade agreement. That would surely command a majority in Parliament. That is the alternative. That is the way ahead.
This is an extended version of an article originally which appeared in the Daily Telegraph
There is no cliff edge when we leave the EU. There will be no economic cataclysm as Remain forecast. How many more absurd scare stories are they going to run? They have suggested Airbus will be selling planes without wings as they will not be able use the ones we supply; that planes will be grounded on the continent without permits to fly to the UK; and that all factories requiring imported components from the continent will suffer from some unspecified blockade which will stop the parts getting through.
All of these are based on some foolish misunderstandings of how trade functions and how modern factories operate. UK suppliers of Airbus wings are locked in by contract to carry on supplying, and every plane Airbus delivers after March 2019 will need those same UK wings, already certified as good to fly. It was particularly odd to read that they might switch to Chinese ones, as China still has not become a member of the EU – even though they say we have to be in order to sell such products. Continental airlines are busy selling tickets to fly to the UK after March in the knowledge that arrangements will be made to allow them to continue to use UK airspace and to land at UK airports. Their wish to do this ensures the continental countries will make reciprocal arrangements for UK airlines going to France or Germany.
Just-in-time supply chains currently use both EU and non-EU components without special problems if they come from outside the EU. I do not expect the UK authorities to create extra delays at our ports for such imports, but if they did the factory ordering the parts would just require the supplier to send the parts by an earlier truck or train to combat the longer transit time.
It is time the Treasury and the wider government swept aside its stupid gloom about Brexit, and set out just how it will use the new freedoms and the extra money it will have to spend as soon as we leave the EU. If we leave next March without signing the penal Withdrawal Agreement we could give a welcome boost to UK factories. Why not announce zero tariffs on all imported components for assembly, cutting the cost of non-EU items currently taxed? Why not take control of our fish, and more fish in UK ports and build a bigger fish processing industry at home? Why not promote more home-grown food, imposing some tariffs on the continental competition where they pay no such tax at the moment? We could at the same time cut tariffs on non-EU food to limit price rises.
Stopping large contributions to the EU budget will immediately improve our balance of payments account, as all that money has to be sent abroad as if we were paying for imports, though we get nothing for it. It would also release large sums to spend at home. Let’s have tax cuts to boost home ownership, help the car industry, and encourage work and enterprise. Let’s also boost the economy by hiring more teachers, doctors and nurses, and improving our transport systems with new investment.
The overall impact would be to boost national income and output by 1% next year and 1% the year after if we spent the £39 billion over the time period.
Could they blockade our exports? Under WTO rules, as they are and we will be, they are not allowed to charge tariffs on us which they do not impose on others, or impose new non-tariff barriers to trade. I don’t believe the stories that Calais will go slow to damage our exports, as our trade through Calais is crucial to that port’s jobs and success. Were they to do so, Rotterdam, Antwerp and other Dutch and Belgian ports would love to take the business off them.
It is time the Government moved on from seeing Brexit as some problem to be managed, to seeing it as full of opportunity for more jobs, more growth and more prosperity. That is why many of us voted Leave. The Treasury should back us and go for growth based on new freedoms we will win on departure.
John Redwood’s How to Take Back Control: Trading Globally Through the WTO is published today by Politeia
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Not a day goes by without Theresa May getting attacked by MPs on her own side, ridiculed by the Opposition, derided by the media and mocked by sketch writers; she faces a constant and continuing threat to her leadership. The only thing going for her is her stated determination to ensure the UK leaves the EU on the date Parliament decreed, 29th March 2019, and on that issue, she has the backing of the British people. This is the reason why she has been able to survive.
MPs may have the numbers to delay or block Brexit, but the people have the final say; in 2016 they said Leave; today they say get on with it.
Every other option other than the proposed Withdrawal Agreement or leaving the EU without a deal, does, of necessity, involve an extension of Article 50 and if Article 50 is extended once, it could be extended again and again until we relent and forget about Leaving the EU altogether. Renegotiating the current deal in any meaningful way would require months if not years; a general election or a second referendum likewise would require an extension of Article 50. At the end of the day, for MPs to honour the referendum result, they must vote for the current deal (or a cosmetic variation of it) or fall back on the default position of no deal.
It’s right for Brexit-supporting MPs and others to call the recent Treasury assessments of the impact of different Brexit scenarios and the warnings from the Bank of England as the continuation of Project Fear, but they must not themselves indulge in a Project Fear of their own. Statements such as the Withdrawal Agreement is ‘worse than remaining inside the EU’ and ‘once it is signed there is no way out’ are alarmist and unnecessarily defeatist.
Regardless of its faults – including keeping the UK too close to the EU than is comfortable for an independent country and ceding control in certain areas – the Withdrawal Agreement ensures we leave the EU on 29th March 2019 and once we leave, we become sovereign which could never be the case if we remain in the EU; sovereignty brings with it powers that had been surrendered to the EU.
As for ‘once signed there is no way out’, treaties are not written on tablets of stone, otherwise we would still be living under treaties that were signed in the nineteenth century. Treaties are amendable and in the final analysis disposable; they carry weight only if both parties are willing to abide by them; they are more honoured in breach than observance; the USA alone breached over 500 treaties and countries are accused of breaching this or that treaty on almost a daily basis.
Once sovereign, we can give notice of the changes we wish to make and if the EU refuses to negotiate, we can give notice of our intention to terminate all or parts of the treaty and that includes the backstop. To say that the fifth largest economy and the fourth biggest military power in the world, a permanent member of the Security Council, will be neutered in perpetuity if it signs a treaty with a union with serious signs of disintegration is fanciful to say the least.
The driving force behind Brexit has always been the British people and that must continue to be the case after we leave next year. This is the true guarantee for the future and not tightening this or that wording on a piece of paper.
Prior to us actually leaving the EU, a Withdrawal Agreement – regardless of who negotiates it – is bound to have compromises and leave a number loose ends. The purpose of a deal at this stage is not to tie the Government’s hands in future negotiations as some people seem to think, but to provide the best possible start after we leave the EU. After 45 years of being entrapped by the EU, its rules and bureaucracy, it will not be possible to escape in one single giant leap; at the present time, a deal is a first step, not the end result.
Once that first step is taken and we leave the EU, we can start the process of consolidating our economy, re-building our industry and ensuring our security, then we can assert our full sovereignty from a position of strength and demand the changes to the treaty that we want and need.
The 2016 referendum gave Parliament one simple task: get the UK out of the EU. So far, it has done its job: Article 50 has been triggered, the EU Withdrawal Act has been passed and a date set for leaving. For a Parliament with a majority on the Remain side, this is truly impressive. Now it has to complete the job and ease us out of the EU in March.
If Parliament rejects the deal, then Theresa May will have to go back to Brussels, not to beg for any meaningful changes, for that would be futile and humiliating; but rather to inform them that the UK will trade with the EU under WTO rules after we leave the EU – and preparations must be made to that end. Trading under WTO rules won’t be the disaster it is made out to be by some and the public will accept it.
If MPs fail to complete the task with which they are entrusted by ensuring we leave on 29th March next year – and Labour has a central role to play in this – the whole Westminster set-up will be brought into disrepute. People’s revenge will be subtle, but it may not be pretty.
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Theresa May has achieved the remarkable feat of uniting the nation. Leavers and Remainers of all stripes have come together to condemn the Withdrawal Agreement she has negotiated with the EU. This should not really be a surprise: she has committed the country to a semi-permanent colonial state in which we stay in the Customs Union and Single Market but without having a say in the rules. There is a way out but only if the EU agrees, something they are unlikely to do unless any future trading relationship works to their advantage.
Far from taking back control, the Prime Minister has agreed to the UK being a rule-taker from the EU for the foreseeable future, under the supervision of the European Court of Justice. And the icing on the cake is that, in return for these ‘privileges’, she has also agreed to hand over £39bn of taxpayers’ money to the EU with absolutely no guarantee of any long term agreement on trade. Even the right to take decisions over fishing in our water has been left up for grabs.
The Agreement is so demonstrably bad that barely any MPs outside of the Government payroll have come out in its support. Rather than accepting that the Agreement is unlikely to be passed by the House of Commons, Number 10 seem to be focusing their strategy on making the alternative, namely leaving without a trade deal, sound as terrifying as possible. The hope is that, if MPs and the public are sufficiently unnerved by the prospect of ‘no deal’, they will come round to reluctant support of the flawed Withdrawal Agreement.
The scary predictions made by the Treasury and others during their campaign of Project Fear during the referendum proved to be an embarrassing failure of almost legendary proportions. So the decision to embark on Project Fear Mark II is, should we say, brave. But this does not appear to holding anyone in the Establishment back.
Last week, that once-respected periodical The Economist published a letter going all out to support the Prime Minister’s line of attack. We are warned that no deal could lead to “food rationing”, “medicine shortages”, “the demise of farming” and the “collapse” of manufacturing. The planes will all be grounded of course but (Hallelujah) the leader writer thinks that the EU might graciously allow us to operate a few flights to “carry stranded citizens home”. The Economist seems to have gone ‘full Project Fear’ and as Robert Downey Jr might have said in Tropic Thunder, ‘you should never go full Project Fear’!
To some extent, such emotive nonsense deserves only ridicule. But despite The Economist’s recent reputation as being the lapdog of the Remain establishment, its influence cannot be underestimated and it is important to engage with its arguments about the risks of no deal, so let’s consider a few of its claims:
1. “Reneging on the £39bn in obligations to the EU would devastate Britain’s international credibility”
Even under no-deal, the UK will of course honour its obligations under international law. However, it is clear that our strict liabilities are very significantly lower than £39bn and, if there is no Withdrawal Agreement, we will be under no obligation to fork out such a sum as even the Remain-dominated House of Lords EU Financial Affairs Committee concluded. The exact amount due could end up being decided by independent arbitration, something that would take a number of years. In practice, the UK may well be willing to make a generous settlement once a reasonable trading relationship with the EU has been agreed. The EU desperately needs the UK cash to avoid a huge hole in its budget. So, far from ruining our relationship, leaving with no deal and no payment will help to focus EU minds. They will certainly have every incentive to avoid creating more difficulties for the UK than necessary. From the UK’s point of view, savings on the £39bn bill can be put to good use in the months leading up to and immediately after Brexit with the aim of minimising the short run disruption that may occur as we re-work our systems to cope with new arrangements.
2. “Britain has slipped to be one of the slowest growing members of G7”
Surely The Economist could at least have got basic statistics like this correct? It does not take much to look up the latest OECD data which reveal that the UK is the third fastest growing G7 economy this year, ahead of all the major EU economies. At the same time our employment rate continues to be at a record high, wages are growing again, and in a good sign for future growth, foreign direct investment into the UK in 2018 has been by far the highest of any European country. This is all a far cry from the doomsday scenarios predicted by the Treasury in the first round of Project Fear. There is a great deal of confidence in the long term prospects for the UK economy, irrespective of whether we strike a formal trade deal with the EU.
3. “No deal would swap membership of the EU’s single market for the most bare-bones trading relationship possible”
World Trade Organisation rules are certainly not “bare bones”. They are designed to facilitate trade and they already provide the basis for about half of UK exports and imports. Further, leaving without a deal would allow us to embark straight away on independent trade deals with some of the fastest-growing countries in the world. Remember that we operate a trade surplus with the EU of close to £100bn per year. Once we have left the EU on 29th March, the EU will face heavy pressure from member states such as Germany and the Republic of Ireland to ensure that they strike a trade deal with the newly-independent UK as soon as possible. There is no reason why, like other countries such as Switzerland, Norway and Canada, the UK should not end up trading freely and tariff-free both with the EU and with other countries around the world.
4. “WTO rules require the enforcement of a hard border between the Republic of Ireland and Northern Ireland”
The Economist is being particularly irresponsible in perpetuating this myth. WTO rules do not require border checks on goods – that is a matter for each country to decide. Currently, ‘intelligence led’ inspections by the UK affect only 4% of non-EU goods shipments, Ireland only 1%. The remainder are cleared immediately by computer-based procedures. There is no WTO requirement for these checks to involve physical infrastructure at a border and they can be carried out away from the border. Time and time again in Select Committee hearings, Jon Thompson, Chief Executive of HMRC, has told MPs that there is absolutely no need for the UK to erect a hard border under any scenario, including leaving without a deal. Either The Economist is ignorant of this or, even worse, they know the truth but refuse to report it.
Responding to Project Fear arguments is a bit like playing whack-a-mole: no sooner has one claim been demolished than another – equally implausible and twice as bizarre – surfaces. The Economist leader is no different in this respect and it is impossible to respond to every point in just one article.
The key point is that virtually all Brexiteers would prefer to leave the EU with a trade deal in place and most are willing to agree to a transition period to help achieve this. However, no-one can force the EU into a deal and if they are unwilling to countenance a sensible withdrawal arrangement then we must implement the result of the referendum without one. Doing so will certainly not be the economic disaster suggested by Philip Hammond and The Economist.
The trouble with the EU negotiations is that Theresa May never really believed her mantra that “no deal is better than a bad deal”. The deal she wants us to sign up to is a very bad deal indeed so leaving with no deal is looking increasingly like the best option available. The UK should embrace the economic opportunities it will bring, even if that means doing so without Theresa May at the helm.
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