If we don’t sign the Withdrawal Agreement, we are told, we shall ‘crash out’ of the EU on March 29 2019 with ‘no deal’, trading with the EU ‘on WTO terms’, and suffer many bad consequences such as congested ports, shortage of medicines, damage to our businesses and a seriously weakened economy. So, ‘in the national interest’, we must favour the deal because we are not going to get a better one and our government worked very hard to achieve it.
Yet, if we DO sign the deal, we are locked indefinitely into a customs union with the EU, not just during the so-called ‘transition period’ or the ‘backstop’ that may follow it. At least, this is what is implied in the draft Withdrawal Agreement, as confirmed by the Political Declaration (paragraph 23) which recommends that the ‘economic partnership [has] no tariffs [and also] obviates the need for checks on rules of origin’.
This can only mean the UK continues to apply the EU’s common external tariffs, i.e. we stay in a customs union even if we manage to escape from the backstop. This precludes any trade deal with the EU such as ‘Canada+’ and prevents us from entering into trade deals with other countries, despite the Prime Minister’s repeated claims to the contrary. We are also stuck with current and future EU rules, with no say in how they are made.
This is not the Brexit that people voted for. So let’s look again at the consequences of a ‘no deal’ Brexit. Suppose that the Withdrawal Agreement is rejected by the UK parliament, there is no reversal or postponement of the Article 50 process and Brexit happens on March 29 2019, taking us permanently and immediately out of the customs union and the single market.
This ‘no deal’ does not mean that nothing is agreed or that cooperation will suddenly stop. Both the EU and our own government have set out, or are in the process of setting out, measures to ensure continuity of financial contracts, and arrangements for cooperation over crime, terrorism, defence and nuclear safety, for instance. Businesses have also been making contingency plans, building stocks of essential materials and obtaining new licences.
‘No deal’ does not mean that aircraft will no longer cross the channel or that foreigners will be expelled, or that we shall run out of food and medicines. We shall not be under a blockade, relying on Atlantic convoys for our essential supplies. There will be plenty of voices on both sides of the Channel wanting things to carry on as if little has happened. And when it becomes obvious to all (including Monsieur Barnier and Mrs May, if they are still in business) that the Withdrawal Agreement is dead, the UK government and our EU neighbours can focus attention in earnest on short term planning and cooperation for immediately after March 29.
Regarding UK-EU trade, the likely immediate ‘no deal’ position is that it will continue unchanged, as allowed by mutual agreement under WTO Article 24. And when we reach March 30 2019, outside the EU without a deal and the sky has not fallen down, we shall be able, calmly, to discuss the shape of our future trading relationship with our former European partners and with other countries.
The big difference will be a change in the terms of the negotiation. First, we shall be able to dismiss the Irish border problem. As confirmed by trade handling experts, there is no need for a physical border between the Irish republic and Northern Ireland, even when the UK begins to apply tariffs that are less than EU tariffs.
Secondly, realisation by the EU that the newly-independent UK will not submit to their demands will make them more pliable and keen to get on with the job. The UK will finally have regained some leverage.
We may end up with a ‘Canada+’ deal which could have been agreed when it was first discussed last March. Or we may end up with no deal on trade, the ‘WTO option’, meaning that the EU applies its tariffs on our exports but we may choose our own tariffs on our imports. Economists for Free Trade have long argued the benefits of removing all tariff barriers on imports into the UK, irrespective of those applied by the EU and other countries. Then we shall no longer have to pay extra for food imported from outside the EU, under tariff schemes designed to protect French farmers. EFT estimates that removal of all import tariffs will reduce the cost of living by 8% for the average household, with the poorest benefitting the most.
Sure, trading patterns will change as businesses adapt to new opportunities. But, despite the protests from our large manufacturers that the WTO option will disrupt their supply chains, the rising probability of rejection of the Withdrawal Agreement has not been accompanied by any precipitous fall in the pound. This indicates that investors are not unnerved.
Clearly ‘no deal’ (rejection of the Withdrawal Agreement) is necessary to get a good deal (on trade and everything else). If, on the contrary, the Agreement is approved, this will not bring tranquillity to UK politics. It will settle nothing. Indeed, it is a measure of the remoteness of political elites, in the UK but particularly in the EU, that they could imagine that this Agreement could form the basis for a stable lasting relationship. Acrimonious wrangling will continue throughout the ‘transition’ period and thereafter. If certainty is what is being sought, this deal is not the vehicle for delivering it.
The best and quickest route to greater certainty – and a more prosperous economy – is to make a clean break on March 29 2019, accepting some short-term disruption, while removing any commitment whatsoever to a customs union.
To read the piece in full, click here.