Morgan – Walking away without a deal should not be something the Government entertains

The Open Britain campaign has today published a new pamphlet on post-Brexit trade policy – New Partnership, New Challenges – with contributions from six experts in the field and a foreword by Nicky Morgan MP in which she warns of the dangers of the UK leaving the EU with no deal.

In her foreword, the former Conservative Cabinet Minister writes that “this most extreme form of Brexit is being talked about with increasing fervour by those who favour a fundamental rupture with Europe” but that this “should not be something the Government entertains.” 

Each chapter in the pamphlet deals with a different aspect of Brexit’s impact on trade policy, from the WTO option to the difficulties the Government will face in securing a Free Trade Agreement: 

  • Peter Kellner, the former President of YouGov, on how polling suggests that public opinion is not prepared for, and does not expect or want, a Brexit that would damage the economy and make people worse off.
  • Vicky Pryce, the former head of the Government Economic Service, on how even a comprehensive free trade agreement, which is what the Government is aiming for, would be worse for our economy than membership of the Single Market.
  • Timothy Lyons QC, an expert on EU customs law, on how the Government’s decision to substantially leave the Customs Union will create more challenges for businesses, UK customs authorities, and the border between Ireland and Northern Ireland.
  • Sam Lowe, a campaigner on EU trade issues, on how negotiating new trade deals with third countries will be difficult and time-consuming, and will not make up for the predicted loss of trade between the UK and the EU.
  • L Alan Winters, Professor of Economics and the University of Sussex, on how leaving the Single Market and falling onto trade on World Trade Organisation rules will substantially reduce British access to the EU market, both for goods and services.
  • George Peretz QC, a barrister and expert on EU law, on how leaving the Single Market will be unlikely to give the UK Government the power to radically change state aid rules. 

In her foreword to the pamphlet, Nicky Morgan MP, leading supporter of the Open Britain campaign, writes: 

“I am concerned, as are MPs from across the political divide, that this most extreme form of Brexit is being talked about with increasing fervour by those who favour a fundamental rupture with Europe. 

“The language has moved from talking about no deal being better than a bad deal to the most enthusiastic backers of Brexit talking it up as a good thing. And they are already rolling the pitch to use the impending ‘Brexit bill’ as an excuse to walk away from the negotiations. But the very real and very dangerous consequences of doing so need to be understood.

“We should be under no illusion that this would be an extremely perilous path for our economy. Crashing out of the EU at the first sign of tension in our negotiations should not be something the Government entertains.

“I have always believed in free trade and I do not understand how we can marry that traditional Conservative commitment with being in any way relaxed about the no deal option.

“Walking away from the Brexit negotiations with no deal and defaulting onto World Trade Organisation (WTO) rules would leave the UK trading with the EU on less generous terms than any other country in the G20. It does not need my natural Conservative free-trade instincts to tell me this is not acceptable for our country and bad news for my constituents.

“Which is why Open Britain’s initiative to gather academics and specialists to write about the UK’s post-Brexit trade policy is so welcome. 

“The Government will now attempt to put their Brexit plan into action. We should all want them to succeed because we want what is best for our country. But that does not mean everybody must meekly support the concept of walking away without a deal. June 23rd was a starting gun, not a finishing line. Democratic debate must never end. Indeed, it is now more important than ever.” 

/ends

The full pamphlet is here: http://openbrita.in/wy3j2G 

An edited version of the foreword appeared as an article in The Guardian: https://www.theguardian.com/commentisfree/2017/apr/06/eu-no-deal-hard-brexit-living-standards

Below is a summary of the essays written by six expert contributors:

Peter Kellner: The People have spoken, but what did they mean?

  • Referendums differ from General Elections in their lack of manifestos and accountability, which makes it even more important to try and understand what people thought they were voting for. The public’s view of Britain’s current relationship with Europe is significantly different from official statistics, particularly on core issues in the referendum such as immigration, welfare and the EU budget. Many people, including a large majority of Leave voters, have a view of immigration, EU “waste” and inward investment that is wide of the mark, which meant they overstated the problems to which they regarded Brexit as a solution.
  • The Government has taken the referendum result to be a mandate for a ‘global Britain’, but there is little evidence to support this. Brexit support was a rejection not just of the EU but of our links with the world beyond Europe. Most Leave voters want less immigration of all kinds and believe that both globalisation and multiculturalism to be forces for ill rather than good.
  • Leave voters do not expect things to get worse from Brexit in any feature of British life. They do not think, and would not tolerate, a reduction in their living standards resulting from Brexit. They were unanimous in their view that leaving the EU was a cost-free option. It is too early to say what the impact of Brexit will be and there may never be ‘buyer’s remorse’, but the mandate from last June was conditional and it is possible there is an increasing public clamour in the future to think again. 

Vicky Pryce: UK-EU trade arrangements post-Brexit

  • Any comprehensive Free Trade Agreement (FTA), even including a positive transitional arrangement, would be worse for the UK economy than continued UK membership of the Single Market or EEA. The worst option would be ‘no deal’ and opting for a WTO-only arrangement.
  • The Single Market’s common rules, legal system and four freedoms increase economies of scale; boost investment and innovation; and lead to higher productivity and lower costs for consumers. For the UK, membership has made our economy more attractive to foreign investment, increased UK-EU trade and eliminated non-tariff barriers.
  • The Government’s preference for specific sectoral arrangements would be a sub-optimal outcome. There is room for manoeuvre within FTAs and the pressure should be on the Government to obtain an agreement that is as close to the one we have with the EU now as Single Market members as possible. However, there simply is no FTA in existence that provides the same level of access as Single Market membership, particularly in services. And there is a political incentive in the EU to ensure any FTA delivers more restricted market access. 

Timothy Lyons QC: A customs cooperation agreement

  • To protect its own interests, the UK may wish to maintain the existing level of customs cooperation with EU member states, particularly if the aim is to reach a comprehensive agreement that will deliver the exact same benefits we have at present. To satisfy this objective, any agreement will need to address the breadth of functions carried out by modern customs authorities; the depth of their cooperation; the issues raised by rules of origin; and the avoidance of a hard border between Northern Ireland and the Republic of Ireland.
  • Customs co-operation will need to consider how to preserve the framework for electronic communications between the relevant agencies and between traders and customs authorities. There is likely to be a need to maintain if not increase the capacity of the UK’s computer systems as the number of customs declarations is likely to increase substantially. It may be important to maintain the current common approach to issues such as risk management, procedures for the release of goods and classification and valuation matters. Mutual recognition of the status of authorised economic operators in both the EU and the UK may be thought highly desirable.
  • In Ireland, creative solutions will need to be found to prevent a hard border from emerging. Doubts have been raised about whether the solution between Norway and Sweden could be replicated, as both are in the Single Market, and whether the technology even exists to make an open border possible. From the Irish border to traders to consumers and individuals, a suitable customs cooperation agreement will be one of the most important facets of the negotiations.

Sam Lowe: Post-Brexit free trade agreements

  • Autonomy in trade policy was a key argument for Brexit but an FTA is not a good thing solely by virtue of its own existence. Substance, sequencing and strategy matter more than speed. The most important future agreement is with our biggest trading partner – the EU. Our degree of access to the Single Market and our integration with the EU’s standards, customs procedures and regulatory bodies will impact on how appealing a trade deal is with Britain for other countries around the world.
  • Through the EU, the UK enjoys over 60 FTAs with other countries, with others close to ratification. The Government wants to replicate these post-Brexit but that will be challenging. Countries may see this as an opportunity to negotiate better deals in specific areas, such as South Korea on cars or South Africa on agriculture. And, as the Japanese Government have made clear, the UK would need to agree new rules of origin not just with the country involved, but also with the EU.
  • Negotiating new FTAs will be even more challenging. Quick deals can be done but they are normally superficial or involve one party riding roughshod over the other – a test when negotiating with an economic heavyweight like the United States. In the modern world, the challenge is not primarily around tariffs but non-tariff barriers to trade, which are fraught with cultural preference, subjectivity and compromise. For example, differing agricultural and environmental standards in the United States and India’s desire to use trade talks to demand visa liberalisation.
  • Free trade deals will never compensate for lost EU membership. Large, wealthy nearby economies with whom we are already integrated will always be more important than smaller nations further away. Even the best trade deals possible with the US and India barely make a dent in the expected loss in growth from leaving the EU, a deep continuing relationship with whom should be our focus. 

L Alan Winters: Trade under the WTO model

  • Leaving the EU with no deal in place will leave the UK trading with the EU under World Trade Organisation (WTO) rules, where both sides would charge the other the same tariffs on goods as they do other nations. Around half of all UK exports and imports would become subject to tariffs, which would be particularly problematic on cars and high on agricultural products. Those celebrating the UK raising more tariff revenue misses the point – tariffs are taxes on imports, which would increase prices for consumers and make markets less competitive. These problems would be compounded by complications in customs arrangements and differences in standards.
  • It is nearly universally accepted that dropping out of the albeit imperfect Single Market for services and instead trading under WTO rules will cut UK access to European markets considerably. It is difficult to quantify by how much. UK services exports to the EU will be hampered by a range of EU and member state-level non-tariff barriers, such as on qualifications (for example in professional services), differing regulations (for examples in financial services), and diverse regulatory bodies. Indeed, with many services regulated at country-level in the EU, the UK will have to negotiate with 27 other partners, not just with the Commission.
  • Services must lie at the heart of the UK’s Brexit strategy. A deep FTA would allow for some additional friction in the trade of some goods and services to be avoided on a sector-by-sector basis. However, the WTO model promises significantly higher trade costs for the UK when trading with the EU. Going beyond the WTO model might alleviate some, but many will remain. 

George Peretz QC: Paper on post-Brexit options for State aid

  • Some, such as Jeremy Corbyn, have supported leaving the Single Market on the basis that it will allow the UK to escape the EU’s rules restricting State aid. However, the EU has generally insisted on compliance with State aid rules as a condition of a comprehensive trade agreement, which could be a red line on the European side for any deal with the UK in the range between CETA and an EEA agreement. Even if the UK ends up trading with the EU under WTO terms, restrictions on State aid will remain in relation to goods, in the form of the WTO’s anti-subsidy rules, which the UK will want to respect.
  • There are advantages to UK business of retaining State aid rules, including protecting British firms from subsidies in EU countries that affect them; giving the Government a legal recourse to take action to protect their interests; and possibly to give the UK a continued role in the development of EU State aid law (as EEA members and countries like the Ukraine currently do outside of the EU).
  • Even with the Government’s rejection of EEA membership, there are benefits to pursuing a “State-aid specific” EEA model, which in many ways is better than the EU model, with speedier decision making and a greater emphasis on economic, rather than political, decision-making.