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No deal (read WTO) is still the default if Canada + is rejected by EU

By March 28, 2019February 18th, 2021No Comments

Keep No Deal in play, but a Canada-style trade deal with the EU remains the best option

by John Mills

March 28, 2019

As we approach either 12th April or 22nd May 2019, it is worth recalling the chain of events which has led to where we are now.

The 2016 referendum produced a 52% to 48% majority in favour of Leave which the Prime Minister’s Lancaster House speech in January 2017 proposed should be implemented by the UK leaving the EU’s Single Market and the Customs Union and negotiating a free trade deal along the lines of the CETA negotiations between Canada and the EU.

With over two years to go between January 2017 and March 2019 and a model agreement between the EU and Canada on which to draw, a starting point of 100% alignment and indications from the EU that they thought that this was a viable way forward, the omens for a reasonable outcome being achieved looked relatively promising. The result of the 2017 general election, however, fatally undermined this relatively benign potential outcome.

This election was called by the Prime Minister with the intention of strengthening her majority in the House of Commons, to achieve the best chance of a smooth passage through the House of the necessary legislation to implement her Lancaster House proposals. Unfortunately, from her point of view, the outcome was the opposite to what she planned. The Conservative majority in Parliament disappeared, leaving the Tory Party dependent on DUP votes to provide it with a working majority.

Although all the Labour and Conservative Members of Parliament elected in 2017 – over 80% of the total numbers of MPs returned – had stood on manifesto promises that they would implement the referendum result, there was a large majority – between 75% and 80% of MPs elected – who were of a Remain persuasion. They were not prepared to contemplate proposals along the Lancaster House lines. They were determined to keep the UK much more closely involved with the EU. Specifically, they wanted to remain at least partly in both the Single Market and the Customs Union.

It was trying to maintain free movement of goods within the Single Market framework and attempting to stay within the Customs Union, particularly to avoid a border problem between Northern and Southern Ireland, which led to the Withdrawal Agreement which Parliament rejected in January and again early in March. The EU were always uncomfortable with the UK being partial members of the Single Market and the Customs Union for understandable reasons. Maintaining the four freedoms [read enslavements] – the movement of goods, services, capital and people – was a prime EU objective.

Understandably[!], the new UK aspirations were regarded by the EU as a serious threat to their security and integrity. The situation was further muddied by the UK agreeing to discuss citizenship, the Irish border and money before trade. This led to the Government getting desperate by late 2017 to get the trade negotiations going, leading to the UK conceding the Irish backstop arrangements in December 2017 which eventually got into the Withdrawal Agreement. The overall result was an Agreement so unsatisfactory to the UK that when a vote was held on it in January 2019, it was voted down by an unprecedented majority of 230, with a lesser but still large majority of 149 against it in early March 2019.

The problem is that rejection of the Withdrawal Agreement has left the House of Commons with no majority for any of the various possible ways ahead – as we saw confirmed last night – and a very short amount of time to get anything settled. Support for the so-called Norwegian option – with the UK in the EEA and EFTA – seems to have melted away. No majority in Parliament exists for a second referendum, which has recently been voted down by a majority of 249. A large majority exists for avoiding “No Deal”, but this eventuality can only be stopped if there is some concrete alternative in place, and it is far from clear what this might be.

It is obviously far from an ideal outcome for the UK to be drifting towards “No Deal” – the default outcome if nothing else is agreed before 12th April 2019 – with far too little preparation for it having been arranged and with no longer-term plans for this type of outcome as a favoured option having been made. Much then turns on a realistic assessment as to how disruptive and difficult “No Deal” would be.

Among some people – including evidently a substantial number of MPs – there appears to be an assumption that “No Deal” would be so damaging that it is not worth even trying to make a detailed assessment as to how difficult the situation might be and whether “No Deal” might be better as an outcome than the Withdrawal Agreement. There is little doubt that there would be disruption at least for a while, with some sectors of the economy much more adversely affected than others. Overall, however, especially if mitigated by a significant number of mini-deals on such key issues as flows of traffic at Dover and Calais, aircraft rights of movement, supplies of medicines etc, it seems likely that the challenges to the economy would be manageable.

There are also a number of significant upsides to “No Deal”. We would not be committed to paying the EU £39bn with no clarity as to what we would receive in return. The Irish border problem would have to be resolved by allowing trade to take place electronically for large companies and with exemptions for small ones, assuming that no-one wants a physical border. There would be no restrictions on the UK negotiating free trade deals. The huge trade deficit we have with the EU should put us in a reasonably strong position to negotiate a free trade deal with the EU on satisfactory terms. At the moment, however, Parliament has voted by a large majority against “No Deal” as an option that it is prepared to accept, although it remains the default outcome if nothing else is agreed. Whether it was wise to relinquish at this stage such a vital negotiating card with the EU remains to be seen.

If there is not going to be a “No Deal” exit from the EU by the UK on 12th April 2019, a further extension of Article 50 now seems inevitable. Unlike repealing Article 50, which could be done unilaterally by the UK, extensions require the unanimous assent of all 27 EU Member States and the European Parliament, whose last sitting date before its forthcoming elections is 18th April 2019. If there is any kind of deal agreed before 12th April 2019, a short extension would be necessary to provide time for passing the necessary legislation to make the deal effective. If the Withdrawal Agreement is not agreed, however, the EU is likely to insist on a much longer extension, possibly for as long as two years or more. They are also likely to try to make such a delay conditional on the UK either holding a general election or a second referendum, although it is difficult to see how Parliament could be bound to follow through on any such undertakings if it were minded not to do so. During this period, the UK would remain in the EU and we would very probably be obliged to take part in the European Elections taking place in May 2019.

Postponement of any final decision on the UK’s fundamental relationship with the EU for a period of years would deal with the immediate problems faced by companies trading between the UK and the EU. It would maintain the status quo on the wide range of arrangements we have in place with our European neighbours, but it would also have heavy downsides.

It would inevitably prolong the uncertainty hanging over our relationships with the EU. A further long period of potentially acrimonious negotiations would be in prospect, providing a continuing major distraction from other pressing priorities. It is not clear that a general election would produce a parliament any less split than the one we have already, and therefore in a better position to negotiate a deal more generally acceptable than the one enshrined in the Withdrawal Agreement.

Another referendum would also be fraught with all the problems which caused it to be voted down as a way ahead in March 2019. Apart from concerns about its democratic legitimacy, it looks like being foisted on a government which would not want a referendum, with all the difficulties that this would entail in terms of getting the necessary primary legislation onto the statute book. There are also obvious problems around delay, uncertainty, cost, what the choices to be put to the electorate would be, let alone the impact on the country which a highly contentious referendum would entail – and with no certainty about what the result might be.

Faced with all these difficulties, what should the country – and particularly the Labour Party do? There are essentially four options ahead of us, whatever processes and procedures we may have to go through to get there. We either:

accept the Withdrawal Agreement or some close variant to it

rescind Article 50 and remain in the EU

leave the EU without an agreed way ahead

accept a much longer extension to provide time for a new approach

The vast majority of Labour MPs would undoubtedly like to see the second of these options as the eventual outcome. So would most Labour Party members. Traditional Labour voters, however, would be much more evenly split and a lot of these people live in marginal seats in Wales, the Midlands and the North.

Few Labour MPs, party members or voters are happy with the Withdrawal Agreement. While the electorate as a whole now seems much more inclined to go for “No Deal” than they did before, this is not an outcome favoured by either the Labour Party leadership or by the majority of Labour MPs.

What do Labour sceptics grouped round Labour Leave think should be done? We think that accepting the Withdrawal Agreement is an even worse option than staying in the EU and that there is less to fear from “No Deal” than most people in Parliament seem to think. At the very least, therefore, we think that “No Deal” is an option which should be kept in play. We still believe, however, as we always have, that as comprehensive as possible a Canada+++-style free-trade deal between the UK and the EU, with the UK out of the Single Market and the Customs Union and the Common Agricultural and Common Fisheries Policies, would be the best outcome. This is why we think that extending Article 50 to give us time to negotiate a comprehensive free-trade deal is now the best long-term way ahead, providing both Leavers and Remainers enough of what they want to lead to an acceptable and permanent settlement.

John Mills is an entrepreneur, economist and Chairman of John Mills Limited (JML). He founded Labour Leave, having long been a supporter of the Labour Euro-Safeguards Campaign, and has been Chair of The People’s Pledge, Co-Chair of Business for Britain, Chair and then Vice-Chair of Vote Leave.

Patria says:-

A Canada plus free trade agreement with the EU has much to recommend it, provided certain crucially important red lines are not crossed in negotiating it.

These red lines are: firstly, that in its proposed operation the agreement does not entail any cession of jurisdiction over interpretation and arbitration to the European Court of Injustice, EFTA court or other supranational body, the WTO being the only possible exception; secondly, that services such as banking and insurance are included as an integral part of the deal, in addition to agricultural produce and manufactured goods; thirdly, that access to UK fishing grounds is reserved exclusively to UK fishermen and is expressly excluded from the deal; fourthly, the issue of the Northern Ireland land border is to be resolved through trade taking place digitally for large companies and exemptions for small ones, with all necessary customs and immigration checks taking place away from the border and positively no ‘backstop’ of any kind; and lastly, no restrictions whatsoever are to be placed upon either public services, such as the NHS, which are specifically to be excluded from the deal, or state aid to industry and agriculture.

If the EU is happy to satisfy the UK’s concerns about these red lines, to respect them and not to cross them, then a deal may be possible. If not, then the UK will have used the time spent on exploring the possibility of such a deal with the EU in order to conclude free trade agreements with other trading partners, such as the United States, which will be timed to come into effect at the conclusion of the mutually agreed extension to Article fifty. Needless to say, the UK’s red lines with respect to a free trade deal with the EU will apply equally to our negotiations with the US and other prospective trade partners.

Trading with the rest of the world in accordance with WTO rules, which a truly independent and sovereign United Kingdom will be well placed to help shape to our further economic advantage, is a desideratum rather than something to be feared. As a nation, we are in the enviable position, did the political pygmies in parliament but know it, of facing, not a binary choice between bilateral free trade arrangements and trading by WTO rules but a veritable smorgasbord of global trading opportunities.

Revocation of Article fifty is, of course, out of the question and would precipitate a constitutional crisis of parliament against the people, which parliament would be well advised to avoid.

For the same reason, a further referendum on the EU before the result of the 2016 one has been implemented would be the negation of democracy and is consequently ruled out.

Treason May’s abominable surrender treaty is not Brexit but Brino and would purport to make the UK a rule-taking vassal state of EU serfs in perpetuity. For example, through the operation of its Protocol (ie backstop) it would effectively lock the UK into a permanent customs union with the EU, preventing us from pursuing an independent trade policy with the rest of the world. It borders on the surreal. If it were ever to be approved by parliament it would be repudiated on day one of a future patriotic government, any advice by international lawyers to the contrary notwithstanding.

Other, half-in, half-out propositions, as well as continued membership of the single market and/or the (or a new) customs union, fail to respect the result of the 2016 referendum and are for that reason unacceptable.

No relationship with the EU that fails to restore and guarantee to the British people full and unfettered control of our parliament, laws, borders, fisheries, money and trade is acceptable. The EU’s four enslavements, which in their newspeak they style ‘freedoms’ are denounced and rejected as the unwarrantable infringements of national sovereignty they are.

In the absence of a long extension of Article fifty an exit on WTO terms as the legal default, indicative votes in parliament notwithstanding, is looking more likely by the day. All that is lacking for the moment is the national leadership to embrace the prospect and make it the resounding success it will without a doubt become.

Keep No Deal in play, but a Canada-style trade deal with the EU remains the best option