• KARTIK PAREKH

Approach no-deal with caution




With less than 75 days remaining to the 31st October 2019 Brexit day deadline, every day edges the country closer to the possibility of a no deal Brexit.


Even though there are murmurings in the parliament and MPs are working hard to change this direction of travel, efforts could prove futile for two reasons. One, the date is legally binding and Brexit will happen on this day by default if there is no action such as extending the deadline. Two, the government is unlikely to co-operate with MPs and due to the immediacy of the date MPs themselves have little time or power to prevent this. Beyond this there is also a possibility of using a vote of no confidence proposed by the Leader of the Opposition as a mechanism to avert a no deal on the 31st October, but again there are two considerations. One, it is difficult for backbenchers to vote down their government. Two, the last vote of no confidence which succeeded was in 1979 against a Labour government led by James Callaghan and since 1945 no other vote has succeeded. So then the majority outcome is a no deal scenario.

I am dismayed at how badly Brexit has been handled to date and don’t really see much change in this any time soon. The starting point should be fulfilling the democratic mandate of June 2016. We not only need the political elite to deliver but also require them to level with the electorate on what Brexit actually entails doing and about the inevitable choices and trade-offs it imposes on the country. No deal holds fewer nightmares for the EU 27 than much of what the government and Conservative leadership thinks. Primarily because once there is a no deal the EU 27 countries can decide without consultation with the UK on the precise legal framework and economic relationship that the UK must follow. Sure the EU will lose the second biggest economy in the group and one that is as big as the smallest 18, but the EU 27 fears this less. I feel it should harbour more fears, but a no deal would be more destructive to the UK. Firstly no deal is not a destination but is a volatile and uncertain transitional state, in which you have forfeited all the leverage to the other side because you start with a blank slate of no preferential arrangements, and live, in the interim probably for years – on a basis they legislate – in their own interests, without consulting you politically. "Being ready" in this country for no deal is therefore irrelevant. Second it is just utterly untrue to say, as key Brexiteers continue to, that all non-member countries’ trade with the EU under WTO rules, thus the UK has not lost anything! This is a woeful misunderstanding of how developed countries trade with each other. Even those without an FTA with the EU, have a vast number of lengthy complex negotiated legal sectoral arrangements, delivering far more access to the EU market than WTO multilateral commitments. Evidenced by the previous Trade Secretary's eagerness to try and roll over the provisions of existing EU FTAs unchanged with third countries.

It is an act of insanity to deliberately walk out of the country's deepest internal market without a replacement looser preferential deal in place. A preferential deal is needed even if it is one appreciably looser that reduces trade and investment flows from now. The UK cannot live with the supranational legislation, adjudication and enforcement of EU membership. Thirdly, it is also utterly untrue for anyone to suggest that under Article 24 of the WTO, the UK would be able to - whilst negotiating a new FTA - on an interim agreement basis, benefit from existing terms, which would be somehow illegal for the EU to misapply.

Why? Because where you leave the EU without a deal, there simply IS no interim agreement. The EU is entirely within its WTO rights to say that it will treat us as a bog standard third country, without any preferential arrangements, the day after we leave. And tariffs will automatically be applied in the absence of an agreement. There are anecdotes that if we lifted all our tariffs to the EU and others, the EU would be being vindictive and punitive if it failed to reciprocate. This statement is however baseless. The EU could only remove tariffs on a Most Favoured Nation basis, i.e. to all trading partners and there they would get no reciprocation therefore will apply tariffs to the UK if there is no deal.

Using another country which is immensely proud of its sovereignty, its extraordinary democratic traditions and one which is not looking to join the EU or Euro, Switzerland know full well that their economy would not survive trading with the EU on WTO terms. They haven’t for decades, but they are now nearing the end of yet another difficult multi-year negotiation of their most comprehensive package of economic and juridical relationships ever with the EU; having most likely, to agree to legal provisions - that would send some Brexiteers in the UK pale - because they have no negotiable alternative. Thid highlights that no deal can be 'managed' but it will be by the EU. A "clean" Brexit is a pipe dream, whether on energy, road haulage, industrial standards, financial services, phytosanitary provisions, or aviation there are and will be intrusions by the EU. Frankly the political class has not had the guts to tell those pandering to the party base what Brexit would do for example to the food and drink industry, for the fear it would reveal that the whole proposition on how to Brexit was not thought through from the outset - cue Operation Yellowhammer leak. The EU will like China for example, play tough in negotiations. It has the weight to do so. It is somewhat the idea of a trading bloc which we knew when we joined as the "sick man of Europe" in the early 70s. The EU is not daft. It will not prohibit every flight, stop all British trucks, turn off all energy inter-connectors, terminate all cross-border data transfers - examples of where so-called WTO rules have zero-bearing. The EU will not ‘punish’. It will simply do what we would do in the same position: legislate in its own best interests, to provide a high degree of continuity where it needs it, and maximise pressure on the UK where it doesn’t. "WTO only" is being grossly mis-sold as a featherbed for the economy when it isn't but the EU would smooth a no deal Brexit in the early months. It has even set out precisely how on its website.

After all, what is the optimum post no deal state for the EU?



by Kartik Parekh

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