Clean-break Brexit is pure fantasy
This blog, by a barrister specialising in EU law Brexit, competition & consumer disputes, regulatory challenges, WTO/international trade, originated from a personal Facebook post which was intended to inform friends and family but, once shared, quickly went viral. The views expressed are her own.
Last week on the school run, some parents were teasing me about my “Brexit obsession” and couldn’t see what I was so worried about. I explained that I have never been so worried and am awake at 4 am most nights deeply troubled. We laughed at me being consumed with worries that are none of my responsibility. I compared myself to our dog Maple barking furiously while we were out of the house and there was no one there to listen to her warnings.
It became immediately apparent as I explained the consequences of no deal and saw the horror on their faces that most people have no understanding of what no deal really means. And why should they, as no one is taking the time to spell it out in clear and simple terms?
The website endthechaos.wpengine.com has found that a majority of people think no deal means no change – rather than leaving with no deal – that it’s like deciding not to go ahead with a purchase in a shop – don’t we just stick with what we’ve already got?
Sadly not. No deal means leaving with nothing, and, what’s more, lose nearly everything we’ve built up over 45 years. The anticipated recession will be worse than the 1930s, let alone 2008. It is impossible to say how long it would go on for – some economists say 10 years, others say the effects could be felt for 20 or even 30 years; even ardent Brexiteers agree it could be decades.
The empty mantra of “no deal is better than a bad deal” and nostalgic hopes that Britain is great, coped during the war and can recover its previous glory, have blinkered a generation that has only known peace to reality. It also ignores the way that our country, technology, globalisation and intense competition have changed in the last 50 years or so.
I don’t presume that you want to read my early morning rantings, but in case you want more information, here are some basic facts of no deal – boring but important.
If not then skip to the end of the bullets – and tell me to go back to sleep…
- Although the UK is a signatory to the WTO in its own right, there are no WTO terms that apply specifically to the U.K. as it has been operating under the EU’s umbrella for so many years. Dealing under WTO terms requires each country to have something called a ‘Schedule of Tariffs’, which applies tariffs to all imports into a country as well as quotas for a certain amount of tariff free goods. Brexiteers are saying we can simply rely on “default terms” or the EU’s Schedule of Tariffs. But that has recently been blocked by members of the WTO. Understandably. Why should the U.K. as a minor player be able to take advantage of the negotiating position of a large global trading bloc with a combined GDP like the EU?
So we will have to negotiate our own Schedule of Tariffs – which means getting the agreement of all 163 WTO members. The last successful round of negotiations was in 1994 – every round since then has collapsed without reaching the unanimous agreement required within the WTO framework.
So unless we can set up emergency cover by using the EU Schedule or our own schedule without formal approval, we will enter unchartered territory kicking in on 30 March with no transition period. Leavers say, well we will just be like Australia or New Zealand or Norway. But Australia has Free Trade Agreements in place with over 17 countries, including the US, China, Japan, Singapore, Malaysia and deals with another 20 countries are signed and in the pipeline.
Even if a U.K. schedule were to be agreed, our exports to the EU would attract their tariffs, averaging 10%.
For domestic imports, we would apply the UK Schedule, which might copy the EU or be independent. So there will be “in and out” charges for trade, which at the moment crosses EEA borders-free of charge because of our EU membership.
FARMERS – In some sectors, like meat and dairy, tariffs are as high as 97%. K. farmers that export lamb and beef will see their prices double and won’t be able to compete with other markets. Their imports of animal feed and fertilisers could also face tariffs so farmers’ costs will increase, squeezing margins already under pressure in the face of falling sales and no subsidies.
MANUFACTURING – In the manufacturing sector, where companies import components and export finished goods on a ‘just in time basis,’ they face double tariffs affecting their ability to compete. A Mini engine, for example, crosses the UK-EU border 32 times before it is complete and each journey would attract accumulating charges. Now, all these crossings are tariff free.
VAT – UK imports and exports to the EU will also be treated as third party goods for VAT purposes so will also attract VAT @ 20%. Traders may claim refunds but there will be time delay so cash flow implications, and add yet another admin burden.
So we pay a bit more money for things and a few companies and farmers go bust. The range of goods available in shops might be reduced – so what?
Only it’s not just about money. We are dependent on imports for a lot of things that we don’t make anymore, never have or simply cannot as they are patented – like life-saving drugs, radioactive isotopes for MRI scans, medical equipment, chemicals, electricity, petrol, even milk. No deal would mean we are locked out of EU regulatory frameworks and agencies. With another winter NHS crisis and a population that needs heating and feeding, that could cost lives or spread panic and unrest.
Tariffs are not even the main problem. The real issue are non-tariff barriers, like difference in regulatory requirements, such as quality standards. The EU has high protections in place for product safety, food safety and hygiene, child safety, environmental protection, consumer protection and labelling. (Think CE Marks or fire-retardant standards for clothing, choking hazards, nut allergy labelling).
The U.K. currently acts as a “distribution hub” or gateway to the Single Market, receiving goods from Asia and elsewhere before they are distributed elsewhere in the EU.
The EU will not let in goods that undermine or avoid their high consumer protection standards. If we want to trade with Europe, we will have to align with their rules. This would see us become a rule taker but with no say.
The EU will insist on border checks and inspections to make sure its standards are not being circumvented and to prevent the risk of smuggling, money laundering or organised crime. Whilst technology may help in due course, it has not been developed yet and unlikely to be on-stream by March. Large businesses may be able to make use of bonded warehouses but that is incredibly expensive and beyond the reach of most small businesses.
The ERG paper
The much talked about Paper from the all-powerful European Research Group now dominating the Brexit debate suggests that Norway and Switzerland have border checks without any problems. But that is because Switzerland is in a form of customs union and Norward aligns with EU rules under the EEA FTA.
In addition, the ERG underestimates the sheer volumes of trade between the UK and the EU.
The Ports of Dover have estimated that a 2-minute delay at customs will cause a 32 mile tail back on the M20 all the way to Maidstone. At that rate, the volumes of trade getting through is estimated to be in single figures. Cue months of delays at ports and motorway congestion. Cue perishable goods and medicines going off. Cue insolvency in the supply chain as cash flow dries up.
But hang on a minute – we can sign up to our own trade deals now!
Yes, but only in time. On 30 March we will be leaving the benefits of the EU’s 50 or so FTAs in exchange for …wait for it… zero.
The EU is in the course of finalising FTAs with America, China and Japan which the UK will no longer be a party to. So, post Brexit, trade between those countries and the EU will be free of charge but the UK will have pay tariffs.
Some Brexiteers say that the EU trade deals can simply be transferred to the UK. But, hello, we are leaving the EU and will be a third state. The EU FTAs will no longer apply to us.
We would have to start from scratch. Some commentators say we will have to negotiate 100 FTAs to make up the loss – which will require considerable reengineering of our supply chains with time to unravel and build up new trade links.
The UK has a substantial trade deficit and is a net importer from 7 of its 10 main trading partners – all of which (bar 2) are from the EU.
Currently 55% of all trade comes from the EU/EEA, 9.5% of its trade comes from the United States and 7.3% from China.
Negotiating New Trade Deals
Negotiating new trade agreements takes on average 7 years and they then must be ratified, and some may be challenged.
Most countries will want to negotiate with the EU first as a major market of 650m customers before they agree anything with the U.K. so off we go to the back of the queue. If we are lucky, we will get the same MFN terms as the EU, but we will then be a rule taker rather than in charge of our destiny. So, a lot of hassle and delay for not much upshot.
The Big Fat Brexit lie is that we are not free to trade with whomever we like
We can, and we do – just look round the supermarket on your next trip. This has more to do with consumer preferences – sometimes we like NZ lamb and Budweiser, but other times we prefer salami and Heineken or pasta and Stella.
We will be turning our back on our largest customer (our trade deficit with the EU is 60%) in exchange for the uncertain prospect of other deals. More questions than answers occur here.
Some say that we can make up for it with trade from the Commonwealth countries and other distant countries in Asia and South America. Never mind the environmental damage and transport costs, what do we make in our service economy to sell to them?
At prices cheaper than China and India?
Without removing our minimum wage and employment standards?
And what else can we buy that we don’t already buy from them?
The incremental increase in trade volumes under these brand-new FTAs will be minuscule
What is more, the FTAs will be far inferior to what we currently have in terms of services – which make up 80-90% of our economy.
The EU regime is state of the art with mutual recognition and passporting so that U.K. business can trade automatically in 30 EEA states and all their dependent territories around the world.
In June 2018, the EU announced a new single market investment programme for SMEs with digital passporting and investment. The UK will lose out on that. Instead UK businesses will have to comply with obtaining licences, red tape, different standards and double regulation at home and abroad.
World Trade Organisation – WTO & General Agreement on Tariffs and Trade – GATT
The WTO / GATT regime is embryonic in comparison to the EU regime. States can discriminate on a discretionary basis and impose barriers, such as requiring you to requalify as a doctor, accountant or architect under their rules. Most States like India and Singapore don’t want the Brits coming in and taking over their markets.
Most of you will have given up reading by now. Too much detail, too boring, too much naysaying, too much project fear. Too much doing down Britain and not enough patriotic zeal
Actually, I love my country and am immensely proud of what it has achieved. But it has not done that alone. The Empire was not built by white Anglo Saxon hands alone…the UK’s success in the last 25 years is due in large part to Thatcher’s vision for the EU single market, where the U.K. shared and cooperated with its European counterparts.
Yes, we pay into the EU budget (about 1p in every £1) but receive far more back in terms of, structural funding and investment, research programmes, agricultural subsidies, environmental conservation and other programmes.
A thumping 80% of that budget is managed and administered by national governments. The UK benefits hugely from these programmes (next time look at the EU stickers on your rural broadband cabinets and road signs, think of all the funding we get for Wales and Cornwall and the benefits for universities under the Horizon 20/20 programme with spin off benefits for business and research).
My fears stem from my love of the U.K. and the future of the next generation (including my own children). I refuse to sell them a dud. I want to be able to look them in the eye and tell them I did my very best for them
What I don’t understand is the passivity that people have towards their own lives and destinies. They blindly assume that all will be ok and someone will sort it all out. Or they are in depressed stupor, shrugging it off as all too complicated. People snort and say the Government won’t let this happen. Sadly, I am not that convinced. There is a real risk that May’s deal will not get the Parliamentary majority or may be blocked by Spain. What then?
I have read all 585 pages of May’s deal and the 7 page Political Declaration. While I do think it is the best deal she could have got (actually, better than I expected) it is not a patch on the special deal we already have inside the EU or even compared to a version of the EFTA/EEA model
What’s more, we will have to pay £60m for the privilege and then no doubt pay annual ongoing payments to buy our way back into specific sectors where we need market access. The cost of Brexit to the taxpayer is already huge.
Some say we can simply leave and if we change our minds, re-join the EU. That may take 10-15 years and we will lose the benefit of Thatcher’s hard-won rebates and vetoes – some say we will wave goodbye to sterling
We could (even at this late stage) apply to join EFTA/EEA and modify the terms to permit us to have a customs union. That would preserve sovereignty, remove direct effect and the “jurisdiction of the ECJ in the UK” whilst preserving free movement of goods, services and capital.
We would have to accept incoming freedom of movement but enjoy its EEA-wide benefits for our families. However, the Government wants to blackline that option out for some unknown reason. Incomprehensible really when May’s deal is Norway in another name.
Or we could revoke Article 50 and stay as we are. A hearing before the Court of Justice in Luxembourg will determine whether that is legally possible probably on November 27.
This is where we are – as it appears to me:
Timing is now critical.
The consensus is that Mrs May’s deal will not command sufficient votes in Parliament.
The idea that the Brexiteers can go back and negotiate a better FTA is pure fantasy. That is not because the EU being stubborn or a bully – it’s just the hard reality of us deciding to leave their club.
In any event, a Canada deal will offer us substantially less, not more than May’s deal – it will not cover services beyond the WTO framework, it will not allow us to buy into sectoral frameworks.
If the deal is rejected, unless Parliament gives alternative instructions that can be completed and ratified before March (or an extension is given), leaving with no deal will be the accidental outcome.
The politicians are locked in paralysis and take their impetus from what they think their constituents want – as expressed in the referendum over two years ago.
If there is a change, then they need to know about it. Will you just stand idly by? A witness to your own car crash? With your kids or grandkids strapped in the back?
At the end of the day, as I said before the referendum, it depends on what kind of society you want to live in.
There are those that want to align the UK more closely with the US with its low cost, low regulation, economy where each man looks out for himself. Good for business and shareholders because it puts profits before people.
Low regulation mean lower wages, lower employment protections, such as maternity, parental leave, paid holiday and sickness cover. In the bad old days, my friends had no paid maternity leave at all and some went back to work after a few weeks – they have 10 days paid holiday a year and most full-time employees work 47 hours a week. That may mean lower costs and taxes for business but reduced benefits for ordinary citizens in terms of health, education, tax revenues and public services.
What kind of social contract do you believe in? The recent UN report on austerity makes very uncomfortable reading but the reality is that the situation will only worsen when the costs of Brexit work their way through to employees, pensions, taxpayers and consumers. I don’t see the likes of R-M and Farage suffering – it will hit those worse off the hardest.
Sensible policy making involves trade-offs and compromises.
We cannot have it all. We need to weigh what is more important – stopping immigration or enjoying the benefits of our own free movement, our island independence or international dialogue and cooperation, our personal identity or our economy, preserving our position of global influence or the memory of our Glorious past?
I don’t pretend to know all the answers but what I do know is that I don’t want our children’s futures to be the collateral damage.
If you are convinced that it’s all going to be fine, roll over and don’t listen to my barking. Sleep well.