Does anyone really believe that the ‘no deal’ Brexit option is viable? Even the No Dealers don’t actually believe it. The Institute of Economic Affairs released another of its amusing Brexit reports this week. Entitled “Let’s get ready for ‘no deal‘”.
A no deal option “does not have to be the ‘catastrophe’ that many fear” says the IEA. Indeed, it might turn out to be a Good Thing:
With Brexit talks proceeding at a snail’s pace, the mantra that ‘no deal is better than a bad deal’ may soon be put to the test. The UK needs to be prepared to walk away if the EU is unwilling to show more urgency and flexibility. Indeed, a clean break in 2019 could still be a good outcome, even if not necessarily the best.
But what about the aeroplanes?
There are many other agreements that would also need to be renegotiated, including access to EU aviation markets…
And the drugs?
..mutual recognition of pharmaceuticals..
And the nuclear stuff?
…and cooperation with EU-led organisations such as Euratom.
What about financial services?
Firms in the financial services sector, for example, would presumably have to request access to EU markets on the basis that the UK regulatory regime is ‘equivalent’.
Sure, but isn’t an ‘agreement’ or an ‘arrangement’ the same as a ‘deal’? So it’s not really ‘no deal’ is it?
Yes but apart from the aeroplanes, the drugs, the nuclear stuff and financial services, the UK will walk away with no deal.
OK, I made that last one up but there is something a bit Pythonesque about all this.
As things stand at the moment, everything stops on 30 March 2019. All our agreements with the EU and those via the EU with the rest of the world cease. This is something that, for many people, still seems not to have sunk in. The failure of negotiation doesn’t mean that nothing changes. It means that lots of things change, mostly for the worse. To stop that happening, UK and EU politicians need to come up with something and they haven’t got long to do so.
Perversely, there has been much more detailed discussion of what might happen after Brexit since the referendum than there was before it. There has been significantly more since we triggered Article 50. Each time we take a step further, we decide that it might be a good idea to find out what we have done. It’s like that manoeuvre-signal-mirror approach that you often see on the motorway.
Consequently, we now know that the much vaunted option of trading under WTO rules is more complicated than it first appeared. For a start, the USA doesn’t trade with the EU under WTO rules alone. It has a series of treaties with the EU as do most other large economies. These facilitate trade in specific areas. As the Institute for Government pointed out, most of the EU’s trading partners have some bilateral agreements in place.
It gets better, though, because it appears that very few countries actually trade under WTO rule alone. Most have some agreements with other countries to facilitate trade. James Hardy ran a query on the WTO database and found only a handful of countries trading without trade agreements, most of which are outside the WTO. Of the members, only Mauritania trades under WTO rules alone. Even this is not the full story as Mauritania trades with the EU under its Generalised Scheme of Preferences which enables developing countries to trade with lower tariffs.
In fact, it’s difficult to find any country which doesn’t have some sort of trading agreement with another country, even if only its near neighbours. Yet this is the position the UK would find itself in if it left the EU without any agreements in place. All of our trade arrangements with other countries have been negotiated through the EU and all will cease to apply once we leave.
Perhaps it’s not surprising, then, that a lot of people don’t take the ‘no deal’ option seriously. Germany’s Zeit described it as an empty threat. Robert Peston doesn’t believe it either because, as he quite rightly says, as soon as the government starts putting serious money into preparing for a no deal Brexit, companies will take fright and start moving their investments and their people out of the UK.
Robert Peston issues a warning if the government spends vast sums of money preparing for a Brexit no deal pic.twitter.com/Ah076DlmNn
— LBC (@LBC) October 26, 2017
Talk of game theory is nonsense. There is no point trying to convince the EU that we are serious about walking away from the negotiating table because it is quite clear how damaging that would be. This is not like a poker game. Everyone knows what’s in everyone else’s hand. They have the internet in continental Europe too. They know that our customs and immigration systems are unlikely to be ready by 2019 and that even our modest attempt to increase lorry parking capacity has run into the sand. They know the British state just doesn’t have the capacity to do Brexit 18 months from now.
That said, the implied threat of the EU running the clock down on the negotiations seems implausible too. It is true that the EU overall is likely to suffer less economic damage as a proportion of its total trade and its GDP. Nevertheless, EU countries are no better prepared for a no deal Brexit than the UK. France, Belgium and the Netherlands would all need extra customs infrastructure and would face disruption at their ports. Ireland’s position is even worse. It might suffer more damage to its economy than the UK.
No-one wins from a chaotic Brexit. If I am about to fall off a cliff and I know I will break my arm it’s little comfort to know that the person who caused the fall will break both his legs. I’d really rather neither of us broke anything.
If the UK leaves the EU without a trade agreement, either by walking away, being timed out or the negotiations failing, it will be a triumph of pig-headed stupidity over reason. It will be studied for centuries in the universities of future world powers. Which, at the rate things are going, will be a long way from here.