12 September 2019

Why No Deal doesn’t mean no deals

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I’ve just read for the umpteenth time that ‘crashing out of the EU without a deal’ would inevitably lead to ‘shortages of food, medicines and petrol’. But the fact that many people take this as a given still does not make it a fact.

Back to basics. A ‘no deal’ scenario is one where the UK leaves the EU without the Withdrawal Agreement and framework for a future relationship anticipated in Article 50. The Treaties that set out the rights and obligations of EU membership would then cease to apply to the UK. However, this could mean many different things in practice.

At one extreme, we have the apocalyptic headlines based on leaks from ‘Operation Yellowhammer’, the government’s own contingency planning exercise. A lot of energy has been spent debating whether the work behind these reports is a realistic assessment of the potential risks, or an unlikely worst case, and whether it is already out of date either way. There isn’t even much agreement among people who’ve been sitting around the Cabinet table (though, paradoxically, I found Amber Rudd’s parting shot that the government is spending 80-90% of its time preparing for No Deal rather reassuring).

Fortunately, there is plenty of information which is already in the public domain which allows the rest of us to form an independent view. This includes useful summaries of the issues published by the House of Commons Library and by the research group ‘UK in a Changing Europe’, albeit with their own particular spins. For me, two points stand out.

First, there is still an awful lot of ‘Project Fear’ here, even if you do accept that No Deal would strip formal relations between the UK and EU down to the bare bones. For example, I wonder how many people who are parroting the warnings about petrol shortages have looked at the flimsy basis for these claims. The UK is planning to reduce tariffs unilaterally on some imported fuels in the event of No Deal, which would lower costs to consumers. Despite this, the industry lobby, UKPIA, has done a grand job of pushing the protectionist argument that cheaper imports might drive some domestic refiners out of business.

However, tariffs on fuels are very low to begin with, and many are already zero. Any change is also likely to be swamped by movements in the value of sterling. If it is true that some refiners are already operating on the brink, wouldn’t we still be better off with cheaper imports from sources which may actually be more secure? And if there were a real problem here, wouldn’t it be easy to decide even now just to leave tariffs where they are?

You also have to wonder why so many people think it beyond our ability to fast track imports of essential medicines, including by air, even if there are significant delays at seaports. Of course, it’s the duty of doctors to raise concerns about the risks to patients if particular drugs are in short supply. But a medical background does not make you an expert in cross-border logistics. I would give more weight here to the views of port managers and customs officials, who are telling us they are now much better prepared.

The second point is that most of the scaremongering about No Deal depends on the assumption that No Deal does indeed mean No Deal. For a start, the failure to sign a comprehensive Withdrawal Agreement under Article 50 would not preclude a series of independent mini-deals. These could be formal bilateral agreements to continue cooperating in areas such as policing and security. Or they could be informal reciprocal offers, where one side expresses a willingness to maintain the status quo as long as the other does the same. A good example of the latter is the agreement, effectively a mini-deal, to keep planes flying.

Admittedly, these measures would typically be limited in scope and duration. But there is also still the possibility of something much bolder. Many take it for granted that a No Deal scenario would inevitably mean new tariffs on exports to the EU, and a ‘hard border’ in Ireland. Neither is necessarily true.

The former could be avoided by a standstill arrangement under Article XXIV of the WTO’s General Agreement on Tariffs and Trade, which allows countries who are in the process of negotiating a free trade area to have an interim agreement on tariffs (in this case, keeping them at zero). Yes, I’m well aware of the many doubts raised about the feasibility of this option and, in particular, the readiness of the EU to agree to it. But if the political will does exist, it could be done with a relatively straightforward (and short) document, without all the other baggage in the current Withdrawal Agreement.

A bolder approach is also still possible towards the problem of the Irish border. A lot could already be done by accepting an all-Ireland regime for agri-foods, with trusted trader schemes and technological solutions for other goods. But the UK government could go further. One interesting proposal is to make it an offence under UK law to export any good to the EU that fails to meet EU standards. Combined with the clear political commitment not to erect a hard border on the UK side, this would punt the problem right back to the EU, which is arguably where it belongs in the first place.

Alas, none of this is a runner as long as the current impasse in Westminster continues. This sort of boldness would be even less likely under Labour’s latest cunning plan of presenting the public with a choice between Remain and whatever unattractive deal the EU would then feel minded to offer. But, more positively, if yet another Brexit extension beyond 31st October is the price that has to be paid for the election of a majority Tory government, Boris Johnson would be in a much better position to get us out on good terms, finally, in time for Christmas. Deal, or No Deal.

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Julian Jessop is an independent economist