Brexit: No deal, no problem

February 11, 2019 10:27
Brexit offers the chance for the United Kingdom to establish global links. With its international network and history, the UK is uniquely placed to join hands again with old friends and to forge new partnerships. Photo: Reuters

As the United Kingdom prepares to leave the European Union on 29 March, there is still no acceptable withdrawal agreement. Although the prime minister, Theresa May, negotiated a deal with the EU, this was rejected decisively by the House of Commons by 432 votes to 202.

This was because of the Irish backstop, a mechanism designed to ensure that, if the UK’s future relationship with the EU is not resolved by the end of the transition period in December 2020, a hard border will be avoided between the two parts of Ireland, by keeping Britain in a customs union until a deal is agreed.

There are, of course, other methods of avoiding a hard border, including technological, but the EU has shown no interest in them, forcing May to sign up to a deal which was unpalatable to parliamentarians, given that the UK had no get-out clause.

After all, May pledged at the last general election that Britain would leave the customs union, not least because it effectively prevents the country negotiating the free trade agreements upon which its future depends.

In January 2017, she described Britain as “profoundly internationalist”, noting that many people considered that “the UK’s place in the European Union came at the expense of our global ties, and of a bolder embrace of free trade with the wider world”, and this has placed it at odds with its current partners.

The EU is highly protectionist, and its customs union, apart from inflating prices, has created a tariff wall around a region which now accounts for only 15 percent of the global economy, down from 30 percent when the UK first joined in 1973.

In the coming decades, moreover, 90 percent of world GDP growth is expected to be outside the EU, and the UK should stop looking inwards. The EU accounts for less than half of Britain’s overall trade, and its focus must again be global. 

Although May hopes to renegotiate the backstop, the EU is playing hardball, insisting it will not compromise. In consequence, a no deal Brexit is now a real possibility, and contingency preparations are well advanced.

Although no deal has been described by some as a disaster, principally by those who never wanted to leave the EU, it is, of course, nothing of the sort. Indeed, those who prophesy Armageddon are the same people who, 20 years ago, foresaw disaster if the UK chose not to sign up to the euro, a decision which, given the shambles in the eurozone, was positively inspired.

In the Conservative Party’s manifesto in 2017, May stated that no deal was better than a bad deal, and she must now deliver on this.

After all, Brexit offers the chance to establish global links. With its international network and history, the UK is uniquely placed to join hands again with old friends and to forge new partnerships. Although the EU has been unable to achieve trade agreements with places like China, India, and the US, they have all expressed their enthusiasm for early trade deals with the UK.

Inside the Commonwealth, which accounts for almost a fifth of world trade, bespoke trade deals will be possible with member states, including, for example, Australia, Canada and New Zealand, who are all eager to conclude them. The Trans-Pacific partnership, moreover, will also provide new opportunities for the UK, with a combined market exceeding that of the EU, and a bright future beckons. The world is May’s oyster, but only if she goes for it.

If, however, the UK remains in the customs union, subject to EU trade rules, unable to agree its own trade deals, and obliged to send billions of pounds of tariff revenue annually to Brussels, the benefits of Brexit will simply not materialize. It will be Brexit in name only, and will make a mockery of the referendum result, when 17.4 million voted to leave the EU altogether, not for vassal status.

To rub salt in the wound, the EU is also seeking to extort 39 billion pounds (US$50 billion) from Britain as the divorce bill, without even offering a trade deal in return. Its terms are intolerable, and are clearly intended as punishment, but also as a deterrent to others.

The EU undoubtedly fears a low-tax, low-regulation Britain as its neighbor, attracting investment and with global clout, and it wants to make its departure as painful as possible. It hopes thereby to show voters that it was simply not worth it, but Britain can do without friends like that. 

A clean break, therefore, is unavoidable, and the sooner the better. Although leaving the EU without a deal, on World Trade Organization rules, may not be ideal, it is certainly the best option available, albeit on a transitional basis.

After all, 90 percent of world trade is conducted on WTO terms, and this prevents discriminatory tariffs, except between countries with trade deals. Much of the UK’s trade is already conducted on WTO rules, including with Brazil, China, Hong Kong, Russia and the United States, and there is nothing to fear from similar engagement with other places. A clean break will also pave the way for the UK to negotiate a Canada-style free trade deal with the EU itself, on terms which fully reflect its status as the world’s fifth largest economy.

Moreover, under the WTO General Agreement on Tariffs and Trade (GATT), tariffs on most manufactured goods between the UK and the EU will stay low after a no deal Brexit, averaging 3 percent, so trade can continue uninterrupted. However, once Britain leaves, its firms will no longer have to comply with oppressive EU regulations, which will be a huge weight off their shoulders, not least because less than one in ten of them actually export to the EU.

If the UK leaves the EU on WTO terms on 29 March, the will of its people will have been fully honored. They did not vote for subservience or a half-way house, but for real independence. They voted to take back control of their country, for their parliament to be supreme and for their courts to be masters in their own house.

But they also had a vision, of a truly global Britain, reconnected with the wider world, and this is now within May’s grasp.

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