Brexit Heaven or Hell?

 

Brexit Heaven or Brexit Hell?

It is our opinion that the UK should not seek to maintain membership of the EU or its Customs Union (or an approximation of it). 

In order to pursue a ‘Global Britain’ strategy, the UK must be free to strike trade deals across the world, free from the Common external tariff (CET) and common commercial policy.

This approach comes with both risks and opportunities.

  • Potentially, the UK might leave the EU on Friday, 29 March 2019 with no free trade agreements with the EU member states or with any country anywhere in the world and be forced to trade with the rest of the world on WTO (world trade Organisation) terms. Our view is that this would be catastrophic for the UK economy and jobs. 
  • On the other hand, the UK could become a global nexus of free trade, unparalleled anywhere in the world. This would usher in a new era for the UK on the world stage.

We will describe how both scenarios could come about.

 

Scenario one – the ‘nightmare’ Brexit.

  • January 2018 – talks with the EU break down irreparably. The UK is scheduled to leave the EU on Friday, 29 March 2019.
  • The Department for International Trade contacts the 50 or so[1] countries that the EU has Free Trade Agreements or otherwise preferential trade with, and asks them if they wish to ‘grandfather’ or ‘roll over’ the same agreements to the UK when it leaves the EU. They unanimously (but diplomatically) say no, some say they don’t wish to antagonise the EU, others say they don’t trust the UK to be a sensible and fair trade partner given what they have seen during the Brexit negotiations, others say no because they don’t know what sort of trading arrangements (or regulatory environment) that the UK will have after Brexit and can’t risk giving the UK a preferential agreement for perhaps little reward.
  • The UK does not ask to rejoin EFTA or remain in the EEA, and so will have no preferential trade agreements with Switzerland, Iceland, Norway or Liechtenstein after Brexit.
  • UK crashes out of EU with ‘no deal’ in March 2019.

 

Scenario two – ‘Brexit Heaven’.

  • January 2018 – after a productive round of talks in Brussels, much progress has been made on Northern Ireland issues and citizen’s rights. Mr Davis has now agreed that the UK will pay ‘in principle’ any legitimate costs upon Brexit, while M. Barnier has agreed that the UK will not be asked to pay a single euro beyond what is reasonable. Both men leave the issue with a team of trusted ‘Sherpas’ while they proceed to trade-related issues and UK-EU future relations.
  • Mr Davis cites a series of EU treaty provisions and articles during talks –

 

 

[Article 50

  1. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with

Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

 

[Article 3

  1. In its relations with the wider world, the Union shall uphold and promote its values and contribute to the protection if its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter.]

 

[Article 8

  1. The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.

 

  1. For the purposes of paragraph 1, the Union may conclude specific agreements with the countries concerned. These agreements may contain reciprocal rights and obligations as well as the possibility of undertaking activities jointly. Their implementation shall be the subject of periodic consultation.][2]

 

 

[Article 4

  1. Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.]
  • He argues that these elements of the treaties should form the underpinnings and background to the rest of the negotiations under the principle of Pacta sunt servanda’, which M. Barnier concedes.

Barnier and Davis hold a press conference in which they discuss all the positive progress that has been made. The change of tone is obvious and the international media picks up on it immediately. The pound sees a slow but steady valuation increase in the days that follow.

  • Theresa May announces at PMQs that she has spoken to the cabinet and the leader of the opposition, and as a result of these discussions the UK is applying to rejoin the European Free Trade Association. Both Houses of Parliament approve.
  • The Department for International Trade contacts the 50 or so countries that the EU has Free Trade Agreements or otherwise preferential trade with, and asks them if they wish to ‘grandfather’ or ‘roll over’ the same agreements to the UK when it leaves the EU. They are initially concerned, but agree to sign time-limited provisional agreements with built in sunset clauses that will provide uninterrupted trade in the period immediately following Brexit. They reserve the right not to renew these agreements if Brexit goes badly for the UK but agree the principle of ‘Presumption of Continuity’ should largely apply.
  • The EFTA Council accepts the request from the UK to rejoin EFTA, based on assurances to the Norwegian government that the UK will not ‘rock the boat’ or attempt to throw its weight around. Their decision cannot take effect immediately, but it means that the UK will rejoin EFTA the moment it leaves the European Union.
  • In accordance with the EFTA Convention. the UK applies to participate in the third-country free trade agreements that the bloc has agreed. Like the EU third country partners (and there is overlap) there is some trepidation, but they all agree memoranda of understanding which in principle will allow the UK to participate in them in the short term, to be permanently pending further negotiation.
  • The Prime Minister requests for the UK to remain inside the European Economic Area (EEA) for an indefinite period after Brexit to smooth the transition. At a meeting of the EEA Council, it is agreed that the EEA Agreement will be amended so that the UK is henceforth mentioned on the EFTA side instead of the EEC/EU side.
  • The UK applies to become part of the EU’s Pan-Euro-Mediterranean preferential (RoO)  rules of origin (PEM Convention).
  • Since the UK is going to remain in the EEA, concerns about potential Customs problems are reduced significantly. The EEA agreement says this about Customs co-operation and related issues:

 

“Article 9 (2)

With a view to developing the results achieved in this Agreement, the Contracting Parties will continue their efforts in order further to improve and simplify all aspects of rules of origin and to increase cooperation in customs matters.

Article 10

Customs duties on imports and exports, and any charges having equivalent effect, shall be prohibited between the Contracting Parties. Without prejudice to the arrangements set out in Protocol 5, this shall also apply to customs duties of a fiscal nature.

CHAPTER 3

COOPERATION IN CUSTOMS-RELATED MATTERS AND TRADE FACILITATION

Article 21

  1. In order to facilitate trade between them, the Contracting Parties shall simplify border controls and formalities.

Arrangements for this purpose are set out in Protocol 10.

  1. The Contracting Parties shall assist each other in customs matters in order to ensure that customs legislation is correctly applied. Arrangements for this purpose are set out in Protocol 11.
  2. The Contracting Parties shall strengthen and broaden cooperation with the aim of simplifying the procedures for trade in goods, in particular in the context of Community programmes, projects and actions aimed at trade facilitation, in accordance with the rules set out in Part VI.

In addition, through Protocol 10 and Protocol 11 of EEA Agreement, the Efta states agree mutual border inspection programmes with the European Union, and commit to mutual assistance on customs matters.

  • Representatives from Her Majesty’s government meet with representatives of the EU at the World Customs Organization (WCO) to work on additional measures to facilitate UK-EU border issues after Brexit.
  • An innovative solution to the Northern Irish border question is reached, based partially on the pre-existing Common Travel Area, both North and South being members of the EEA; and a liberal interpretation of the World Trade Organisation’s Trade Facilitation Agreement.
  • By grandfathering the majority of the EU’s and EFTA’s FTAs (and with the ability to strike new FTAs either as part of the EFTA bloc or independently) the UK becomes an envied global free-trade nexus after Brexit.

Brexit Heaven or Brexit Hell Mrs May? The choice is yours.

 

[1] https://fullfact.org/europe/how-many-free-trade-deals-has-eu-done/

[2] http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-european-union-and-comments/title-1-common-provisions/6-article-8.html

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