The Chequers deal is deeply flawed on both economic as well as political grounds and a ‘no deal’ Brexit would be a far preferable solution for the UK, argues Ruth Lea. In her opinion, a Chequers-style deal would be economically sub-optimal, tying the UK to the EU’s rulebook, but without any influence. On the contrary, in the event of a no deal Brexit, trading under WTO rules could give a major competitiveness boost to the British economy, providing liberalising, outward-looking policies are pursued. She identifies this as the forward-looking, global option, whereas Chequers would de facto keep the UK tied to the EU’s relatively slow-growing and saturated markets.
The current state of the UK-EU negotiations on the Withdrawal Agreement and the framework for the future UK-EU relationship (including trade and security) seems to be shrouded in mystery. One day we are informed that a bespoke “deal” is highly probable, the next day we are informed that some of the Chequers proposals are totally unacceptable to the EU – thus seemingly undermining the possibility of a deal. But, I suspect, this is all carefully choreographed verbal “chaff” designed to confuse and intended to persuade us that the negotiations are (will be) tough and hard fought. And, lo and behold, at the eleventh hour there will be an agreement of sorts, with both sides claiming victory. Such is the nature of these negotiations.
Yes, I do believe that there is a high probability that will be some UK-EU agreement, some negotiated “deal”. Moreover, it will be loosely based on the Prime Minister’s Chequers proposals and the subsequent Government White Paper (see also here). (Incidentally, I now take the view that switching negotiations to a Canada-style outcome is now politically too late, though it cannot be ruled out entirely.) But, to put it kindly, such a Chequers-style deal would be economically sub-optimal, tying us to the EU’s rulebook, but without any influence. The scope for regulatory reform would be severely curtailed and the scope for negotiating free trade agreements with third countries would be significantly restricted. On economic as well as political grounds, I believe it is a poor outcome.
Would, however, this “deal” survive the Commons’ “meaningful vote”, the next step in the proceedings? At this point, it could be dealt a final, fatal blow. If the Labour party vote against it, as reported recently, then, combined with anti-Chequers Conservatives, the deal could indeed fail. At this point, the Government would, presumably, fall back on their Plan B, in other words leaving the EU without a trade deal (“no deal”) and trading under WTO rules. This backstop does not, apparently, require a vote in the Commons. Moreover, the Government has been preparing us for such an eventuality with a selection of “no deal” preparation papers, even though they continue to insist a “deal” is the most likely outcome.
By way of a slight digression, the problems with the Irish border issue seem to be perfectly solvable, even under a “no deal” scenario. In evidence to a Select Committee, Jon Thompson, Chief Executive of HMRC, stated “…we do not believe we require any infrastructure at the border between Northern Ireland and Ireland under any circumstances.” The border issue would be perfectly manageable, give current technology and cross-border cooperation.
Credit: Public Domain
What would the economic consequences of a “no deal” Brexit? For a start, I simply do not buy Whitehall’s recent projections, as outlined in the Chancellor’s letter of 23 August 2018 to Treasury Select Committee chairman Nicky Morgan, suggesting that GDP growth would be severely impaired. This is a prime example of “Project Fear Mark 2” and is likely to be as fundamentally flawed as the Treasury’s “Project Fear Mark 1” prior to the 2016 referendum. It is worth remembering that the Treasury told us back in May 2016 that a Brexit vote would send the economy into recession and increase unemployment by 500,000. Suffice to say, it did not happen.
On the contrary, trading under the WTO’s rules-based trading regime, which is comprehensive, tried and tested, and respected by the world’s trading nations, could give a major competitiveness boost to the economy, providing liberalising, outward-looking policies were to be pursued. It is not some dreadful “leap into the dark” and would clearly be preferable to a shackling Chequers-style agreement. This “no deal” WTO option would provide complete freedom for regulatory reform and trade negotiations with the fast-growing and favourably-inclined countries across the globe. It is the forward-looking, global option, whereas Chequers would de facto keep us tied to the EU’s relatively slow-growing and saturated markets. Note, moreover, the UK already conducts over 55% of its exports trade with non-EU members, primarily under WTO rules. Moreover, this non-EU trade is growing far quicker than trade with the EU.
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Note: This article originally appeared at our sister site, LSE Brexit. It gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics.
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Ruth Lea
Ruth Lea CBE is Economic Adviser at the Arbuthnot Banking Group.
And in the real world large co,s will just ship back out and back into the single market and customs union in mainland EU
“In her opinion, a Chequers-style deal would be economically sub-optimal, tying the UK to the EU’s rulebook, but without any influence.”
So she hasn’t read the Chequers’ paper properly.
7. The UK’s proposal for the economic partnership would:
a. establish a new free trade area and maintain a common rulebook for goods, including agri-food, covering ONLY those rules necessary to provide for frictionless trade at the border. The common rulebook would be legislated for in the UK by the UK Parliament and the devolved legislatures, as set out in detail in chapter 4.
(my emplasis: “ONLY”)
It’s talking about UK-EU trade, and does not suggest applying a “common rulebook” to other trade zones.
AS an interested spectator I believe a ‘no Deal’ WTO option is the only option the UK Government is capable of delivering.in the timescale. I do not believe that there will be no border in Ireland if that is the case. It already exists but the question is what infrastructure will be required to support trade under WTO rules Free movement of people will continue but goods may be subject to checks.
It would be best for all concerned to accept this situation and ramp up preparations.
Will the UK be more successful under WTO rules? That remains to be seen.
As I’ve detailed below, there is no realistic prospect the UK will be better off in terms of trade access under WTO rules. In fact, that argument is so wide of the mark I’d assume even the people making it (the handful of pro-Brexit economists and the pro-Brexit political lobby) know fine well it isn’t true. What they’re doing is pushing a convenient political slogan on the basis that it superficially sounds convincing to anyone who doesn’t look at the details. Of the 43 non-EU states or groups of states that are worth listing in the UK’s export figures, the EU already has a trade deal with 25 of them and negotiations have started with all but four of them.
I also don’t believe the government can deliver a no deal Brexit because there’s no political support for it. It’s not even clear in recent polling whether a majority supports Brexit at all, far less the no deal variant. There certainly isn’t support for it in the House of Commons. What we’re seeing is a situation where the Prime Minister is having her hands tied by a section of her party and a section of her party’s membership, neither of which are representative of the country at large.
Paul, sadly what you say is a better reflection of reality than that pushed by the UK Exit Ideologues. The PM’s response to the messages in Salzburg indicate the.UK government is not in a position to negotiate a deal which will get support in parliament. In her speech afterwards she indicted that the only option she is sure about is the no-deal option.
The only people who can improve this are the UK government. So far the indications are they are constrained by their own ‘red lines’ which ca only result in the WTO option and a continuing border on the island of Ireland.
As a Dubliner I find the PM’s comments about dividing her country Ironic. However she has little choice given the constraints under which she must act.
“Note, moreover, the UK already conducts over 55% of its exports trade with non-EU members, primarily under WTO rules.”
This argument really isn’t credible if you look at the situation with EU free trade agreements. If you take ONS figures of the top 30-40 non-EU states for UK exports (2016 – the official figures only list 43 states with some grouped together) then the following all have EU free trade agreements fully or partly in place already (or are currently pending agreements such as the Japan trade deal which is a formality):
Japan, Singapore, South Korea, Turkey, Central American/Caribbean group, Sub-Saharan African group (48 states have an EU agreement at present), South Africa, Israel, Egypt, Mexico, Algeria/Tunisia, Morocco, Chile, Ukraine, Peru, Norway, Switzerland, Iceland, Canada, Kazakhstan, Fiji, Iraq, Albania, Lebanon, Jordan, Colombia, Russia (yes, Russia has a deal with the EU).
Then there are the states on that list which have started negotiations or at least have some prospect of a deal in the future (e.g. the US after Trump):
Australia, New Zealand (both started negotiations this year), Brazil, Argentina, Uruguay, India, Philippines, China, United States, Thailand, Myanmar, Qatar, Oman, Kuwait, Bahrain, UAE (all started negotiations, some of which are now suspended).
The only states on that list with no prospect at present of a trade deal in future are Taiwan, Pakistan, Iran and Belarus. So who exactly is it that the UK is going to be forging these great new trade deals with? A no deal Brexit means not only that the UK will be losing its access with the EU market (which Ruth Lea says is worth 45% of our exports) but also all of the access the EU has negotiated in other states through its deals. We’ll have to renegotiate all of those just to be back where we started and there’s no reason why many of these states will give us the same terms when we’re a smaller economy.
It’s just the epitome of the worst kind of politics: a statement that sounds reasonable at first glance, but which is complete cobblers if you give it any proper scrutiny. I struggle to see how anyone being fair-minded about it could look at that list of existing/potential EU trade deals and think the UK is going to negotiate better access with its key non-EU export partners in the foreseeable future (if ever). The likelihood is that far from making up the shortfall of losing EU access, we’ll have worse access to the rest of the world as well.
Even Trump temporarily bailing us out with a trade deal wouldn’t come close to bridging this gap and it isn’t a credible solution in any case given he could easily be out of office shortly after Brexit and there’s no reason for anyone other than him (with his anti-EU foreign policy and links to Farage) to privilege the UK over the EU.