The Game Changer: how the proposal of a temporary WTO trade agreement can reshape the Brexit debate before and after 31 October
A long-neglected option whose moment has finally come Many participants in the debate about leaving the EU, especially in the House of Commons and the media, appear to think that the withdrawal agreement negotiated by Mrs May and Mr Barnier is now the only alternative to leaving the EU without a deal, and if that agreement were to be rejected, leaving would mean ‘chaos’, as both sides started to impose tariffs on each other and inspected each other’s goods as if their regulatory standards were not identical, and continued to do so for some indeterminate time into the future.
They are mistaken. Another deal is available immediately after a no deal Brexit on October 31st, since it is entirely possible for the UK and the EU to make a joint application to the WTO for a temporary, compliant, zero tariff zero quota trade agreement for all goods, until a more complex permanent agreement can be agreed in some four, five or six year’s time, or however many years they agreed it would take.
Such an application could also, of course, be made before the October 31st, so that it came into force on November 1st which would allow both parties to maintain their existing tariffs and regulations when trading with each other, though both sides would have to collect tariffs on ‘non-originating’ goods, or goods from elsewhere. Such a temporary WTO agreement would enable both sides to avoid having to trade under WTO rules, which is what most of those in the UK say they fear most about a no deal exit, though the greater part of UK trade is currently conducted under those rules.
That such an agreement is readily available does not mean, needless to say, that it will be adopted, but it is nonetheless important to recognise that this option is available and that any disruption of UK-EU trade after October 31st would be a deliberate choice by the 27 members of the European Council meeting in secret to reject a temporary trade agreement under Article XXIV or some other GATT article acceptable to WTO, following of course, from the rejection of the temporary trade agreement incorporated in the draft withdrawal agreement negotiated by Mrs May on three occasions by the UK Parliament UK, and her ignominious resignation.
And it is also important to recognise that if the EU decided to reject this option, as it surely will when it is raised officially, that the knowledge that such an option has always been available, is now available and will be available as the UK heads towards withdrawing without ratifying the agreement negotiated by Mrs May, has a significant role to play in the Brexit debate, and its politics, before and after October 31st. That is what this note is about, not to predict the outcome, but to speculate about the contribution one policy proposal might make to it, especially as the EU repeatedly rejects it.
Objections from those who wish it hadn’t and others The idea of a joint application to secure a temporary trade agreement has provoked a series of squabbles none of which have been especially helpful in trying to understand the role such an agreement might play in the impasse in which the EU and the UK now find themselves. One such squabble has been provoked by those committed either to the draft withdrawal agreement or to remaining in the EU, it not being always easy to distinguish between the two. Neither of them want to admit the possibility that a temporary WTO agreement could play any role at all, or indeed that it even exists, since they hope that the only alternative to Mrs May’s draft agreement is the no deal exit that many fear, and therefore brings no Brexit closer.
Mrs May and her Secretary of State for International Trade, Liam Fox, both dismissed the idea that an application could be submitted under GATT Article XXIV some months ago. Being by then wholly committed to her draft withdrawal agreement, they were naturally reluctant to admit that a simple Plan B, which they had never raised during the negotiations, had been available all along. Inadvertently no doubt, they have been doing the Commission a great favour by pretending the withdrawal agreement is the only option, and that no other option is available.
The present Governor of the Bank of Englandhas also sought to squash the idea that an alternative both to Mrs May’s agreement and to no deal is available. A joint application to the WTO necessarily requires an agreement to make the application, but what the Governor has argued is that before a joint application to the WTO could be made, the UK would first have to ratify Mrs May’s draft withdrawal agreement. Since that draft withdrawal agreement itself incorporates a temporary trade agreement which will have to be registered in due course with the WTO, probably under Article XXIV, the Governor has somehow persuaded himself, and the BBC fact checker, that the temporary trade agreement in the draft withdrawal agreement to be approved by the WTO, is a precondition to a joint application for a temporary WTO trade agreement under Article XXIV or some GATT other article. He did not feel it necessary to cite any precedents for this curious procedural requirement. If the withdrawal agreementwere ratified, a temporary agreement would be unnecessary.
Most leavers attracted by the idea of there being an alternative to the orderly departure from the EU designed by Mrs May and M. Barnier have assumed that GATT Article XXIV would be the appropriate legal provision under which a joint application be submitted to the WTO. This is understandable given that 264 of the 294 trade agreements currently registered by WTO have been made pursuant to it. This article is not, as many Remainer critics think, an arcane, obscure or mysterious clause of GATT but, on the contrary, the normal route to a WTO trade agreement. It has been routinely used by the EU itself, starting at the time of the Treaty of Rome in 1956 and subsequently in the accession of all new members as well as in most of its other 41 other trade agreements. They inserted it, out of force of habit I imagine, into Mrs May’s draft withdrawal agreement Annex 2 article 4.
Leavers referring to it have, however, been scornfully dismissed for failing to notice that Article XXIV is normally used when two parties are negotiating to reduce tariffs progressively, whereas in the case of Brexit, tariffs between the two parties are of course already zero and the two parties are negotiating to prevent an overnight increase. These critics must have a rather low opinion of the intelligence and judgment of members of the WTO Goods Council, and presume that they would feel unable, in this highly unusual circumstance, to depart marginally from normal practice, and that they will forget to uphold the primary goal of the WTO which is ‘to ensure that trade flows as smoothly, predictably and freely as possible.’ Maybe, they were really hoping against hope that WTO members will feel unable to depart from normal practice, and will forget WTO’s primary goal, so that this alternative to Mrs May’s thrice-rejected draft withdrawal agreement would be eliminated once and for all, so that the only choice remaining will be no deal exit or no Brexit.
Leavers have added to the confusion surrounding a temporary standstill agreement by quarrelling amongst themselves about whether GATT Article XXIV is the most appropriate legal provision to obtain it on the grounds that it requires a timed schedule of the planned tariff reductions, (or presumably in this instance since the EU cannot allow the UK to enjoy the same benefits as members, planned tariff increases) which might be questioned or monitored by other WTO members. For the international lawyers amongst them, however, this complicates what is in reality a simple standard procedure to obtain a temporary WTO agreement.
A Commons Library researcher, Ilze Jozepa, trod carefully through this mined maze and cited trade law experts to support her final conclusion that ‘a temporary agreement is possible while the UK is negotiating any type of a final trade deal with the EU.’ She then observed that ‘Dr Lorand Bartels of Cambridge University has drafted a short, bare-bones trade agreement to show that this is technically possible.’ Unfortunately, this was not quite as definitive as it sounds. Dr Bartels was a sharp critic of an Article XXIV application, though his own one page A4 draft agreement starts by citing it, and then again cites alongside four other GATT articles. If it was submitted to the WTO, one guesses it might well be classified as ‘pursuant to Article XXIV’.
The argument as to which would be the most appropriate WTO peg, or legal provision, for a joint EU and UK application is a distraction in the present context, and is probably best decided by members of WTO Goods Council. I will hereafter, refer simply to a temporary WTO agreement, regardless of the legal provision by which it might be obtained.
On its merits vs. the bespoke Barnier temporary trade agreement If there was a joint application to the WTO for the agreement to come into force on November 1st or shortly thereafter, with the stated intention, let us say, of negotiating the offer of an advanced FTA made by the President of the European Council on 7 March 2018, there is no reason to suppose other WTO members would object. Implementing a temporary trade agreement would not require a long period of haggling and drafting since it is merely a continuation of the status quo. It could also be agreed quickly in the EU by QMV, and does not require individual states to sign and ratify it. There is therefore more than enough time to make a joint application and conclude a simple temporary agreement before October 31st.
Since such an agreement would launch the trade negotiations which the UK has been waiting to begin through two years of negotiations about the withdrawal agreement, and would leave it free to conduct and implement trade agreements with third countries, it is difficult to think of any grounds on which MPs ready to honour the result of the referendum in 2016 would oppose it. Even those explicitly committed to remaining in the EU, those who no longer wish to honour the referendum result or their manifesto commitments, and those fearing the consequences of no deal might have difficulty arguing against a continuation, of zero tariff frictionless trade with the EU after the UK withdrew on October 31st, given that it would prevent the ‘chaos’ and unemployment they are worried about.
Like other ordinary WTO trade negotiations, it will start from the assumption that the negotiations have been entered voluntarily and freely by the two parties, not that one enters them under preconditions imposed by the other. One party will not, moreover, restrict the other’s freedom of action during the negotiations, or insist that disputes must always be settled by reference to its own courts and law, or prohibit access by the other to the WTO’s and other international dispute settlement procedures. Both parties will also assume responsible for upholding their own border security, and the WTO provides no precedent for clauses in the agreement which enable the EU to lock the UK unwillingly into its customs union for an indeterminate period, thereby obliging it to negotiate other unrelated non-trading issues, such as fishing rights in its territorial waters, or the future of Gibraltar, under duress.
A further great advantage of such a temporary WTO agreement is that it would provide ample time over its agreed duration, for HM and Irish Customs to co-operate in developing and testing on-line, ‘behind the border’ and other invisible customs checks. The interim report of the Alternative Arrangements Commission, by far the most thorough investigation to date, concluded that its recommendations ‘can be achieved, provided there is goodwill on all sides, quite quickly. Some recommendations such as Transit would be deliverable in months, as they are being used now …. Some recommendations, such as the trusted trader programme,…. can be delivered in 12-15 months.’ It also mentions ‘longer term technological proposals’ but decided these ‘are not necessary to making the seamless border work immediately’.
When the trade agreement negotiations were finally concluded, and the two sides knew exactly where physical checks would be required, they could then implement alternatives to physical border posts that they had devised and tested, rather than working in reverse order as the draft withdrawal agreement has attempted to do, by trying to devise a solution to a problem before the nature and scale of it is known.
A temporary WTO trade agreement poses no threat to the integrity of the United Kingdom or that of the Single Market, and the Good Friday Agreement would continue undisturbed throughout. Moreover, the relations between the EU and the UK would remain as amicable as both sides hoped they would be when the GFA was ratified. If Mrs May’s draft agreement had been ratified and implemented, and the British people slowly discovered what it involves, that seems highly unlikely.
The advantages of negotiating under a temporary WTO agreement are therefore considerable, and though it is the advantages for the UK that are especially clear when comparison is made with the bespoke trade agreement included in the draft withdrawal agreement, the EU has also long recognised the inherent advantages of such agreements, since it has made regular use of them since the first agreement between the six founder members in 1956.
And the obstacle left in its path by Mrs May and Mr Robbins If the advantages, the simplicity, convenience and ready availability of an ordinary WTO temporary agreement are clear, it is still more clear that any such joint application, whether before or after October 31st, faces a seemingly immovable obstacle: the EU will not agree to it.
Since the EU has made regular use of Article XXIV, it is of some interest to ask why they find it so objectionable on this occasion. The most likely reason is that the draft withdrawal agreement negotiated with Mrs May offers a windfall of advantages and benefits to the EU that they will not lightly abandon. The best known of these benefits is, of course, locking the UK into the backstop, and the EU customs union, so that the UK cannot, de facto, fully leave the EU until all 27 members give permission for it to do so. It therefore grants every single one of them considerable leverage in future negotiations with UK on fishing rights, Gibraltar or anything else that concerns them. All 27 members of the European Council have, we may be sure, been advised of the leverage that is within their grasp. Indeed, one EU negotiator has boasted of how the EU will ‘retain all the controls.’
Membership of EU customs union also has the considerable merit in EU eyes of preventing the UK realising some of the anticipated economic benefits of Brexit by negotiating its own trade agreements, and protects EU exporters from competition from the rest of the world in the UK market, so the trade surplus in goods is safe for the foreseeable future, and if the Political Declaration can be made to stick, indefinitely safe. The agreement also enables the EU and the ECJ to exert significant control over future British government policies such as state aid, competition, intellectual property, labour standards and environmental protection for years to come, and if any British decisions are found to be in breach of EU Law, even laws passed after Brexit, the ECJ is empowered to impose severe financial and trade penalties on the UK, (Article 178 (1)(2)) and if occasion arises to instruct UK courts to strike down an offending Act of Parliament.
EU determination to dig in to preserve all these benefits is clear from the way the outgoing president of the Commission frequently talks as if the draft withdrawal agreement were already a signed and binding international treaty, beyond human amendment or debate, and that ratification by Parliament no more than an irritating formality. “It’s not a treaty between Theresa May and Juncker, it’s a treaty between the EU and the UK,” he said. “It has to be respected by whomsoever will be the next Prime Minister. There will be no renegotiation.”
It is also clear from Clause (8) of the agreement on the extension of the withdrawaldate to Oct 31st. It states that the extension has been granted with ‘a view to finalising the ratification of the Withdrawal Agreement’ and Clause (12) states that ‘the extension cannot be used to start negotiations on the future relationship.’ And the EU will therefore be disappointed to discover that it has not been used by the UK to make further efforts to somehow force it through the Commons as they hoped, but has instead been used to think about an alternative option.
To be precise therefore, the immovable obstacle to a joint application to the WTO is not the EU but the draft withdrawal agreement itself. If it had provided an ‘overall balance of benefits, rights and obligations for the Union and the United Kingdom’ as it claimed in its preamble, amending it would not be much of a problem on either side. There would be some irritation about wasted time no doubt, but nothing more.
The EU do not want to amend it because it has granted so many unexpected benefits that there is now far more at stake. Both sides have far too much to lose. The EU sees the many advantages gifted by Mrs May to M. Barnier being snatched away after two years of hard work to secure them. The British meanwhile are slowly coming to realise, with the aid of commentaries like that of Howe, Aikens and Grant, what the long-term implications of allowing Mrs May, along with civil servants from Whitehall and the Berlaymont, to make laws on a range of UK domestic issues and institutions that will, after a single vote of ratification, be superimposed on, and take precedence over, legislation on those same matters that has passed through the tried, tested, laborious, multi-stage and public law-making routines of the UK Parliament.
It is only when these implications are laid out with forensic precision that one can see that, if this agreement were to be ratified, both sides will pay a far higher price of which the two main negotiators seem to have been blissfully unaware, at least one hopes they were unaware, since Mrs May’s concessions almost certainly guarantee generations of resentment, distrust, argument and outright hostility towards the EU in the UK. A foretaste of that hostility is already evident in one of Northern Ireland’s communities. But what will be the response in the UK some years after the end of the transition period if the ECJ were to exercise powers granted in this agreement to strike down an Act of Parliament? Or to impose a severe financial or trade penalty, because it thought some UK law breached its regulations? Or to uphold some distinctive rights of a British national and resident who also happens to be a citizen of the EU? Or, worst of all, find reasons why the UK should remain in the backstop?
Largely as a result of the hopelessly inept leadership of the UK negotiating team, the two sides have ended up further apart than they were when they began two years ago, in diametrically opposed positions from which neither can now readily retreat or compromise. Hence the strong possibility of a no deal exit with the EU determined to hang on to immense advantages written into the draft agreement, and rule out any possibility of a temporary WTO trade agreement, and the UK determined to forget a fatally flawed draft agreement, and start by opening perfectly normal trade negotiations.
How this will unfold up to and past the promised date of exit, with or without a deal, is a drama which we will all be compelled to watch over the next few months. This note will only consider the role that a formal UK proposal for a joint application to the WTO might play in that drama, and the difference it might make as exit day approaches and passes, first to the UK debate and politics, and then on the EU as it rejects the proposal and plays its four remaining cards. If they accept it, the final curtain falls on the entire Brexit drama, and we all return to normal life, so there is no interest in speculating about that.
A trip to Geneva & a green paper will be required This modest proposal will only have significant consequences if it is effectively launched and the new Prime Minister and government take ownership of it rather more firmly, clearly and enthusiastically than candidate Boris Johnson has been able to do thus far. It has, in a word, to make something of a splash, a well-publicized meeting with WTO Director-General, Roberto Azevêdo, in Geneva would help, and would clear up the doubts and uncertainties created by the many attempts over the past three years to dismiss Article XXIV as an obscure, arcane, clause of the GATT 1994, of interest only to right-wing extremists. It can hardly be a game changer if few notice that it has entered the game.
It would be best therefore if the new Prime Minister announced that, in the light of the failure of his predecessor to negotiate a withdrawal agreement acceptable to Parliament, and of the repeated statements of the EU that it will not amend this draft agreement, that the UK government has now decided that the best, and indeed the only way forward, is for the UK and the EU to submit a joint application to the WTO for a temporary zero tariff and quota trade agreement for goods, under whatever legal provisions GATT Articles are most appropriate. This will allow them to continue to trade effectively under their existing arrangements for an agreed period of up to 10 years to negotiate, if it is still open, the offer of an advanced FTA made by the President of the European Council on 7 March 2018, or such other free trade arrangements as they can agree on.
The Prime Minister would also have to make clear that this proposal was adopted because it had learned from the bitter experience of trying to ratify Mrs May’s draft withdrawal agreement, that any agreement must meet a number of critically important requirements if it is to stand any chance of being ratified by Parliament, and obtaining some degree of popular support in the UK. First, it has to respect the wishes of the majority of the British people to leave the EU not merely in name, not partially and conditionally, but in reality and in full. The EU cannot ‘retain all the controls.’ Second, it should not flout the UK constitution, or third, depart from normally accepted diplomatic practice. Fourth, it should avoid harm to the economic prospects of either party. Fifth, it must respect the Good Friday Agreement and the integrity of both the UK and the EU single markets. Sixth, it should, as far as possible, ensure an ‘overall balance of benefits, rights and obligations for the Union and the United Kingdom’, just as the draft withdrawal agreement sought to do, but never came near to finding. And finally, and most importantly, it must not leave a legacy of hostility and distrust as Mrs May’s draft agreement most certainly would. It must enable the two sides to retain amicable relations in the years ahead.
There can be no doubt that a temporary WTO agreement would enable us to satisfy all of these requirements, since dozens of trade agreements, including those of the EU itself, manage to do on a regular basis, and there is no reason to suppose they would interfere with contemporaneous negotiation of the issues left unsettled by the rejection of the withdrawal agreement. The Prime Minister might then rehearse the many advantages of such a proposal that have already been mentioned, that it can be speedily implemented, well before UK departure date on Oct 31st, can ensure frictionless trade in goods between the EU and UK continues much as it does today until a permanent agreement is agreed, does not interfere with either parties freedom to negotiate agreements with third countries, and will provide some years to devise and test solutions to the Irish customs controls without threatening the unity of the UK, the integrity of the EU, or the GFA.
There is a case for setting out the reasoning behind the adoption of this idea as official government policy in a Green Paper, with translations into the 24 official languages of the European Union, so that the merits and demerits of the proposal can be widely discussed in other member countries as well as the UK. It might include a short authoritative review of the withdrawal agreement drafted by Mrs May so that the British electorate, and former EU partners, are left in no doubt why it was found, after close and extended consideration, to be unacceptable and beyond amendment.
This review of the draft withdrawal agreement might set out all of its long-term implications, not just those of the potentially indefinite backstop. It might look, for instance, at the probable life-span, powers and scope of the newly-invented enforcement agency, the ‘Independent Authority’, (Art 159 et al) which the agreement inserts into the British body politic for at least eight years after the end of the transition period whenever that may be, but which is ultimately responsible to the ECJ. Drawing on already published authoritative legal commentaries, it could also point exactly to the clauses where the agreement flouts international law, where it marks a new but undeclared departure in international diplomacy, where it ignores the UK constitution, and the conspicuous examples where it fails to achieve the ‘overall balance of benefits, rights and obligations for the Union and the United Kingdom’ that it claims to have sought in its preamble. The most important point of all, however, is its likely disastrous impact on long-term relationship between the UK and the EU. That has to be the primary reason for rejecting it.
In the short term, some official statement along these lines is owed to the British electorate, so that they might decide on the merits of the new government’s policy. In the longer term, there would have to be a more thorough inquiry with contributions from those who advised the negotiators, so that responsibility for its fatal flaws can be identified. There will then also be room for debate how far they were due to the fundamentally different assumptions and expectations of civil and common lawyers, or a badly mis-judged attempt to reconcile the peculiar form of constitution and law-making via secret international treaty negotiations that the European Union has made peculiarly its own, can be reconciled with laws made in the multi-stage processes of the UK’s bicameral legislature, with multiple opportunities from public review and participation.
Its role in the run-up to a pre-Brexit general election Once it has been effectively launched, the chances are good that the proposal if would be supported by MPs from all parties who are committed to honouring the result of the referendum. And good number of those who fear no deal might be able to support it, and it blows the cover off those who are only against no deal because they are pro-Remain. It is, after all, a proposal that would allow frictionless trade to continue and prevent the predicted chaos following a no deal exit that they say they fear, so how could they oppose it? It could only lead to a no deal exit if the EU continued to reject it. Some of those who oppose a no deal exit have said that they will oppose it if HMG adopts no deal ‘as a policy’, which a government that has adopted a joint application to the WTO as its Brexit policy can hardly be said to have done. Once the government has adopted this policy therefore, it need be less fearful of its remain-voting members, or of indicative votes, or any other test of parliamentary opinion.
Since there will be no cliff edge after Brexit if the EU agreed to make a joint application, there is a reasonable chance that the new government policy will also attract the support of the CBI, the IoD, and the NFU and other trade associations in the UK. They may qualify their support in some way, but it is difficult to see how they could actually oppose it. A number of them have complained over the past two or three years that their members are not well-prepared, so presumably they will welcome another five or so more years to prepare after October 31st. They might even obtain support from their peers in the EU, BDI in Germany, MEDEF France, Irish Framers Association and other business federations across the EU. The TUC has come out strongly against no deal, so presumably they would also support this proposal as a way of avoiding it. Organized labour in EU countries that might be directly affected if the UK is obliged to impose tariffs on EU exports might also lend their support.
The first official reaction of the European Commission will, of course, be to dismiss the proposal out of hand. To which the UK will respond by leaving the proposal on the table so that it may be taken up the moment the EU decides, before or after the UK leaves on October 31st, that they would like to prevent the tariffs being imposed on their exports to the UK. The EU can hardly be too dismissive since there is no other known procedure for negotiating trade agreements. The UK proposal is merely the default option for any countries engaged in trade negotiations.
The proposal may, therefore, play an important role in UK domestic politics even before it has obtained a positive response from the EU, and even though it has merely lain on the table as the UK heads towards leaving the EU without a deal. While doing so, it has shown that, at long last, the UK has a plan, a policy, a counter-proposal that would stop no deal and the chaos which some fear will follow. Modest as it may be, it provides the new government with direction and purpose, and enables it to present a sharp contrast with its floundering predecessor. There can no longer be any doubt either in Brussels, or in the UK, about the intentions of HMG, about what the UK wants, which could hardly be dismissed unreasonable. In the light of the self-evident failure of the draft agreement, it expects to be treated by the EU in the same manner, as Canada, Japan, Israel and Mercosur and all the other countries with which it has conducted trade negotiations.
If the EU continues to reject the proposal as the exit date draws nearer with no deal in sight it, and no requests for another extension, but only more frantic political manoeuvres to try and prevent it, the proposal will be a game changer. By providing the new Prime Minister with a counter-proposal it has inevitably shifted the dynamics of the negotiations with the EU, since the party that put it there need no longer simply react, can start taking the initiative, and the other has to do rather more than sit and wait for an answer. The EU will then have to explain their refusal, and for the many reasons given above, that may not be so easy. In effect, it has to explain why the UK, one of the largest trade partners of the EU, should be treated less courteously than any of the others.
More importantly, the UK electorate will be ever more aware of the UK’s counter-proposal, and ever more able to assess its merits. They will be able to decide whether it is a reasonable offer, whether the EU has good grounds for rejecting it, and most importantly, who therefore is responsible if the UK is obliged to leave without a deal, and cope with the CET. They will also be better able to assess the arguments of the MPs who still wish to vote down the government and precipitate a general election. The proposal will, in short, have disturbed some of the settled positions in the Parliamentary opposition to a no deal exit, and have transformed the electoral prospects of the government for an election before or after October 31st. Anyone who doubts that conclusion has to think back to the days before Mrs May’s resignation.
The fear of a no deal exit gives way to a greater fear The main premise of the EU negotiating strategy was Mrs May’s fear of leaving without a withdrawal agreement, even though there was no legal or treaty requirement for the UK to do so. She always acted, however, as if there was, and along with various senior members of her government made it clear that, despite what she might initially have said, she would not in reality contemplate leaving without a deal. As she herself later admitted, she was talking ‘in the abstract’, when she asserted that no deal was better than a bad deal. In any event, the EU knew, along with rest of the world, that there were sufficient members of her cabinet, and her own party, and perhaps also of the senior civil service, to restrain her if she tried to leave without a deal.
And they are probably relying on a similar combination of forces to dissuade the new Prime Minister from doing so, even though both candidates have said they will do so if necessary. The EU will no doubt be reassured that members of the cabinet who shared Mrs May’s fear of a no deal and restrained preparations for it, will continue their efforts from the back benches, the present Chancellor has already promised to do so. There they will join the group of remain MPs, who have made common cause with remain MPs in other parties. With the support of remain campaigners outside Parliament, and the help of sympathetic media, they will be making great use of the image they have created and widely broadcast of a no deal exit as bringing chaos, recession and unemployment. This seems to have persuaded a larger number of MPs, who might otherwise feel bound to honour the referendum result, to oppose leaving without a deal. Hence a substantial body of MPs have provided powerful confirmation of the main premise of both the EU negotiating strategy and of its subsequent ‘no amendment’ intransigence.
That said, since memories are still fresh of the way efforts to ratify this agreement repeatedly humiliated and eventually destroyed Mrs May, and of the election results in the Euro elections, the chances of a new Prime Minister risking the same humiliation seem remote. A remain-voting Prime Minister, who voted for the withdrawal agreement as it stands on three occasions, might perhaps be more willing to continue along this same track with minor tweaks to the withdrawal agreement or the political declaration. Jeremy Hunt may have encouraged the EU to think he might by claiming that he is trusted in Europe and that his superior negotiating skills would enable him to ‘deliver a different deal and one that can actually get through Parliament.’ Whether he would even try to get it through without substantial changes is doubtful, and whether he would be able to get it through still more so.
If the new PM has voted leave, and resigned when the first details of Mrs May’s agreement were presented to the Cabinet, the EU will realise that he is unlikely to accept the premise that is not mandated by any treaty or law, that a withdrawal agreement is somehow an essential precondition of withdrawal from EU. To get him even to consider presenting any withdrawal agreement to Parliament would therefore be something of a challenge, and unless it revised Mrs May’s agreement beyond recognition, unthinkable, if only because of the threat posed by the Brexit Party.
The Commission will search for a convincing response If, instead of making a fourth attempt to get the draft withdrawal agreement ratified by Parliament, the new Prime Minister spends much time promoting his alternative plan of a joint application to the WTO, and perhaps obtains some support for it not only from organized business and labour in the UK but also from similar groups across the EU, the Commission will have to respond. It will reject the idea, of course. However, interested and previously sympathetic observers in the UK and the EU who understand the UK proposal, and know exactly what the Commission is rejecting, will expect it to provide an honourable and convincing explanation of EU policy. A blunt rejection of a perfectly reasonable proposal will mean the Commission and the EU having to accept responsibility, in part or whole, for any unpleasant outcomes. At some point, the Commission will probably feel obliged to devise one.
It may not be so easy. First of all, the UK proposal of a joint application to the WTO is the utterly normal start to the trade negotiations, so the idea that Article XXIV is some arcane and obscure part of GATT 1994 which remainers in the UK have used in the hope of removing the option from further debate, will not wash. The Commission knows better, since it has made frequent use of it from its earliest days. It knows that the choice is between a joint application to the WTO in support of the discredited and rejected draft agreement, and a joint application to the WTO for a new start.
Second, it will have to support its rejection by explaining why it has decided that the UK, a NATO ally, a future security and intelligence partner, an intended participant in the European Intervention Force should be singled out for this wholly exceptional treatment. And it must do this without letting slip, or giving the least hint of, any of the less pleasant motives that have often been thought to inspire Messrs. Barnier and Varadkar in the negotiations: that it is necessary to punish the British, or to persuade them to remain, or to regret leaving if they do, or to stop them benefiting from leaving, or to allow the Irish Republic to separate the North from the UK, while presenting itself as the staunch defender of the GFA etc. etc .
The findings of the Alternative Arrangements Commission, by far the most through research into the problem conducted to date, pose acute problems in this respect since the case for the backstop rested on no research whatever, and is no more than the Commission’s and the Irish Republic’s far from disinterested guess. Thus if it were to remain in the withdrawal agreement, it would be saying never mind research, our guess is final and cannot be amended, a stance which is hardly consistent with the ‘full mutual respect and good faith’ on which the entire agreement depends.
Third, it is hardly possible to accuse the UK of not trying hard enough to muster support for the withdrawal agreement. It has stress-tested its democratic institutions to the limit. It is hardly unreasonable for the UK, now that it has put an alternative proposal on the table, to ask, and expect, the EU to make a similar effort to muster support for its proposal.
Fourth, the Commission’s explanation will, of course, have to satisfy its own exporters to the UK. They would, one imagines, much prefer to continue with the status quo for a few years and then entering a permanent agreement, rather than face the sudden shock of the CET, or the British modification thereof, in UK market, with the distant prospect of a permanent agreement. Why, they will surely ask, must we take this rocky, hazardous route to a permanent agreement, with the real possibility of losing market share in the UK to third countries in both the short and long term, when a pleasant, carefree route has been offered by the UK?
Whatever explanation the Commission comes up with, will have to withstand critical scrutiny not just in the weeks approaching October 31st, but for many months, perhaps even years thereafter, if the UK sticks to its proposal, which will not be difficult to do since, before or after no deal exit, it has no rival. The EU were able to brush aside the temporary WTO trade agreement in the Malthouse Compromise easily enough, but that was embedded it a rather complicated Plan B, and the Prime Minister’s withdrawal agreement was still very much alive in the UK.
Circumstances are now rather different. The withdrawal agreement has not simply failed to be ratified, but has been emphatically repudiated and prompted the humiliating resignation of a Prime Minister. The UK’s political institutions have been pushed as far as those of any democratic country ought to be pushed, and if the new Prime Minister refuses to continue, and now asks that the UK be treated in exactly the same manner as dozens of other countries with which the EU has conducted trade negotiations, the EU will have to think of a convincing reply. In effect, it will have to make a case for treating the UK especially badly. The chances are they will fail to do so, a failure with significant consequences for UK politics.
If the EU’s parliamentary allies force a general election Once it is clear that the Prime Minister will make no request for a further extension, and is ready to exit without making any further attempt at ratification of the draft withdrawal agreement negotiated by Mrs May, EU hopes will next focus on their allies in the House of Commons. They have a slight chance, in collaboration with opposition parties, of securing enough votes to block a no deal exit, of bringing down the government in a vote of no confidence, and of forcing a general election. The parliamentary arithmetic of Tory MPs who will vote against their own government if they are heading for a no deal exit, and of Labour MPs who might vote with the government for no deal if it is otherwise unavoidable, is finely balanced and will probably remain so until he vote itself.
At that point an official policy of a joint application to the WTO might make a significant difference. A vote for no deal when the government had no alternative to offer is one thing. A vote for no deal when HMG has offered a clear, simple, reasonable alternative which has been rejected by the EU is quite another, and fewer MPs will do it.
If, nevertheless, a vote of no confidence is carried and triggers a general election, EU hopes will then presumably rest on the return of a new more sympathetic majority government, or one which reflects public weariness with the Brexit process, and might decide to revoke Article 50.
They are likely to be disappointed. The election would inevitably be seen as an attempt by some Tory MPs acting in support of the EU, and in the hope of returning a new government that is more ready to accept the withdrawal agreement preferred by the EU, or to revoke Article 50. Providing the Conservative Party finds a way of deselecting candidates who are committed to voting against their own leader or their own government’s policy and/or takes reasonable precautions to ensure that its candidates supporting a no deal exit as the regrettable but unavoidable result of the EU refusal to accept the UK proposal that still lies on the table do not face opposition from Brexit Party candidates, it seems highly unlikely that the government will be defeated.
It is far more likely that it will be returned with a larger majority since the election will inevitably raise the question: who governs Britain? The one you are about to elect? Or the one that has been recently appointed in Brussels? The chances are good therefore that if the EU’s Parliamentary allies help to bring down the government, there will be fewer of them, and fewer Remain MPs, in the next Parliament, and the new government will have more support for pushing ahead with a no deal exit, and with its proposal for a joint application to the WTO.
The EU’s final card, the pain of the Common External Tariff EU hopes will then rest entirely on the common external tariff they impose on UK exports, in the expectation it will cause enough pain on the UK exporters to make the British accept the withdrawal agreement. That seems improbable. The EU tariffs on manufactured goods are insignificant, less than the fall in the value of sterling, and the pain for manufacturing goods exporters will be the inconvenience and delays of customs checks, which will decline over time. There is enough evidence from UK exports, and from UK exporterswho now trade under both EU single market and WTO rules, to suggest that these have anyway been exaggerated, and the idea that they might be enhanced for political reasons is a myth. The EU usually tries to remain WTO compliant, and there is no reason to think it will suddenly decide otherwise.
The real pain will be felt by the relatively small number of UK agricultural exporters who are unable, for some reason, to divert their products to the domestic market, despite the high tariff that excludes their EU competitors from the UK, and are also not able, for some reason, to access the UK agricultural support scheme replacing the CAP, or to special compensation scheme promised by the UK for the hardest hit. When playing this final card, the European Commission has to assume, or hope, that the pain suffered by the far larger number of EU agricultural exporters now subject to the UK tariffs on their exports to the UK, will find them easier to bear than their UK counterparts, despite the fact that their exporters will know that their problem was entirely avoidable if the European Commission had accepted the simple alternative of a temporary trade agreement proposed by the UK.
The arguments devised by the EU will, as noted above, have to be extremely persuasive, once their own exporters are feeling the impact of UK tariffs. Most of the advantages won by M.Barnier in the negotiations appear to benefit the Commission itself, rather than EU exporters. It is hard to believe, for instance, that EU exporters will feel the sacrifice of their UK market will have been worthwhile because the EU will retain control over UK environmental protection or labour standards or state aid policies for some years, or because it will allow ECJ to impose severe penalties on the UK if they breach EU rules in these respects, and the UK will not be able to resort to any impartial dispute settlement procedures.
The Commission’s best bet will probably be to say that their present pain and patience will be in the end be rewarded because if the British accept the agreement they will be locked the into the EU customs union indefinitely, and remind them they will therefore have as few competitors from the rest of the world in the UK market as they did when the UK was a member.
After the UK has left and no longer needs an agreement to do so After the shock of exit, or more probably the double shock of an election followed by an exit, when the UK is no longer an EU member, and the main premise of EU policy has been proved to be false, continuing to hold out against a simple temporary WTO trade agreement, because the temporary trade agreement designed by M.Barnier offered certain advantages to the EU, will seem increasingly pointless. The terms of the agreement will be themselves obsolescent, and having been repeatedly tried and found wanting, will rapidly disappear into history. One wonders whether anyone on either side will be anxious for it to cause still more turmoil when a relatively new proposal of a temporary WTO agreement is still available, offers similar near-frictionless trade, is the normal part of EU negotiation of trade agreements, poses no threat to the integrity of the Single Market, offers a good chance of solving the Irish border problem, and far better chance of an amicable long-term relationship with the UK.
The unemployment rates in many member contries over the life of the Single Market is a reminder that the EU’s readiness to tolerate the economic distress of its own members in the service of the great project should never be underestimated. Who is to say whether they might not feel the same about their exporters if an ex-member is sharing the pain? In the long run, however, it seems highly unlikely that the EU will continue to resist the UK proposal. The idea of refusing sine die to talk to a neighbour, a trading partner, a NATO ally, with whom members of the EU have multiple commercial, institutional and personal ties is absurd, even laughable. Whatever the Commission might wish, it would soon be seen as ridiculous by some member countries, as equivalent to rejecting the world trading system on which the trade of its own members depends. The question then becomes for how long will the Commission be allowed by European Council members to delay a decision to resume frictionless, zero tariff trade, to get started on negotiating a permanent trade deal, and on developing and testing solutions to the invisible Irish border controls. And to start negotiating all the matters left unresolved by the discredited withdrawal agreement.
The answer, the duration of that delay, will be determined by the interaction of a host of unknowns: on the British side, the efficacy of their preparations for no deal, the size and duration of the rise in the price of some foods, appropriateness of the new government’s budgetary response and especially the measures to help agricultural exporters shut out of the EU by the Common External Tariff, the speed with which the Department of International Trade is able to initiate, or even conclude, FTAs with third countries. On the EU side; whether the economic indicators continue towards a recession, and whether EU exporters quietly accept tariffs on their UK exports, and the signs of increased competition in the UK market that they had come to consider as their protected home market. Quite a lot also depends on the plausibility of the official Commission explanation of why they declined to make a joint application to the WTO with the UK to enable frictionless trade to continue.
If one draws back from current preoccupations, one may see terrible irony of the EU trying to force the UK government, as virtually its last act as an EU member, to impose an agreement on an unwilling Parliament and people. It is taking a step that only the bitterest foe of the EU could have scripted in an attempt to guarantee generations of suspicion and hostility between the UK and the EU.
Someone at the European Council will appreciate that irony, have an eye to long-term consequences and point out that it can no longer be in the interests of the EU’s many friends in the UK, now that they are out and now that they have held an election, to try and punish the UK or make exit as difficult as possible. Some of those friends might even have begun to campaign for the UK to return to the EU. Nor can it be in the interest of member countries in this chamber who hope that the UK will be an important defence and security partner in the future, to let this argument continue any longer. Let’s make a joint application to the WTO tomorrow, one member country will say, and bring this overlong drama to a close. The new government’s persistent commitment to an alternative temporary trade agreement will have played a part, even have been the game changer.
Michael Burrage is a member of Economists for Free Trade and a Senior Research Fellow at Civitas. He is a director of Cimigo, which conducts corporate strategic and market research in China and across South East Asia.