Tuesday, October 01, 2019

BREXIT myths: Do we need the threat of "no deal" to strengthen our negotiating position?

Short answer: no.

Longer answer: Right now we're only negotiating the arrangements for the actual trade talks. The real negotiations come after we leave. At that point, we are committed to reaching trade deals, and we'll have no way to walk away. The no deal "threat" won't help with that - we'll have to take what we can get.  If "walking away" now means leaving with no transition deal, then we'll need new agreements even more urgently than if we did have a transition deal. The only real way to "walk away" from the talks is to change our minds, and cancel Brexit...

The idea we need "no deal" on the table has been repeated so many times in the media, without challenge, that it has begun to seem true. We can find ourselves accepting it without thinking it through. But it only holds up if we don't look at how Brexit works.

Right now, we're negotiating (or pretending to negotiate) a Withdrawal Agreement that gives us a transition period of a year or so, settles our long-term financial obligations to the EU, and makes commitments on the Irish Border (because peace is important). It also covers EU citizens' rights in the UK, and UK citizens' rights in the EU. Even if "no deal" gave us extra leverage, it would not affect the real negotiations that happen after we leave - and it might well harm our relations with our European negotiating partners.

But we're also negotiating the Political Declaration. This is not binding, but at least it's a plan for how we want the future relationship to look, and what we're negotiating towards - the sort of thing we should have had in mind before we triggered this process, in fact. For some reason, the government are not talking about this - perhaps because it would highlight the years of negotiations ahead of us after Brexit.

When the transitional period starts, we will have left the EU, and we will be committed to the result of negotiations that we won't be able to walk away from. But we'll have a year and a bit (maybe less) with the current EU deal, while two things happen.

  1. The government will negotiate with the EU and with each of the countries and trading blocks with which we currently trade (under the EU's global trade deals). They will seek new trade deals, tariffs, quotas, and negotiate how to ensure our exports meet our partners' standards, and what standards we will require for our imports (chlorine in chickens, growth hormones and antibiotics in beef, permitted pesticides on food, etc). This normally takes years (or a decade).
  2. As details emerge, businesses will start to prepare for the bracing new environment, and the government will start work on computer systems and bureaucracy to support the new deals. Most government computer projects take years longer than planned, and cost way more - some even completely fail to deliver. If that happens, trade will not go well.
And after less than two years of negotiation, whether we've reached a deal or not, the transition period will be over, and we'll be without the benefit of the deals and arrangements we now have. But we'll be a bit closer to having deals to replace the ones we're losing. And we'll have had some more time to prepare, if the government is open and honest about what's happening.

If we don't agree a transitional period, when we leave on Halloween all the trade deals we have now as an EU member will expire. The government said they will have zero tariffs on most imports, which will affect local producers - they expect two oil refineries to go bust, for example, and lots of farmers. But we will face tariffs on many of the goods we export (in some cases there are discounted tariffs for the first so many exports, but we won't have agreed the relevant quotas). Because imports to the UK will suddenly have no tariffs, there won't be much we can offer our trading partners to persuade them to drop tariffs on our exports to them. Except, perhaps, accepting their chlorinated chicken and growth-hormone and antibiotic treated beef, or allowing them to buy up the NHS.

Our certification bodies which currently guarantee the health and safety standards required for our exports to the EU will no longer be recognised, as we'll be a non-EU country. So we'll have to negotiate a way to demonstrate that our exports comply with their standards.

And the services that we sell to customers abroad will also be badly hit - much less work has been done on those, and they are not covered .

More than that, if we haven't agreed the Political Declaration, we won't really have a plan for the sort of deal we're looking for. So we could face another few years of acrimonious debate over what sort of deals we want - low tariff, low regulation, multinational-friendly but worker-hostile - or more like we have now, with consumer and worker protection (in which case you might wonder what is the point).

And it's worth pointing out that in the EU, there is political scrutiny of trade deals that are being negotiated. The UK currently has no such rules - it's totally up to the PM to negotiate what he or she likes, in secret, which is kind of how we got into the mess we're in now.

In summary, we will have a lot of negotiating to do when we leave the EU, whether or not we agree a transition deal. A Withdrawal Agreement will make things less painful for the first year or two of those negotiations. A Political Declaration will make the direction of travel clearer.  But it will be a process we can't walk away from, and we'll have to live with whatever we can negotiate from a much weaker position than we have now, as part of a huge trading block. Our partners will still be in a large trading block, and they won't have a ticking clock.

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