James Arnell is a partner at Charterhouse. He writes in a personal capacity.
To all those who have taken the time to read my series of articles this week on Brexit contingency planning, thank you.
There have been a lot of interesting comments. I have taken away the following as requiring further work:
- An analysis of the risk of the UK’s interpretation of Article 50 (which is that it acts as a barrier to any claims for compensation by the EU). To the extent that there is a substantial risk of a finding against the UK in this respect, analysis of the potential liability (including a review of assets and liabilities)
- Consultations with businesses in the pharma sector to assess –
- a) What drugs they supply to the EU which are unsuitable for stock holding within the EU, so that they can lobby the EU to ensure that processes will not lead to interruption of supply to the detriment of EU patients. The UK’s own supplies should be secure provided that we do not apply unnecessary restrictions on imports from the EU;
- b) What new regime should replace the EMA regime in order to maintain the UK as an attractive location for research and development of new drugs, despite the UK leaving the single EU license regime
- Discussions with other WTO members need to be advanced to ensure that we are in a position to apply our new tariff regime from 31st March 2019. Our willingness to reduce tariffs in many areas could be used as leverage to encourage a sensible approach on agricultural tariffs. In parallel, we should pursue ongoing discussions with the USA to encourage its government to make it clear that it does want a trade deal with us at the earliest opportunity. That announcement would be of great help to the UK Government.
- A review of those qualifications which are currently the subject of mutual recognition across the EU, and a specific plan to address these through a mutual recognition agreement, if the EU rejects our continuing membership of current recognition agreements.
- Confirmation from the EU that it will remove the general freedom of movement requirement for the Erasmus+ programme, provided that the UK agrees to freedom of movement for study on a reciprocal basis.
- Further analysis of the possible impact of Brexit on aircraft landing rights, to be undertaken with the airline industry (which has been sending mixed messages on this issue).
- Further analysis of existing EU funding programmes into the UK and the approach to be taken to “fill the gap” (or not).
- A review of the question as to whether the WTO will accept a decision by the UK to apply minimal checks to imports from the EU, while continuing to apply strict checks to imports from elsewhere (for example, on food).
- A review of the border check requirements in the UK which might be needed if EU ports stop inspecting goods destined for the UK which are passing through EU ports (Rotterdam is mentioned as a particularly important access point). Alternatively, or additionally, an agreement of cost cover for the EU ports to continue to do this work on our behalf.
- Shaping a “fightback” team for the City.
- Further work on the implications of maintaining the Common Travel Area and its consequences for a work permit/ID card requirement for workers in the UK. Requiring a UK passport, an Irish passport, or a valid work permit may be a “simple” solution for this, but any work permit solution will also need to address EU nationals already living in the UK, of course.
I have also noted the advice that the Government should not be required to disclose the position that it and the EU have taken on issues which have not been agreed (in particular with regard to financial issues). On reflection, I agree with this, although I suspect the UK Government may be obliged to explain why discussions have broken down if this happens. It could do this in more general terms.
I have started to follow the contributions on EUreferendum.com as a useful source to identify potential issues, raised by those with a different (and therefore valuable) point of view. I would welcome any other hints of places to look for the opposing view.
I have retained an overall impression from my review of the comments that the single greatest fear is related to delays in the processing of imports and exports as the UK leaves the Customs Union. Some readers advise continued EEA membership as a solution to this, but this is not without its drawbacks (continued contributions, freedom of movement requirements). This is nonetheless a very rational fear, and I do not underestimate this risk. We are not ready and nor are our EU trading partners.
Unfortunately, the usual Brexiteer argument that the EU exports more to us than we do to them, and that therefore they are more vulnerable than we are, is untrue. It is untrue because the share of our GDP represented by exports to the EU is higher than the share of their GDP the EU exports to us, but also for other reasons. First, the EU is bigger, and therefore will generally have more capacity within its economies to substitute imports from the UK with domestic production. Second, our own importers would be hurt by a “tit for tat” slowdown at the borders, and these importers may well need supply from the EU to be able to function. Therefore, it is too lazy simply to threaten that, if the EU fails to clear outgoing flows from the UK quickly, we can reciprocate and cause them to relent. Slowing down imports would be as damaging to our economy as any slowdown of our exports unless domestic production could pick up the slack.
We need to think more carefully. Perhaps the solution will come in the form of a sensible deal allowing for minimal checks on cross-border flows, as has been agreed with other nations. That should certainly be pursued.
Other approaches should be explored in parallel. We might, for example, be able to agree with the Dutch that they will be the preferred point of entry for flows from the UK, provided that they agree to process shipments in an expeditious fashion, and we might then agree a co-funding solution to allow them to expand capacity to secure this increased business for their ports. My gut feel is that reducing dependence on the French ports would be sensible.
We could seek agreement that we would “pre clear” in the UK goods for dispatch to the EU, with a penalty arrangement whereby if spot checks in the EU found that our own delegated customs efforts had been ineffective; there would be substantial fines payable for this breach of faith. We are used to applying the external requirements of the EU; we can do it for our own exports, too.
And, of course, we could identify those imports from the EU which could be subject to the most rigorous checks without significant adverse effects on the UK economy and be ready to retaliate to any determined EU foot dragging by applying a very “literal” approach to those imports to put pressure on the EU to treat us fairly.
On a wider point, the Government has, since my articles started running, announced that a lot of planning has already been completed behind the closed doors of Whitehall. There has clearly been substantial recruiting, and I have no reason to doubt that a lot of the work proposed has already been done. I hope it has.
I have said previously that I believe the Government has been pursuing a sensible negotiating approach to date. I maintain that view. Some of it may have been by accident, but much is no doubt by design. Personally, I would not have accepted meetings in Brussels (I would have insisted on alternating locations) and I would not have accepted the sequencing demanded by the EU.
But, faced with massive domestic pressure to “get on with it”, I accept that it would have been very uncomfortable to hold a line on those two issues. On the rest – pushing back on the bill, making major concessions only at the level of the Prime Minister, allowing the clock to tick without panic, holding to the line that a transition deal is only worth taking if the end point is agreed, and so on – I would have done the same as our Government has done.
That does not mean it will deliver a deal, of course, and no amount of negotiation will ever satisfy those who think the whole Brexit idea was a disaster in the first place, but I would give credit where it is due. Our Government could have folded long ago, and accepted to pay a big cheque for a flaky deal, or even the promise of one. They would probably have been feted by the media for a while, but history would not have been kind to them if they had done this. I admire their determination to play a longer game.
I trust that they will bring the same determination to the contingency planning and hope that they will integrate the thoughts of ConservativeHome contributors into their thinking.
Finally, I hope you will allow me to cite my favourite comment extracted from the many I have received. One reader asked, in relation to my “ready reckoner” for the value of a FTA: “Why is it ‘likely’ that there will be as many positive as negative secondary effects? Is this a belief, or a rational argument? If I want to listen to expressions of faith I can go to Church.”
I did chuckle at that one.
My response is that, in the end, you have to make a decision and you have to base it on incomplete data. That is just how it is. I entirely (and did in fact explicitly) accept that others may want to try to work through the second, third and fourth order effects before coming up with their own number. All I would say is that, whenever I do this, the uncertainties in the feedback loops multiply and I end up coming back to the simpler analysis. Given that it is not an option to say, “I don’t know”, I believe that you have to pick a number which you feel gives you a decent payback on investment, with a relatively high level of confidence. Because this is taxpayers’ money.
And, in any event, lest we forget: the point of a contingency plan is at least in part to minimise the cost of a deal by showing the EU that you are prepared to live without one.