Shanker Singham is CEO of Competere. He is a former trade advisor to Liam Fox, Mitt Romney’s Presidential Campaigns and former cleared advisor to US government on trade policy.
As we face the prospect of indicative votes in Parliament this week, the quote by Sherlock Holmes comes to mind: “Once you have eliminated everything that is impossible, whatever you have left, however implausible, must be the truth”.
There are (at least) seven options which might be tabled for indicative votes in Parliament this week. I will not deal with revocation of Article 50 or a second referendum, as these are political decisions. The Prime Minister’s Withdrawal Agreement has been analysed to death. But in summary the threat of the backstop would guarantee us a bad deal and push us toward a permanent customs union and strong alignment with the EU’s rules. This would rule out having an independent trade policy, exposes the UK to potentially damaging action by the EU and puts the Union at risk. The Stormont lock being discussed would make this worse, not better.
Leaving on WTO terms is often inaccurately described as ‘No Deal’, despite long-standing and widely used trade rules being in place, as well as a series of deals. There are already mini-deals on everything from citizens’ right to road haulage, Eurotunnel and aviation in place. We have also rolled over trade agreements with many countries (now about half the value of our trade with these countries and rising) and published our tariffs schedule for ‘No Deal’. While leaving this way will undoubtably cause some disruption in the short-term, it will be nothing like the catastrophe prophesied and does have some advantages; we would immediately be able to put in place our trade strategy as outlined in Plan A Plus.
The next option to consider is joining the EU Customs Union or a customs union with the EU (like Turkey). Supporters of this approach presumably want free circulation of goods. It may surprise them to hear that free circulation comes not only from Customs Union membership but also from the rules of the Single Market. Even if the UK were to be a full member of the EU Customs Union, this would only lessen checks on rules of origin. Checks would still be required on goods containing plant and animal products, like sausage rolls, and to ensure product standards. If the UK was in a CU, movement certificates would also be needed for all relevant goods. Being in a customs union solves very little on its own, least of all the Irish Border. It would also, controversially, mean continued membership of the Common Agricultural Policy and Common Fisheries Policy.
If we are in a customs union with the EU, the EU will negotiate access to our market as part of future trade agreements on our behalf. Like Turkey, we would then have to follow up with our negotiations with those countries for access to their markets, but without any leverage (i.e. the Turkey Trap). In trade negotiations, both sides have a list of asks, not all of which are agreed. With the UK a silent member of the customs union, the EU will agree first to anything which disproportionately disadvantages us and place anything we want at the bottom of their list of demands. In addition, we would be unable to defend our industries from unfair trade practices, unless EU industries were also being damaged.
Full Customs Union membership eliminates our ability to negotiate our own trade deals. The deals we want, primarily with countries in the fastest growing areas of the world, North America and Asia, would not be possible.
There are also foreign policy implications. In a/the customs union, the UK can no longer be a champion for trade with developing nations because we will not have a say in the EU’s trade agreements or be allowed to have our own. Our influence in areas like security, counter-terrorism and post-conflict peace operations will diminish as we are no longer able to support fair trade practices with the developing world.
The disadvantages far outweigh the advantages of the/a customs union which is why it should not be the destination or a stop-over on our way out of the EU.
All the Norway variants, or Common Market 2.0 options, rely on the UK joining the European Economic Area (EEA). As members of the EEA, it will not be possible for the UK to veto or change the direction of travel of EU regulations. We will be rule takers. Norway is less concerned about this as its small economy is primarily based around fish and energy where the regulatory risks are much lower. Is it desirable for the world’s fifth largest economy to be beholden to EU regulations without a say, especially in areas like financial services? Being members of the EEA and/or a customs union would prevent us from being able to embrace a pro-competitive regulatory system which will lower prices and increase output – benefiting the poorest among us the most.
Many proponents of the Norway approach hark back to the original Common Market (hence the name ‘Common Market 2.0’) but the structure of the EEA has changed radically since its inception 25 years ago. It is, as Martin Selmayr notes, much more about integration into the EU than it was at the beginning. Nor do we merely drop into the EEA as some have suggested because we have not officially filed out notice to leave it. Under Article 126 of the EEA agreement, only EU and EFTA members are members of the EEA. There are two distinct pillars which are delicately balanced. Any EEA option requires us to negotiate our way into the EEA. We will not be able to rely on EEA rights unless we do.
Lastly, let’s look at what a long-term extension does to our options. It would certainly give time for revocation or a second referendum, if wanted. It could give us more time to prepare for an exit without a deal. While it’s possible that more time would ultimately result in MPs deciding to back the current Withdrawal Agreement, that strategy has not worked to date. A long delay could allow for a softer Brexit based around the EEA or the Customs Union to emerge.
It would, however, make a Free Trade Agreement approach very difficult as our leverage with other countries will fade. The US primaries start in a year, giving us a window to make enough progress before campaign season impacts on serious policymaking. The 11 countries which make up the CPTPP – most notably Japan – will move on without us. Our value to Japan is early accession to the CPTPP which would have a profound impact on the arrangement. We lose leverage with the EU by not being able to negotiate deals in parallel but also because our trading partners are not able to put pressure on the EU to give us a good deal. As we lose leverage, the deal we get from the EU gets progressively worse.
The only plausible option is a Free Trade Agreement approach, starting now. A comprehensive UK-EU Free Trade Agreement has already been drafted. We should put the text on the table immediately. If we put such a text on the table, business and interest groups will engage with the substance and get behind it. The EU understands it and it builds on what they have offered to us. Regardless of how people voted in the referendum or how they feel about where we’ve ended up, we must be brave enough to see the truth – and act.