Alex Morton is Director of Policy at the Centre for Policy Studies, and was a member of David Cameron’s Downing Street Policy Unit.
As you read this, MPs at Westminster will be ploughing through the 500-page text negotiated by Britain and Brussels, and deciding whether or not it is something they can sign up to. There is still a reasonable chance that the deal gets through. But if Parliament or the Conservative Party decide that they cannot live with it, something else will have to replace it.
The first thing to say may sound like a statement of the obvious: the only options that aren’t on the table for the Conservative Party are a second referendum, or simply giving up and deciding to Remain. The 2015 manifesto promised to honour the referendum result, and the 2017 edition promised a hardish Brexit. Just one in five Conservatives think the decision to leave the EU was wrong. To go from a Leave referendum result to overturning it and remaining in the EU would split the party, as the Corn Laws did. It is also disingenuous to claim you are really concerned with EU control in areas such as goods regulation under May’s deal…and should instead return to being one of 28 countries making decisions, and also sign up to ending the financial rebate, open borders, Eurozone membership etc.
This leaves us with three real options, each of which have their own positive and negatives:
- Co-operative WTO exit.
- Hostile WTO exit.
- EEA membership or similar.
Co-operative WTO exit
A co-operative WTO exit would see the EU and UK co-operating to sign various side agreements to keep trade flowing and limit economic disruption on everything from planes to imports in key areas like foods and medicines. In effect, it would be a bit like Canada Plus, in that it would seek to rapidly nail down what was necessary and then over time flesh out the rest. EU nations have various reasons to go along with this rather than see a hostile WTO exit:
- A major EU/UK falling out would have major implications for the EU economy, and for global trade. Donald Trump is hostile to the WTO, refusing to appoint judges (which is slowly causing chaos in the organisation) and bending the rules. If the EU tried to pursue a hostile WTO exit, this would embolden Trump and destabilise multilateral trade.
- A EU/UK fallout would also have a strong knock-on impact on NATO. If the EU was genuinely attempting to slow or stop exports/imports to the UK, the UK would almost certainly feel obliged to take retaliatory action, such as removing troops from the East and North of Europe.
- If there is a Eurozone crisis in the next few years, with the City of London destabilised and alternative centres not yet having emerged, it would be a disaster for the Eurozone’s economy (something that everyone bar France realises).
- UK support for countries in the Mediterranean on everything from Syrian refugees to Royal Navy helping with the migrant crisis or in Libya would have to end.
- Potential turmoil in Northern Ireland. While the majority of the blame would fall on the British, it is unlikely that Ireland would welcome having to enforce a hard border.
Most of all, if the EU acts as aggressively as possible it may destabilise the EU itself. Member states are still angry or upset that we voted to leave, but many of them also distrust the European Commission. They will grasp that if it bullies the UK today, it may turn on them tomorrow.
Apart from the impact that even a co-operative WTO exit would have on UK businesses in terms of supply chains etc, an obvious drawback is many of our liabilities seem likely to fall payable regardless. In a Co-operative WTO scenario, we would probably end up paying a large amount to buy goodwill, as well as whatever it takes to help smooth over any costs associated with trade friction in Northern Ireland, in return for fewer checks on small-scale movement of goods and people.
Even with a co-operative EU, there would still be a short-term shock to our economy, even if this, in the long run, is balanced by other gains.
Hostile WTO exit
Despite the points above, the EU may not be able to reach sufficient consensus around a co-operative WTO exit, in which case we face a hostile one.
A hostile WTO deal is not an easy prospect, even if it is not as hard as some ‘stop Brexit’ groups claim. The sloppy claim that ‘the UK is Mauritania’ is incorrectly arrived at by going through the WTO database and seeing which countries have zero additional trade deals on top of WTO rules.
But if country A only has one trade deal with country B, it still trades on WTO rules with the other 190-odd nations of the world. Further, many countries have only limited side deals but manage to trade quite widely with one another under WTO rules around this. There are also general global trade provisions around non-discrimination, and since our framework would be based on the EU’s on day one, we could argue that interpreting the WTO treaty in a way that imposes additional burdens where our rules align is illegal and a hostile act.
That said, we’d have to accept that this scenario is very complicated, hire the best possible (expensive) people, and prepare for a fairly sizeable shock to the economy. A hostile WTO exit also risks spiralling out of control, with both sides reacting to the other’s moves in a chain reaction.
All this is before you even get to practical issues, such as capacity at Dover. The much smaller Dutch economy hired a thousand extra customs staff months ago to cope with the potential consequences of Brexit. We need to press ahead with similar measures, co-ordinate essential supplies like food and medicine, and ensure that, however uncooperative the EU is, the most important goods and services will keep flowing. And time is short.
This is not an ideal situation. It would have grave drawbacks for the EU, but would also cost the UK substantially.
The EEA and a temporary, partial customs union
The third option is the EEA – either formal membership or, more likely, just replicating the relationship. This also probably entails at least a partial temporary customs union membership.
Those such as Nick Boles argue for an EEA option by claiming that it would take us out of the growing political project while maintaining economic ties. No Eurozone. No European army. No common refugee policy. No fisheries and farming. Above all else, an end to ‘ever closer Union’.
EEA and a parallel reduction in non-EU migration could have been enough for many Leave voters in 2016. In addition, some argue that this option could be a stopgap while we consider others. Yet for some Leave voters, it might not be enough to feel the vote in 2016 has been honoured, and it might not entirely resolve the Brexit issue for some Conservatives either.
For the EU, this option would have the benefit of removing a troublemaker without the UK gaining total freedom. The UK would be mostly out rather than mostly in, but it would be hard to see it as a total victory for Leave. Immigration could be restricted (EEA is focused on workers’ movement, not all citizens), but not for most workers. Nor would we have control over areas covered by EU goods and services regulation – as long as we were part of the regime we would be a rule-taker in some areas rather than a rule-maker, with restricted freedom to operate an independent trade policy.
So where will we end up?
None of these options are perfect – and it may well be that the Prime Minister’s deal gets through and attention turns back to domestic politics.
But fairly soon, those opposing the deal need to nail their colours to the mast rather than just continuing to claim we can have the best of all worlds without May’s deal. They need to choose a direction – even if, as the joke goes, they wouldn’t start from here. And they need to be confident they can hold a Government together until March 29th, and persuade the Conservative Party and the wider country to back their proposal. We wait to see if enough MPs believe that to be the case.