David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.
It is the morning after the night before. For most readers of this website, it is a moment of triumph as we leave the European Union. This is an historic moment: many have campaigned long and hard to deliver Brexit and it is perfectly legitimate to celebrate it.
Personally, I never had much of an emotional attachment to the European institutions or the more integrationist aspirations of some pro-Europeans, but I do believe that our prosperity and global influence will be diminished by our departure. So, forgive me, but I stayed clear of the English sparkling wine last night.
We remain a divided nation and this is not a moment where the country comes together in one shared emotion. Some sensitivity is required from all sides. Steve Baker, in particular, has been impressive in making the case that the manner of our departure should not aggravate existing divisions.
It is now time to focus on what happens next. What will our future relationship with the European Union look like? In truth, it is what we should have spent the General Election campaign debating, but did not.
The UK Government’s position for some time is that everything should be agreed before the end of the year. No extension to the Implementation Period because that wouldn’t be ‘getting Brexit done’. (You might have thought that Brexit was ‘done’, has just been done, but clearly it is a little more complicated than that).
In recent weeks, the Government has also been more explicit that its focus is on zero tariffs and zero quotas, but with ability for the UK to diverge on regulations. Alignment (dynamic or otherwise) is out of the question. After all, what is the point of Brexit if you cannot make your own rules?
It has to be said, it is a fair question. But there are some big consequences of trying to pursue ‘the point of Brexit’. Even with zero tariffs and zero quotas, you will be very far from having frictionless trade. For an advanced economy like ours, most of the costs of trade barriers relate to non-tariff barriers. Even if we land the deal we are looking for, trade with the EU will be more complicated, bureaucratic and expensive than is currently the case – as Michael Gove acknowledges. The Government’s own analysis suggests that the cost of pursuing a Canada-style free trade agreement will be 4.9 per cent of GDP in fifteen years’ time.
But won’t this give us lots of exciting new opportunities to trade with other places, especially the US? Some realism on this point would be welcome. Let us put to one side the likelihood of getting a free trade deal with every relevant country including the US; the benefit to the economy of moving from WTO terms to a good free trade agreement is not that dramatic.
The Government’s analysis is that the upside of getting a FTA with everyone else of any significance is only in the range of 0.2 to 0.7 per cent of GDP. To state the obvious, that is a lot less than 4.9 per cent.
I know, I know. Remoaners like me made these arguments in 2016 and 2019 and we lost. We did. But that doesn’t make the economic analysis wrong and it doesn’t mean that the decision to reject alignment in, for example, manufactured goods will be painless. There are people – probably quite a few of them, some of whom voted Tory for the first time in order to ‘get Brexit done’ – who will lose good jobs as a consequence of the decision to ensure we are able to set our own rules.
To be fair, there is much less of the ‘have cake and eat it’ about the Government’s new approach. There is no more of the nonsense that we will the ‘exact same access to the single market’ as we had before. There is an acceptance that there are trade-offs and if the conclusion is that sovereignty matters more than prosperity, this is the right strategy.
There is nothing much on non-tariff barriers, nothing for services, greater divergence between Great Britain and Northern Ireland (let us skirt over the issue of checks in the Irish Sea) but at least the Government knows where it stands, has Parliament behind it and can move quickly. There is no reason why this can’t be done quickly. Right?
Maybe not. At one level, a zero tariffs, zero quotas deal is very good for the EU. After all, they export a lot of goods here. It is not great if your economy is based on services or if your manufacturing industry relies on cross-border supply chains vulnerable to additional friction (in other words, it is not great for us). But surely the German car manufacturers will love it. After all, we are always being told they are on the verge of intervening to help us out.
There are two obvious difficulties. The first is that, in addition to ‘zero tariffs and zero quotas’, the EU are also focussing on ‘zero dumping’. They take a pretty broad view of what constitutes ‘dumping’ but we are immediately in the realm of Level Playing Field conditions. Workers’ rights, environmental protections, state aid. There is nothing new in this featuring in FTAs – the EU-Canada FTA has plenty of it – and that is with Canada being three thousand miles from the EU. The EU will want more extensive requirements on us than they do with Canada. It is complicated stuff, takes a while to work out and some of it will be politically sensitive. There might be some things a UK Government wants to do but won’t be able to because of the Level Playing Field provisions. Some of my former colleagues might argue this raises questions of sovereignty, accountability and democracy.
The second issue is fish. If the issue of fish stands in the way of concluding a deal, it will be the ultimate triumph of politics over economics. The fishing industry matters to those relatively small numbers directly involved both in the UK and the EU. Maybe it matters to our own self-image as an island nation but, economically, it doesn’t really matter much at all. But the fishing vote is geographically concentrated, it appears to have very high (by which I mean ‘unrealistic’) expectations of the benefits of Brexit and there is probably a widespread, sentimental sympathy for it. Finding a compromise on fish won’t be easy.
So where does that leave us? The Government has a mandate to pursue a more distant, less ambitious relationship but even though it is aiming low, it may still miss its target. Reaching a deal on fish and the Level Playing Field Provisions will be challenging. Received wisdom is that both sides will move sufficiently to get something over the line by the end of the year but the parties will find a way to maintain the status quo as we take our time to resolve outstanding matters, thus avoiding a cliff edge.
I am not so sure. Even if the issue of fish can be dealt with, the Prime Minister will need all of his persuasive qualities, a lot of political capital and considerable flexibility to land a compromise on the Level Playing Field conditions. He might question whether the political price he would have to pay to deliver a very thin FTA is really worth it after all. This doesn’t make a WTO exit at the end of 2020 the probable outcome but the risk does look under-priced. The drama of Brexit is not done yet.