UK MUDDLING THROUGH
The current UK dilemma can be seen as a position of weakness by China, India and Brazil — the markets of the 21st century
IN just seven months on March 29, 2019, the United Kingdom exits de jure from the European Union (EU) in probably the mother of all political divorces in contemporary history.
In reality, it is almost certain that it won’t be a de facto departure, given that the two sides have agreed that the British exit from the EU (Brexit) won’t be an instant affair, but would take two years to work its way through the operational and legal logistics.
The British are known for muddling through things, which according to the Oxford Dictionary, is “to continue doing something without having any clear plan or purpose, or without having enough help or support”. One may ask: “How on earth did this comparatively tiny island amass, control and muddle through one of the greatest empires in history?”
In the Brexit context, this is what critics on both the political right and left, including the ruling Conservative (Tory) Party, have described Prime Minister Theresa May’s negotiations with Brussels. It was stated in her August Chequers Statement, subsequent Brexit White Paper and the 25 “documents of guidance” published last Thursday for people and businesses to try to avoid the “short-term disruption” which the government admits is possible if the two sides cannot reach a deal, including a projected 7.7 per cent hit to GDP over the next 15 years.
One of the more acerbic analogies of May’s Brexit woes is “Britain leaving the EU as akin to attempting to remove an egg from an omelette”. But, when even British muddling through starts falling apart, judging by the internecine war of words between diehard Brexit MPs, led by former foreign secretary Boris Johnson, and the Remainers (those who voted for the UK to stay in the EU) led by Tory rising star Dr Sarah Wollaston; and the clear blue water between what the UK government wants and what the European Union expects, then everyone should be concerned.
There are four scenarios regarding Brexit — the UK can leave with a deal; it can leave without a deal; the UK can stay in the EU by rescinding Article 50, but which require final approval from the European Court of Justice; and, the UK could hold a second referendum, which May has ruled out.
If London cannot even progress on the Brexit negotiations, then what hope is there in its ability to negotiate bilateral agreements with non-EU countries from a position of strength? On the contrary, China, India and Brazil — the markets of the 21st century — could construe the current UK Brexit dilemma as a position of weakness.
Bilateral economic relations with traditional White “kith and kin” Anglo-Saxon countries including the US, and the old British dominions of Canada, Australia and News Zealand are more complex than the rhetoric and the aspirations of the right suggests.
Bilateral trade volumes and future potential with the above countries are more modest and their geographic distance remains a costly transport factor. In Washington, the maverick President Donald Trump has put America “first” and precipitated trade wars with China, Turkey, the EU and probably any other country which disagrees with his foreign policy. It remains to be seen whether the so-called USUK special relationship is transformed into special treatment when it comes to trade, investment and tariffs.
Roberto Azevedo, directorgeneral of the World Trade Organisation (WTO), in a BBC interview last week, explained that trading on WTO terms is not as simple as suggested. The impact from a “no-deal” Brexit would almost certainly lead to trade “barriers” at the borders and tariffs between the UK and the EU.
“The EU cannot discriminate amongst the WTO members, so the UK will have to be treated as all the other members, and the other members pay tariffs so the UK will have to pay tariffs as well. The UK could unilaterally remove its trade tariffs, but under WTO rules, if it does so with the EU, then it has to do so with every trade partner. It cannot pick and choose,” he added.
Judging by the statements and rhetoric of the Tories over the last few days, it seems that the “no deal” option is becoming increasingly inevitable. UK Chancellor of the Exchequer Philip Hammond had bluntly warned that a “nodeal” Brexit could damage the economy, and therefore impact on a cornucopia of issues including tariffs, customs, VAT, food prices, financial services, the NHS, farming, food prices, credit card and mobile telephony roaming charges.
The problem is that May’s Brexit strategy was fatally flawed from the start when she appointed hardline Brexiteers to lead the negotiations with Brussels, including Brexit secretary David Davis, and his successor Dominic Raab, Johnson, International Trade Secretary Liam Fox, and a host of supporting junior ministers. This was tantamount to placing a hard Brexit or no deal noose round the negotiations.
This has backfired since more Remain Tory MPs including Justine Greening and Dominic Grieve — both ex-cabinet ministers — are now clamouring for a second referendum to give the British people a chance to vote on any outcome of the Brexit negotiations.
If London cannot even progress on the Brexit negotiations, then what hope is there in its ability and capacity to negotiate bilateral agreements with non-EU countries from a position of strength?
The writer is an independent Londonbased economist and writer