Jams tomorrow
It would be a delusion to think a no-deal Brexit could work
For the umpteenth time, no-deal is not an option, or at least not one that you would voluntarily choose. Before accusing me of Remoaner pessimism, let me explain why, for there has been a great deal of ill-informed nonsense of late to the effect that we have nothing to fear from such an outcome but fear itself. This is denial verging on the delusional.
Jeremy Hunt, the Foreign Secretary, says the chances of a no-deal Brexit grow by the day, Mark Carney, the Governor of the Bank of England, says those chances have become uncomfortably high, and Liam Fox, the International Trade Secretary, reckons it’s now more likely than not.
With this slide towards the cliff edge has come a gathering volume of commentary to suggest that such a divorce would be both manageable and even positively desirable. The safety net of World Trade Organisation terms are all the protection we need, it is claimed, making it impossible for the EU to discriminate against our goods and services.
The reality is that the WTO framework is not as robust as it might seem, and crucially we would still have to rely on the goodwill and agreement of the EU to make it work in our favour. In other words, we would need some sort of a deal.
Intransigence by the European Commission and its puppet masters in France and Germany might yet bring matters to the acrimonious, no-deal divorce that markets fear, though at this stage it is quite hard to see MPS agreeing it. Instead, Parliament would seek an extension, and the Government would be sent back to try again.
But to argue that come what may it will all be fine, and like the millennium bug we’ll soon be wondering what all the fuss was about, smacks of arrogance and complacency, and risks a massive political let-down when it turns out not to be true. Whoever takes us down that path must be honest about the consequences, and like Churchill, admit that they have nothing to offer but blood, toil, sweat and tears. In the long term, advocates of this approach could be right; with the correct policies on tax and regulatory competitiveness, Britain might indeed thrive outside the EU. But supply side reform takes time to work. Payback will be some distance off. “In the long run we are all dead,” observed the economist John Maynard Keynes. “Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.”
One analogy that comes to mind is that of a car gliding along the motorway in sixth gear where the driver suddenly decides to wrench it into second or first. With luck it won’t destroy the gearbox, but it will cause the vehicle violently to slow, throwing the passengers forward in their seats. It will take some time to once more achieve cruise speed.
The millennium bug comparison comes from Bernard Jenkin, as thoughtful a parliamentarian as you could hope to find. But on this occasion, it is a misleading analogy. Today, we do indeed wonder what all that fuss was about. Yet we would likely have had a very different view had not so much money and effort been spent on neutralising that bug. By definition, we only see the disasters that happen, not the ones that are averted.
At the centre of the belief that it will all be fine on the night lies the admittedly not unreasonable assumption that since our regulations and standards will look no different the day after we leave than the day before, there could be no valid reason for interfering with trade as it is.
In an ideal world, this would be the case. Unfortunately, the WTO provides no guarantee or legal underpinning for such hope. In virtually all its position papers preparing for Brexit, the EU makes plain that Britain becomes a third country from the moment it exits. Without some form of dispensation, all those myriad tariff and non-tariff trade barriers immediately kick in. This may be irrational, but it is the law. There is almost no business that takes place outside a legal framework of this sort.
Here’s one example. To sell medical equipment in the EU requires a certificate – or Conformité Européene (CE) marking – to show required standards are met. These certificates are pretty much automatic for EU members, and as it happens are substantially written here in the UK for the EU as a whole, but they would cease to be valid for UK suppliers when Britain becomes a third country. UK certification authorities will no longer be recognised.
Even if the UK said it planned to remain fully compliant with the EU, including European Court of Justice rulings on such matters, the EU could, if it wished, play hardball and either refuse such certificates or subject British medical equipment to vigorous border controls to ensure compliance. Some countries – Switzerland, Australia and Turkey – enjoy mutual recognition with the EU on medical equipment standards, but by definition, this requires a deal to be struck.
Talk of empty supermarket shelves, long tailbacks at ports, stockpiling of drugs at hospitals – this all does admittedly seem somewhat hysterical. But to step outside the EU’S borders after decades of being within them, and begin trading instead on WTO terms, will nonetheless be a significant shock to the system.
It is naive to think otherwise. WTO rules to prevent discrimination provide little more protection than a thin cotton overcoat in a Force 9 gale. So long as the EU can show it no more discriminates against the UK than any other third country, it would be within the rules. This will be easy enough in all the high value added trade the UK does with the EU. And even where there is a valid legal case, it will take a long time for the WTO to decide it. By the time the ruling is made, the damage will have been done.
For the EU to apply such an approach would be vindictive, economically irrational and self harming, but it shows no sign of giving way. Its stance is like that of Hugh Owens, the 78-year-old mushroom farmer who refuses to allow his wife to divorce him. It intends to make leaving this loveless marriage as difficult and costly as possible. The last thing the EU wants is for the UK to succeed once outside, for that would surely undermine its raison d’être. It will therefore be miserly with its favours.
To raise these points is not to succumb to Project Fear, but only to recognise the almost impossible task faced by those heroically trying to reconcile the smooth and easy Brexit promised with the unreasonable demands of the world as we find it.