On bargaining about bargaining, the UK should call the EU’s bluff

On bargaining about bargaining, the UK should call the EU’s bluff

The EU’s recently-published bargaining position on Brexit shows once again how much EU leaders have lost touch with reality. They insist that the UK must agree to a budgetary deal before discussions on other matters can even start. If the UK agrees to this demand, then the EU wins the negotiating game and the outcome is guaranteed to be a bad one for the UK.

Their reasoning goes as follows: they assume that the UK needs a trade deal, which would take time to negotiate. Since the UK wants a trade deal, the ticking clock would pressure the UK into accepting a hard bargain on the budgetary issue. Once the EU has the budget deal it wants, it would be in a strong position on the trade deal too, because the British would have fewer cards left to play. The intent is to maximise the price that Britain pays to leave: the UK must not benefit from Brexit, they say.

Yet this strategy is based on a fatally flawed assumption: it assumes that the UK has to make a trade deal, and that the EU’s bargaining power comes from its ability to withhold any such deal to bring the UK into line.

The reality is that the UK can always walk away: no deal is better than a bad deal. With no trade deal, the UK would be free to establish free trade with the rest of the world, and there are big gains to be had from the UK ending EU protection of food and manufactures: consumer prices would fall by maybe 8% and GDP would rise by maybe 4%.

A trade deal would be nice to have, but we don’t need it and definitely don’t want a bad one. The EU’s strategy then unravels, as there is no reason for the UK even to come to the bargaining table in the first place and the EU has no means of forcing it to.

The UK should stick with the position that it is willing to discuss all issues simultaneously or not at all. If no discussions take place, or if there is no agreement, then on 29th March 2019 the UK will walk out of the EU and all contributions to the EU budget will end.

Since the EU is desperate to sort the budgetary issue out and the UK is not, the clock is actually ticking against them. Nor should we forget that the EU is falling apart and European leaders are likely to be soon replaced.

If the EU wishes to take the UK to court, it is welcome to do so, but the UK will no longer be under the jurisdiction of the ECJ post-Brexit. Similarly, if the EU wishes to impose tariffs on imports from the UK, it is also welcome to do so. However, UK exporters could fairly easily absorb EU tariffs which average under 4%, especially as they are making large profits due to the fall in sterling. In any case, for the EU to impose tariffs on the UK would be a major act of self-harm. Their importers would have to pay more on their imports from Britain and they would disrupt their own supply chains, which are very sensitive to tariffs.

So it’s a no-brainer. Mrs. May should hold to her position and call the EU’s bluff.