Better agree No Deal now than accept the weakness and humiliation of the Withdrawal Agreement

Better agree No Deal now than accept the weakness and humiliation of the Withdrawal Agreement

Approaching “no deal” at the eleventh hour, as we may well now be doing, is clearly not ideal. It would have been much better if we had spent the last two years negotiating the Canada+++ free trade deal which was the logical outcome of the 2016 EU referendum. This would have enabled us to have had a smooth transition towards an inter-governmental relationship with the EU27, rather than the one based on political unity which the 2016 EU referendum rejected.

The alternative we are now facing is the Withdrawal Agreement or some variant of it, possibly after a protracted delay if Article 50 is extended. This may buy us some short-term stability, but at the cost of putting us in a desperately weak negotiating position in the future. It is therefore important to appreciate how much stronger our hand might be if we start from “no deal”.

First, we would not be obliged by a legally enforceable international treaty to pay the EU £39bn. This is not to argue that we should refuse to pay the EU27 a fair amount to cover our legal obligations. It would, however, put us in a position to ensure that the sum to be paid is what we really owe and not an inflated figure, as £39bn arguably is. It would also provide us with substantial leverage to ensure that we would be able to secure agreement to a fair trade deal in return for the money we are paying, which we should surely agree to pass over only when we know what we are getting in return.

Second, “no deal” would force the EU27 to resolve the Irish border problem. No one, including the Republic of Ireland, the UK or the EU27, wants a physical border. Everyone will, therefore, have to find a way of using technology, combined with AEO trusted trader status for major companies and exemptions for smaller ones, to manage the border without physical checks. Of course, this should have been planned long ago. Now it will have to happen.

Third, “no deal” would ensure that we were out of both the Single Market and the Customs Union and therefore in a position to push ahead straight away into negotiating free trade deals with the many countries which have already expressed interest in having FTAs with us.

Fourth, we would be able to start – without delay – negotiating with the EU a free trade deal which has already been offered to us on various occasions – by Donald Tusk, President of the European Council, and Michel Barnier, the EU’s chief Brexit negotiator. Politics tends to trump economics in the EU, but the huge balance of payments deficit we have with the EU27 – £96bn in 2017 compared to a surplus of £13bn with the rest of the world – must mean that EU exporters will press for continuation of as close as possible to frictionless trade between the EU and the UK. It would, in fact, be possible, under WTO rules, for the European Commission and the UK Government to agree to continue immediately with no tariffs and quotas. Because of their trade surplus, it would make even more sense for the EU27 than it would for us to agree this being done.

Contrast what could come out of negotiations on this basis with where we would be under the Withdrawal Agreement – stuck for two or three traditional years of ongoing uncertainty; stuck with paying £39bn with nothing concrete being provided in return; stuck with the Irish backstop; and stuck very probably with having to make more concessions – on fishing, Gibraltar, ongoing net payments and other issues – to get any sort of trade deal in place; and still half in and half out of the Single Market and the Customs Union, with all the obligations these entail, but with few of the benefits they provide which could not be secured by a free trade deal – and with no vote.

Of course, leaving the EU at the end of March 2019 with “no deal” involves risks of disruption and ill feeling. The probably short-term nature of these hazards, however, needs to be weighed against the years of humiliation which are in prospect if we have to negotiate our future on the basis of the terms of the Withdrawal Agreement. Falling back on “no deal” at the last minute may be far from ideal, but it seems hard to argue that it would not put us in a better negotiating position than any alternative likely to be on offer.