The next PM should pursue a Free Trade Agreement with the EU, but retain a No Deal counter-strategy

The next PM should pursue a Free Trade Agreement with the EU, but retain a No Deal counter-strategy

There is no easy, undiscovered solution to the Brexit impasse waiting for some brilliant mind to uncover. A ‘better deal’ – in the sense of a modification to Theresa May’s Withdrawal Agreement without the Irish Backstop – is unlikely. As many have known for some time, the best outcome would consist of a comprehensive Free Trade Agreement (FTA), like the CETA concluded between the EU and Canada, but which includes deeper commitments on services and mutual recognition of professional qualifications.

To be sure, this will not replicate the closeness currently enjoyed under the Single Market but, crucially, it will allow the UK to diverge in terms of regulatory standards in order to promote a more competitive economy focused on pragmatism, innovation and the needs of business in the tradition of the common law (which helpfully permits everything except that which it does not) as distinct from the uncompromising continental civil law (which irritatingly prohibits everything except which it deigns to allow). Our dynamic, reliable legal system is one of the reasons that the UK and the US have thrived while Europe continues to stagnate under the weight of its own bureaucracy and rigidity.

The new Prime Minister must pursue such an FTA aggressively in the spirit of full co-operation and amity with our European partners, presenting it, and genuinely so, as in our shared interest. While it would be difficult to finalise such an agreement in four months, an interim agreement could be agreed in principle, as specified in Article XXIV of the GATT and Article V of the GATS, allowing the two parties to trade with virtually friction-free trade until a final agreement is in place.

If an FTA or an interim agreement leading to one is not forthcoming by October 31st, so be it. Preparations to mitigate any shocks from trading with the EU without a formal trade deal must continue in earnest. This will include continued infrastructure and technology enhancements at all borders. A significant portion of the £39 billion that would have been paid to the EU had there been an FTA, but which will be withheld without one, can be set aside to help businesses cope with adjustments. This could support tax relief, especially for small- and medium-sized businesses, to help offset some of the costs of handling diminished access to the EU market. With a no-deal Brexit in time for Halloween, by Christmas people will be wondering what all the fuss was about. It will be the biggest anti-climax since the predicted non-recession of the autumn of 2016.

It is hard to see why presenting ‘No Deal’ as a sensible counter-strategy to an FTA should in any way be construed as reckless or extreme. No-deal Brexit continues to be painted by the media and some politicians as the most radical of all options, one which represents a complete rejection of not only Europe but one which is the embodiment of isolationism, as if it were somehow the manifestation of the UK’s taking on the mantle of the North Korea of the Atlantic. The reality could not be further from the truth. No one, including not one candidate for Prime Minister, has advocated anything remotely like this. No one has said we should impose punitive tariffs on EU goods after Brexit. No one has suggested rejecting the WTO or trade deals with other countries. To the contrary – everything that has been put forward by Brexit supporters has unfailingly embraced free trade and economic globalisation.

Under WTO terms, the EU’s MFN tariffs on most goods are quite low, with some exceptions for agricultural products. There is every indication that the customs processes at borders will minimal, designed to prioritise flow with minimal inspections based on genuine risks. Likewise, there is no reason why the UK would block goods coming in from Europe. The picture for services is somewhat less promising, but steps can be taken to enhance GATS-level access to EU markets through the establishment of a commercial presence in an EU Member State.

We do not need membership of the EU to be active participants in the global economy; if anything, it is the EU which is holding us back from doing so more robustly. It has been the EU’s trade agenda which has imposed all sorts of harmful policies, such as high tariffs on goods we don’t produce, anti-competitive data localisation rules, unscientific health and safety regulations on food and labyrinthine financial regulations. Don’t believe the merchants of doom. An FTA/No Deal strategy is the very essence of prudence and moderation.

The EU, The UK and Global Trade: A New Roadmap by David Collins is published today by Politeia