The Government is exuding a great deal of confidence about the future outcome of negotiations to leave the European Union (EU). It would be nice to think we can trust the claims, but are they realistic? Or should we be adopting a different, less ambitious, less complex, novel and consequently less risky, approach?
Whilst predicting the future is always guesswork, we can try to understand what major ‘showstoppers’ or risks to a successful outcome are likely to exist. Put another way: identify some really important underlying assumptions which need to be right or potential disaster is likely. Presumably this has been done by the government already as a preliminary to setting negotiating goals and working out our Prime Minister’s winning strategy.
This list is not necessarily exhaustive but illustrative of significant underlying assumptions upon which is predicated the success or failure of our BREXIT negotiations:
- That pragmatic enlightened flexible mutual self-interest will prevail in the EU hierarchy;
- That rational economic considerations override EU political priorities or malice;
- That UK’s loss through failure to reach a trading agreement is the EU’s loss as well;
- That Mrs May can set the EU’s negotiation strategy;
- That The World Trade Organisation (WTO) option for trading with the EU is viable;
- That negotiating team and administrative arrangements can be adequately resourced.
Let’s briefly examine these assumptions in order:
(a) – The EU hierarchy does not have much of a history of actions based on pragmatic enlightened flexible mutual self-interest, but rather the opposite. It has its ideological goals (e.g. increasing Super-state centralisation) which are unremittingly pursued whatever the undesirable consequences; it has inflexible, slow bureaucratic processes and procedures; it is somewhat dominated by the German – French duopoly. The final deal will be further complicated by the Byzantine high level process involving the vote of the (presently somewhat posturing and hostile) European Parliament and unanimous agreement of all the 27 remaining Member States (presumably pursuing their own self-interests, such as Spain over sovereignty of Gibraltar).
(b) – The EU’s political priorities and ideology have traditionally over-ridden economic considerations. Consequently, for example, the relentless economic hardship imposed on the southern EU Member States (in particular Greece) by Monetary Union and the Euro. Imposed austerity (in the case of Portugal) was even reportedly used to send a signal to larger economies (Italy) to toe the German line. Usually the EU takes years to negotiate free trade agreements (FTAs) largely because their scope extends far beyond purely trade considerations to include ideological and political items.
(c) – The EU could actually profit at the UK’s expense from a failure to agree a free trade agreement. The EU over the years has encouraged (often through financial inducements) the transfer of economic activity from the more advanced Member States to the less developed. The EU’s Customs Union is also inherently protectionist, erecting barriers to imports (from third countries on the outside). Whilst there are likely to be some business losers, overall EU economic activity could remain the same, and there would be some winners (able to profitably expand in their protected EU home market).
(d) – There is limited scope to influence the EU’s negotiation strategy or priorities in favour of the UK’s interests. Commonly in contractual arrangements money and concessions flow from the weakest (or more desperate) party to the strongest (or more indifferent). Over the years the UK has not had that much influence in the corridors of EU power to protect its interests. Leaving must inevitably reduce influence rather than strengthen it especially where some malevolence, greedy envy or dishonesty is present towards the UK.
(e) – Trading under WTO rules with the EU is more problematic than closely integrated trading as part of the Single Market, and in some instances impractical or uncompetitive. The EU’s Customs Union operates tariffs and effectively has non-tariff barriers (rules, regulations, inspections, approvals, standards, etc.) to outside imports from third countries, which the UK would become. WTO rules do not change this situation, and even a free trade agreement may not help much where EU imposed conditions are impractical to follow.
(f) – The resources needed to negotiate in particular (protect our interests and not be ‘taken for an EU ride’) have to be built up quickly and without in-fighting. Also, after leaving the EU (and its Customs Union) and the Single Market, the additional administrative arrangements here and in the EU (such as customs clearance or inspections) have to be in place and running smoothly. Yet over the years the UK has lost expertise and working administrative systems sometimes through transfer of competences to the EU or the operation of the Single Market, whilst the world of intra-EU Member State trade has moved on with increasing volume and complexity. Additionally, the UK Government has a poor record with large, complex projects especially relating to information technology.
In summary, consideration of these assumptions gives some indication of how risky Mrs May’s planned BREXIT strategy is (taken at face value) and the likelihood of its being ‘derailed’, or at least not turning out as expected. There are obvious areas for concern. Assumptions, if incorrect, cannot be changed, but we can change our approach in response before, and hopefully well before, the worst happens.
There is more than one path for leaving the EU, whilst retaining a satisfactory trading relationship; perhaps our prime minister has some up her sleeve. For example, as an interim solution she may use (temporary) membership of the European Free Trade Association (EFTA). This would give the UK continuing membership of the European Economic Area (EEA) whilst escaping the political clutches of the EU. This route could include controlling levels of EU migration through unilaterally enacting the Safeguard Provisions in Article 112 of the EEA Agreement. Remaining within the EEA (UK is currently a member through being in the EU) would retain smooth trading continuity with the EU with the least disruption. Given a choice, negotiating with future friendly EFTA partners is more attractive than negotiating with somewhat disgruntled, soon to be ex-EU partners.