LEADING THE WAY OUT OF THE EU

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Friday 21 January 2019

And then there were two. The campaign in the counties kicks off today as Boris Johnson and Jeremy Hunt set out to woo the Conservative Party membership in their bids to secure the leadership after winning the backing of a majority of MPs. Boris remains the favourite of course. Westmonster have a tidy collation of various polls over the last few months illustrating the burning demand for a Brexiteer prime minister. Jeremy Hunt is no Brexiteer (see below).

The debate rages on about tactical voting after five backers of Sajid Javid, who dropped out in yesterday’s first ballot, declared they’d then back Boris. Johnson however only increased his tally by three at the following ballot when Michal Gove was eliminated, just two votes shy of Hunt’s 77, still less than half of Boris’s 160. Note that Hunt was behind Gove at the morning count.

Boris has been running a slick operation. Tactical voting is entirely possible, probable even. But many Tory MPs would have wanted to avoid the “psychodrama” of Gove facing off Johnson up and down the country for a whole month – the contest doesn’t end until July 22nd – after the infamous backstabbing of 2016.

It would have been preferable to have two committed Leavers up against one another, but Gove ain’t no Leaver. The only other realistic contender of that ilk was Dominic Raab, eliminated at the beginning of the week. Boris it is, and Boris it will be.

Outgoing governor of the bank England Mark Carney is yet again pouring scorn on EU withdrawal. Probed on Boris Johnson’s expectation that the EU will enter into a “standstill arrangement” under Article XXIV of the GATT (aka WTO – see explainer here) on the Today programme, Mr Carney deliberately complicated the issue:

“GATT XXIV applies if you have an agreement, not if you’ve decided not to have an agreement or been unable to come to an agreement…not having an agreement with the European Union means that there are tariffs, automatically,” said the governor, truthfully with important information omitted.

Article XXIV is designed to facilitate a new agreement, it includes clauses to phase out tariff barriers over time to make for a gentle introduction. This will not be the case with the UK and the EU because both parties are already in a trade agreement with zero tariffs on all goods.

XXIV could be used to retain the status quo on trade in goods while both sides look to secure a new tariff-free trade deal like Canada’s on a permanent basis. Carney is right that an “interim agreement” under Article XXIV would need buy-in from Brussels, but that’s a moot point. They want a trade deal, one is already in place, and a political declaration – non-binding admittedly – is devoted to that ambition over the longer term.

Carney went on to cloud the issue further. “The Europeans have to apply the same rules to us as they apply to everyone else. So if they were to decide not to put in place tariffs they also have to lower their tariffs with the United States, with Canada with the rest of the world.”

Correct, one WTO member – the EU, any of its current 28 Member States, the US, Canada etc. – cannot unilaterally lower tariffs for one trading partner without doing the same for the others. This is the founding principle of the WTO. But that’s beside the point, the EU needs a deal.

If the new prime minister has the “guts” – to use one of Boris’s own campaigning words – to threaten No Deal with the offer of an interim agreement the EU will play ball. The economics demand it. The German economy is facing a recession because of tumbling demand from China, its fifth biggest export partner, the UK is third. The rest of Europe is no different.

“We should be clear that no deal means a bigger adjustment,” Carney’s final point on the matter. In other words, it’s a dreadful scenario entirely out of the EU, or a very jolly one with Theresa May’s deal.

Attending this week’s dull European Council in Brussels, Ireland’s Leo Varadkar brings glad tidings, delivered with typical smugness. The Taoiseach claims there’s “enormous hostility” among EU leaders towards another Article 50 extension. Good.

“There’s very much a strong view across the EU that there shouldn’t be any more extensions,” said  Varadkar who, like all leaders of the EU27 has a veto over any extension.

“While I have endless patience, some of my colleagues have lost patience quite frankly with the UK, and there is enormous hostility to any further extension.”

If just one country wants to play hardball and remove the option of an extension, the stage is set for a proper head to head over Britain’s future relationship with the failing bloc. Signing an interim agreement via Article XXIV would be a great start.