LEADING THE WAY OUT OF THE EU

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Having opened negotiations in March 2017, vowing to take Britain out of the European Union in two years with either a good deal or no deal at all, Theresa May proceeded to immediately hand Brussels the advantage. The EU was allowed to set the negotiating schedule: withdrawal and the future relationship would not be negotiated side by side, but sequentially with the EU putting a break on talks until the prime minister agreed to cough up £39bn of taxpayers’ money.

May capitulated in the Autumn of that year with a pledge of £20bn at a speech in Florence. The huge sum was casually doubled in December in exchange for a 21-month transition period, starting on Brexit day in March 2019. Only in 2022 would Britain become a sovereign nation again, and even then, perhaps only in name. Concessions over citizens rights were also prematurely made, along with a commitment to avoid border infrastructure in Ireland at all costs, a decision that would cast a shadow over the whole process.

The EU secured additional concessions in the run-up to the March 2018 European Council summit when it was revealed British fisheries would remain under Brussels’ control during the transition period, threatening their very existence.

The pledge to avoid infrastructure in Ireland has proved even more disastrous than initially feared. The government’s half-baked “Chequers plan” for Britain to take back control of its trade policy while remaining in the EU Customs Union was unceremoniously binned by EU leaders at a summit in Vienna in September 2018. May then agreed to remain in the Customs Union indefinitely.

The processing of exiting the EU outlined in the 599-page Withdrawal Agreement could last forever as Brussels continually rebuffs British proposals for a high-tech, open, but regulated border in Ireland, keeping the UK in Single Market and any notion of a looser, sovereign trading relationship at bay. The terms of that future arrangement are catered for by a non-binding political declaration that is open to wildly different interpretations. Both the Customs Union membership and a conventional trade deal fit within the wide remit. The document is essentially meaningless.

With no agreed cut-off date or unilateral means of exit from the Withdrawal Agreement, it has become a national humiliation, symbolising an incompetent government and a ruling political class stretching every sinew to Remain in the European Union. May has duly been unable to get a Commons majority behind her defective deal, resulting in political deadlock.

Having made concession after concession in her dealings with the EU, the eventual outcome could be quite the reverse, with Britain regaining full sovereignty from the EU by leaving without terms and trading henceforward under the framework of the World Trade Organisation.

However, in failing to get the existing deal passed in time for the original exit date of 29 March, the government has been obliged by the House of Commons to return to Brussels to request another extension, giving MPs time to explore other options, such as remaining a full member of the Customs Union and/or the Single Market. Any of these options, including No Deal, therefore remain possible – “remain” being the operative word.

A BREAKDOWN OF THE OPTIONS

1. THE UK NEGOTIATES A FREE TRADE AGREEMENT (FTA) WITH THE EU

The most relaxed of the formal options available to the UK is a typical free trade deal. Britain would retain full or partial access to the Single Market, meaning tariffs on the vast majority of goods would continue to be exempted. But there would be no requirement for the UK to adopt regulations from Brussels, nor would Free Movement be a pre-requisite.

2. THE UK REMAINS PART OF THE CUSTOMS UNION

The Customs Union in many ways mirrors the the EEA. Just as all EU countries are in the EEA, they are also members of the CU. Non-EU countries in the Customs Union are usually hoping to one day become fully-fledged EU Member States, whereas the likes of EEA Norway have decided not to join the EU but have sought a higher level of EU market access. Non-EU countries in the customs union include Turkey, free movement is not a pre-requisite as it is with the EEA. The EU wants to retain access to the UK labour market and has not entertained the CU option in public.

The Customs Union carries a major drawback. Members must adopt the EU’s common tariffs (aka import duties) and regulations. In other words, members of the CU cannot unilaterally raise or lower tariffs on any imports other than agricultural goods, and as a result, they cannot enter into trade agreements without the EU doing so first. EEA countries can.

3. THE UK REMAINS A MEMBER OF THE EEA

Under this option, Britain would still remain within the European Economic Area (EEA), which comprises of all the EU Member States plus three other countries, Norway, Iceland, and Lichtenstein. The EEA is essentially, the EU’s Internal Market, minus agriculture and fisheries. A ‘Norway-Style’ relationship therefore means the European Court of Justice will no longer be Britain’s supreme court, EU VAT requirements will no longer apply, agriculture and fisheries policies will be back under the government’s control, as will its ability to independently negotiate trade deals. A condition of remaining in the single market however is to adopt Free Movement, pay budget contributions to the EU, albeit at a significantly reduced level, and adhere to the EU’s single market regulations.

4. THE UK NEGOTIATES ITS OWN EEA TYPE DEAL

Switzerland chose to arrange its own EEA-type deal with the EU. It has tariff-free access to the single market, but whereas Norway and the other EEA countries have chosen to weld most of their industries to the EU’s single market, Switzerland has opted to be more selective, adhering to the Free Movement in principle, but on occasion restricting access to its labour market.

At the other end of the spectrum, MPs in Westminster have hatched a plan known as “Common Market 2.0” or EEA+ to keep Britain in both the Single Market and the Customs Union, with agricultural products included – the EEA agreement includes farming and fisheries, but they are largely outside of the EU’s internal market. EEA+ therefore encompasses almost all aspects of European integration, but without political representation. It is universally recognised as the worst of all options, even less attractive than remaining in the EU.

5. THE CHEQUERS CUSTOMS FUDGE

The option no-one foresaw. Only Whitehall, where the fudge was hatched, says it can work, most likely spin to soften the blow of remaining in the Customs Union (see option 2). The prime minister’s December 2017 pledge to not install border infrastructure in Ireland signalled a horrible compromise would be in the offing. No sovereign border in the world is controlled without the presence of infrastructure (cameras, barriers, checkpoints). Discounting these facilities consigns Britain to the CU.

Following the December withdrawal agreement, The British government had to think up a third way to avoid what is known as the “Irish Backstop” – namely staying in the Customs Union. Under the so-called “Chequers proposal” the UK is supposed to remain part of the EU’s external frontier but act as a de facto sovereign trading nation by collecting tariffs on behalf of Brussels for EU-bound shipments. Exporters of goods destined for the UK market from nations with whom Britain has signed trade deals will receive a refund. All well and good if they enter the UK via a British port, but what about shipments routed through Antwerp, Hamburg and Rotterdam? The government is not pushing for the EU to record these imports and refund HM Treasury although it is compelled to do so thanks to an amendment forced onto the EU Withdrawal Bill by Tory Brexiteers led by Jacob Rees-Mogg. This sense of not knowing where anything stands is far from confined to the Rees-Mogg amendments, indeed it perfectly encapsulates the entire concept, which needless to say, is doomed.

6. THE UK TRADES WITH THE EU THROUGH WORLD TRADE ORGANISATION (WTO) RULES

Should negotiations break down with the European Union for whatever reason, the UK would fall back onto World Trade Organisation (WTO) rules in its commercial relationship with the EU. The core principle of WTO membership is to treat all other members equally and the EU will not be able to impose arbitrary and prohibitive duties on imports from the UK.

ARTICLE 50

Article 50 of the Treaty on the Functioning of the European Union (also known as the Lisbon Treaty) is central to the process of exiting the EU. Following the prime minister’s notification of withdrawal to the European Council on 29 March 2017, time is almost up on the two-year negotiating period, which is supposed to define both the terms of Britain’s exit as well as its future relationship with the European Union.

Perhaps neither will happen in the event London and Brussels fail to come to an agreement. That hopeful prospect remains less likely however. This is because the government has taken far too long to come up with an opening pitch for the future trade relationship – it was only made in June 2018 – as a last resort both sides may seek to get around the thinning timeline by signing a vague treaty commitment towards a future trade deal to be negotiated during the transition period, an option sketched out by Article 50.

Click here to learn more about the withdrawal process.

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