LEADING THE WAY OUT OF THE EU

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Thursday 24 January 2019

A rarely mentioned mechanism within the WTO framework denies Remainers their weapon of choice in the war on Brexit, disruption to trade in goods.

“The more we will extend any kind of uncertainty the worse it will be for both sides,” said Lithuania’s President, Dalia Grybauskaitė yesterday, referring to efforts on both sides of the Channel to unnecessarily prolong Britain’s withdrawal from the EU. “In that case, it’s better to finish this sooner even with No Deal, or with any kind of deal, because I know even in [the] worst case scenario we will start immediately to negotiate with UK on special measures, it will take a few months,” added Ms Grybauskaitė.

Hard to disagree with that. Lithuania has a veto over any proposed extension of Article 50. If the President holds her word, it doesn’t matter what the likes of Nick Boles, Yvette Cooper and Dominic Grieve get up to, Britain will leave the EU on 29 March.

But what was most interesting about Grybauskaitė’s comments was the rare mention of “special measures”, a legal means enabled by the World Trade Organization for two or more parties to set their import tariffs at zero as they work towards a more comprehensive trade agreement. The only precondition is that the “interim agreement” should not exceed a “reasonable length of time.”

A Europe out of leverage

As alluded to by the Lithuanian president, Article XIV of the General Agreement on Tariffs and Trade (GATT), the WTO’s founding accord, is fast emerging as the EU’s saviour. The continent benefits from a £94bn surplus with the UK. British exports only account for 63% of the volume of imports from the EU. More importantly, Europe is on the verge of a downturn, it can ill-afford reduced access to vital markets like Britain’s. The post-Euro-crisis catch-up of 2017 that had Remainers smugly claiming Europe would rocket past our feeble economy forevermore is now a distant memory.

Germany, which sells twice as much to Britain as the UK purchases in return, is facing a slump predominantly triggered by a drop in demand from China. China is Germany’s fifth biggest export partner. The UK is the third largest, only narrowly behind France, which is in even worse shape. The French economy only grew 0.1% in the last quarter of 2018. The Continent badly needs some kind of arrangement with Britain.

At the last minute, the twenty-seven nations left behind will need to pin down the array of reciprocally-based offers of residency to British citizens living throughout the EU, a proposal already made by Theresa May herself. Bundled together with these and other side deals over controlled goods like livestock, pharmaceuticals and firearms should be an Article XXIV interim agreement to retain tariffs at 0% until a superior deal is struck over the following years.

Article XXIV is not limited to keeping tariff barriers low or non-existent, removing non-tariff barriers through mutual recognition of standards is also necessary. Logically, the follow-up deal would follow the lines of that with Canada, with ramped up access to the EU’s services market granted in exchange for fewer regulatory barriers to Britain’s lucrative goods market. A far cry from the completely lop-sided deal May sought to secure, with the UK handing the EU £39bn for the privilege of selling a massive goods surplus into the British market and nothing on definitive on services in return. No deal never looked so good.

Back in 2017

Naturally, the Remain side is eager to keep Article XXIV secret. The provision is bulletproof. It can only be challenged if the interim period is not applied to all trade. There is absolutely no reason why this would be the case.

Back in March 2017, when the government was on the verge of triggering Article 50, British officials had already begun to sound out EU interest in resorting to special measures and also taking an interest in how long the “reasonable period” should last.  An addendum to Article 24 states:

The “reasonable length of time” referred to in paragraph 5(c) of Article XXIV should exceed 10 years only in exceptional cases. In cases where Members parties to an interim agreement believe that 10 years would be insufficient, they shall provide a full explanation to the Council for Trade in Goods of the need for a longer period.

Whitehall had already concluded the two-year negotiating period would not be long enough, which speaks volumes of the defeatist attitude that has led to such a poor return on endless talks. At the time, the EU made it clear it would not consider using Article XXIV unless Britain met certain conditions, one of them being the Brexit bill.

The Irish border question…again

Fast forward twenty-four months and the circumstances have changed significantly, the Continent is panicking about No Deal after the EU’s heavy-handed solution to the Irish border conundrum, the infamous backstop resoundingly rejected by Parliament.

May is waiting for the House of Commons to force her hand with the hope that Sir Graham Brady’s amendment rejecting the backstop will gather a majority. However, Irish Taoiseach Leo Varadkar refuses to oversee the re-introduction of border controls on the island of Ireland. His carefully curated political image would be ruined. Due to the Irish veto, the European Commission, negotiating on behalf of the EU27 cannot make any major moves, which is why the only plausible change would be to the non-binding political declaration, an utterly pointless gesture. The backstop is likely to stay in the Withdrawal Agreement, which Parliament won’t touch, No Deal beckons.

In that event, the EU27 will be scrambling to retain as much access to the UK market as soon as possible. Article 24 will be called upon to save the day. The WTO really is the way to go.