I had penned my next piece about why the governance structure of the EU harms the ability (and importantly) the agility of the UK to act in its best interests and ultimately in the best interests of Europe.
However, there is something more pressing that we all need to confront and decide how we feel about it.
So, in this post I will examine why it matters that David Cameron has lied about the ‘Legally Binding’ deal that he apparently secured in Brussels on 20th Feb 2016.
Before covering the reasons why the lie matters, we examine the nature of the lie and provide reassurance that it is categorical, not a hypothesis that Cameron has indeed lied
Why leaving the EU is a process that includes a negotiation and not a fait accompli, as some believe.
Why it doesn’t make sense for the EU to apply tariffs to British exports.
The relative health of economies in Europe and UK
Predicted crash of the pound
Why common sense will prevail
Leaving the EU – The Process
The process for leaving the EU will take some time to execute but it doesn’t take long to read the treaty text that defines the process. A member state leaves the EU by invoking Article 50 of the Lisbon Treaty
Here’s a screenshot of the whole thing (yes, that’s all of it):
Reading the words you can see that it clearly states that there will be a negotiation. Some claim however that there will be no negotiation as per the Article 50 text and the EU will simply tell us what deal is available, for us to either accept or decline.
Some also claim that UK representatives will not even be allowed to attend the ‘negotiations’ in which case the EU representatives presumably hold discussions with a row of empty chairs.
Rather than go over every word myself, there are numerous articles covering the specifics. Here’s one by Brexit Blogger euquestion:
I am told that in the case of UK leaving the EU, that the EU will have ‘the whip hand’, and will tell the UK ‘what the deal is’ and that tariffs will be automatically applied to UK exports to the EU if we don’t accept.
Let’s tackle the first claim:
The EU will decide what the deal is and offer it on a take it or leave it basis.
For there to be no negotiation with the UK whatsoever, the EU would have to be in a position where it either wanted nothing from the UK as part of the deal, or it felt that it was in such an overwhelmingly strong position that it had to offer no concessions. I’m discounting a situation where the EU put together a package that perfectly matched our requirements and we simply accepted it as it had everything we want.
To understand why there would be a desire for accommodation on both sides, we need only examine some simple facts of economics. Firstly that international trade is not an activity that favours only one party and in an open trading situation, benefits accrue to both parties, certainly between advanced economies. There is also the fact that the EU’s own policies promote free and open trade with close neighbours.
One proponent of the EU ‘whip hand’ position has a blog post in which I can find statements supportive of this case, although I’m sure this was not the intention of the author.
In the article you can find a statement referencing ‘Mutual beneficial trade with the EU’. Reinforcing the point about trade being a benefit to both parties.
The post does highlight what is described as a fallacy, that ‘The EU will still trade with us after brexit because we buy more from them, than they from us, we are in a position of power.’ It’s not quite a fallacy, more a misunderstanding. As I am describing, a fair and equitable trade agreement will be reached because it is in the interests of both the UK and EU. More reasons for this shortly.
Any trade deal with the EU must address the question of Tariffs. A repeated claim is that:
The EU will do nothing but apply the tariff to British goods once we are outside the ‘Tariff wall’ and why would they do anything else.
For any who don’t know, a Tariff in this context is “a tax or duty to be paid on a particular class of imports or exports”. The European Union applies Tariffs across a raft of goods and services. You can look up rates for particular product types on the Taxation and Customs Union website if you are ever bored one evening.
As an example, I found that a 16% tariff applies to Third country imports of passenger vehicles of 10 persons or more. Clicking a link to the relevant regulation 2261/98 of 26 October 1998 took me to a 969 page document.
An extreme example perhaps but it shows what a nightmare it would be to have to a) pay tariffs of up to 16% on (in this case) passenger vehicle imports and b) have to wade through 900+ page documents to ensure compliance before trying to import vehicles into the EU.
Full application of tariffs depends on there being either no agreement to either limit them or maintain tariff free market access. There is a whole set of WTO rules that are pertinent here. That the EU is an RTW, Regional Trade Area, rules around MFN, Most Favoured Nation, Technical Barriers to Trade that need an MRA, Mutual Recognition Agreement etc. This post is not going to cover that in detail but I see that it was covered recently by The Brexit Door
I would like to ask the following question as I think it is key to understanding the dynamics of any trade negotiations following any Leave vote majority and commencement of Article 50 negotiations.
Can the EU impair the UK economy (via the allocation of Tariffs) with impunity?
My point here is that, although in relative terms the U.K. economy relies more on EU trade than the EU does on UK trade, applying tariffs will harm the UK’s economic performance and hence reduce our capacity to import EU goods and services. This in turn harms the EU economy, although not evenly as UK will import more goods from certain EU member states than others.
Hold the answer in mind anyway and let’s see what the EU’s own treaty articles say about subjects related to trade policy.
Links to the Treaty articles on international relations, diplomacy, the EU’s own neighbour policy:
Articles 3.5, 8, 21.2 which commit the EU to maintaining good international / neighbourly relations based on co-operation.
EUPeons view: No. None of that. Not happening. At all. Ever.
The fact is, the UK offers a lot to the EU that they would want to retain access to after Brexit that is not related to trade. Collaboration and funding of science, security (Royal Navy ships were described as the EU Navy as far back as 2012 and there is an EU Website which describes the ‘EU Naval Force’) and taking a few more statements from the blog I referenced earlier:
“good sign of rebalancing global economies and continuing world progress and harmonisation.”
What do most Brexiteers say about looking outward to the world… They’re like a broken record!
“We in the West have had it our way far too long, while whole continents suffered in poverty to feed our greed.”
Brexiteers want UK to take its place in the world as a free trading, wealth generating partner, competitor, ally, etc.
Now, remind me again who sits behind a tariff wall designed to make others’ goods more expensive and internal producers protected from global competition? Just read about Africa.
I’m not suggesting BTW that UK opens itself so completely that it is a global race to the bottom. Our heavy industries have suffered hugely due to globalisation and we haven’t a hope to compete in labour intensive activities in all sectors though our car manufactures, albeit foreign owned do very well. Nissan Sunderland acknowledged to be Europe’s most productive car plant and astonishingly, I read recently that it makes more cars than Italy
Overall UK is still a big player in manufacturing, the 11th largest manufacturing nation in the world.
Our services do quite well also. Discussing Brexit with a colleague recently he made the incorrect statement that we don’t manufacture anything any more (see above). I asked him where he thought UK stood as a provider of services. He guessed 25th place. When I told him that the UK was the world #2 in provision of services he nearly fell of his chair. That’s without there ever having been a complete single market in services within the EU. Maybe I need to look up tariffs in services!
Side note: who is the single biggest services provide in the EU & why is the single market in Services not complete? #Influence
Back to the negotiation, presuming the British delegation is not the aforementioned row of empty chairs.
To recap: As we have stated, Article 50 of the Lisbon Treaty defines a period of… Negotiation. Quelle surprise, Mon ami!
Now, that may end up being two years spent sitting across the table from a stony faced Frenchman with his arms crossed, who repeatedly advises you that the tariff is the tariff and there’s nothing else to say. At least you’d get to drink some coffee and eat some nice pâtisseries et macarons etc.
This is a key area that causes confusion because some people have the idea that the ‘negotiation’ is simply the EU working out what you can have and just telling you and that this is what is intended by the wording of the treaty article.
This is based on confusion about the leaving party not being part of the commission’s ‘discussions’. In reality it simply means you can’t sit on their side of the table and you can’t join the room when they want to discuss things among themselves. Not complicated really.
So why would the EU negotiate in good faith? Consider the statement from the blog post we are referencing:
“The next time a kipper tells you the EU’s economy is shrinking remind them only Finland and Greece have that problem. The rest are growing fine”
I might pick on the ‘growing fine’ comment because growth has to exceed inflation to be positive in real terms. However, as the EU (generally I think or maybe just the Eurozone) is in deflation that might not be an issue.
All growing fine yes of course nothing to see. Remember that certain economies will be contributing more to that growth than others, so it is not distributed evenly.
Now, moving on: ‘UK in no position to preach.’
Agreed but it is not about preaching. I’ll be totally honest about the UK economy… It’s crap. Huge deficit and a debt mountain, poor productivity, debt and property boom fueled ‘growth’.
So when our blogging friend puts out graphs of UK sovereign debt with a sword above it, it’s predictably horrific. I don’t disagree, never do. Why would I as I’m not in the habit of embellishing or lying.
However: UK Sovereign debt is not unique in Europe:
Do you notice who sits next to the UK in the debt table. Yes our great friends France.
The author of the blog just happens to live in France but only ever draws attention to UK national debt. He did this before starting to complain about loss of value of the pound.
Predicted crash of the pound.
This is a prediction I have relayed to me frequently now the referendum date is fixed. This is an area where I can only presume EUpeons of all stripes are blinded by the success of their 17 year old currency.
I make the same point each time. A nation’s currency (in a floating fiat currency system at least) should reflect: Currency trader’s confidence in the productive capacity of the nation, confidence in the sitting government to manage the state’s finances successfully and the risk of the nation defaulting on debts and/or devaluing its currency. Also other factors such as the level and likelihood of high(er) inflation.
So. The level of the UK pound will be set by the market, which is of course a tough master.
IT should be remembered that artificially supported currencies allow governments to borrow too cheaply and overspend. Remind you of anyone… Greece maybe?
So I maintain that in the longer term, a true reflection of the value of the pound is a good thing (providing short term volatility can be managed and the whole of the UK economy doesn’t collapse of course). Basically a floating currency (generally) keeps a government more honest and constrains excessive borrowing (I know, I know).
When the pound dropped out of the ERM (Exchange Rate Mechanism) in 1992 after being pegged artificially (and too high) against the mighty Deutsch mark, the U.K. Economy recovered nicely, leading to the event becoming known as White Wednesday. No guarantees of that being repeated in current circumstances of course and the dynamics of the world economy have changed somewhat.
So, problems all around, UK economy not looking great but neither does the EU27 (as I might now refer to the remaining member states after Brexit if it happens) particularly if you include unemployment levels, especially youth unemployment . Any conclusion we can draw?
YES. Who wants to impair the economy of either the UK or the EU by unreasonable trade conditions after Brexit?
The truth is, neither party can afford it.
One last point. A particularly rich piece of irony.
I again quote from the blog post I have been referring to: “Not trade that exploits their natural resources and dumps unwanted manufactured goods”
Substitute agriculture products for manufactured goods in the quoted text and who could we talking about? Yes, our friendly supranational state in the making who dumps subsidised food on the world market harming developing nations, particularly Africa. (See earlier references)
Another Gem. (It’s really worth reading the whole of his blog and I am by no means stating that all of it is wrong. Here’s the link again if you need it.)
“EEA countries follow EU rules, pay for the privilege, and don’t vote for any of it.” Oh dear, a variation on the ‘Still pay, no say’ fallacy.
Well here is one of my absolute favourite eureferendum.com blog posts, along with the text that I quote when I (frequently) post it on Twitter:
Also a post from White Wednesday’s blog (named after the ERM lucky escape mentioned above) about Norway’s position, rebuttal and list of links at the end.
This is a variation on ‘we buy more from them than they buy from us’.
The deficit (difference) in goods and services in favour of the EU is not really the figure we need to be looking at.
The important figure is actually UK sales into Europe. The £230 billion of goods and services to other EU member states Source HoC Briefing Paper, In brief: UK-EU economic relations.
Now picture the damage done to the U.K. Economy by the application of the aforementioned tariffs. So what if applying tariffs damages UK economy, that doesn’t harm EU member states’ economies, you may think, if you haven’t thought about it at all.
Picture the impairment to the EU’s ‘biggest customer’. Add in apocalyptic warnings about trucks backing up the M20 because we don’t have a formalised goods inspection regime (Mutual Recognition Agreement) which means goods need to be inspected on entry to the EU (actually the EEA). Mountains of ‘paperwork’, delays, costs etc. Those delays will impact shipments both ways, basically the whole system could, in extremis, snarl up completely!
We are talking about incalculable damage to the British economy. Therefore we are talking about significant damage to the £289 Billion (~365 Billion Euro) of sales that the EU member states make to the UK.
No one can afford to have a recession caused by intransigence on the part of the EU, so talk of a take it or leave it deal that the UK may ultimately reject, is nonsense of the highest order. Using an analogy that is often used by EUpeons… Why would the EU shoot itself in the foot in such a way?
With the fragile state of economies across Europe including UK, I believe this is the compelling reason that the EU and UK will come to a comprehensive agreement on trade and the U.K. will not fail to agree a deal and revert to WTO default arrangements with all the dire consequences that entails.
As to the exact nature of the trade agreement? Well that’s a different discussion. The options are spelled out in the only comprehensive plan for Brexit, see Flexcit on the Leave Alliance site.
Hopefully the information provided here can prompt some thought about how UK and Europe can come to an accommodation to the benefit of both parties following Brexit because it is certainly required.
Lastly, I’d like to thank Brexit blogger Paul Reynolds at the euquestion blog, (Twitter @paulrey99) for supplying many of the links and images used in this blog post. Also thanks to the bloggers who I have linked to for other material.