The highlights from the UK
New face at DExEU but no change in focus
This week saw the appointment of Stephanie Lis, formerly of the Institute of Economic Affairs, as Dominic Raab’s new Special Advisor at the Department for Exiting the European Union (DExEU). Lis brings something of a liberal zeal to the Department, having previously gone on record in favour of continued freedom of movement after Brexit. Somewhat awkwardly, Lis also publicly criticised Raab in 2016 following his claim that immigration was responsible for driving up house prices. When questioned on the apparent differences of opinion with her boss, Lis euphemistically stressed the importance of “healthy discourse” at DExEU.
The political atmosphere in the UK has been somewhat more optimistic this week, following rumours that EU leaders could be preparing to defy Michel Barnier by advocating for the so-called ‘Jersey model’, whereby the UK would stay in the Single Market for goods (while diverging on services), but would retain the desired flexibility on freedom of movement. The Jersey model would also have the effect of solving the Irish border issue by removing the need to find a solution on customs. Rumours of compromise follow a sustained lobbying effort by UK Ministers and the Prime Minister, who have been making their case across European capitals for much of the summer.
A telling poll has also made headlines this week, with Deltapoll finding that the vast majority of both remain and leave voters care very little about the form and detail of the UK’s Brexit deal and favour the Government simply ‘getting on’ with delivering Brexit. This follows much talk about ‘Brexhaustion’, or the growing mood amongst legislators and seemingly, the public at large that the Brexit process has become stale and shows few signs of gaining significant momentum, even as ‘exit day’ looms.
The Grayling View
Raab’s decision to appoint Lis is an interesting move that has raised eyebrows given her apparent difference of opinion on the crunch issue of free movement, but it is important to remember that DExEU has been neutered significantly following the departure of David Davis. Central Brexit policy direction continues to come from the Prime Minister, No. 10 special advisers, and Cabinet Office Brexit advisor Olly Robbins. DExEU continues to manage much of the operational detail of Brexit, as well as no-deal preparations. It would be wise not to anticipate a major shift in policy as a result of Lis’s appointment.
There are some promising indications that the Government’s efforts to lobby European leaders to soften the EU’s negotiating stance may be bearing fruit. While it is still far from becoming the EU-27’s agreed position, the Jersey model represents the best chance of both the EU and UK being able to save face and claim some degree of victory in the negotiations. The EU would be able to argue that the integrity of the Single Market and Customs Union had not been compromised with the UK effectively taking an ‘off-the-shelf’ model, while the UK Government could point to ending freedom of movement and divergence on services, which represent the major part of the UK economy.
What will a fallback to WTO rules actually entail?
In a statement on Sunday UK International Trade Secretary Liam Fox listed the chances of a no-deal Brexit as 60-40. Hardline Brexiteers such as Jacob Rees-Mogg often downplay the economic cost of Britain’s departure from the EU without a deal, stating instead that the UK could still trade under WTO rules. However, closer inspection of these rules reveals that this may not be an easy fallback, but rather may turn out to be a very complicated process.
To begin with, the majority of products will be subject to tariffs of around 3-4%, and while these may seem modest increases, for some products such as dairy, cars and chemicals, they can be up to 80%. What is likely to further impede frictionless trade are non-tariff barriers such as border checks, where even the shortest of delays can reverberate throughout the supply chain and could end up causing miles of lorry queues.
While the UK has plans to retain some of the EU’s trade deals, secured while they were still EU members, the procedure of re-applying them will involve heavy revision of the text of all the agreements. When coupled with the fact that the third countries involved are likely to want to renegotiate the agreements, and that the EU will need to ‘grandfather’ them, the workload involved will be of such magnitude that it is inconceivable for the UK to have concluded them before the deadline of March 2019.
It is also worth noting that while the EU trades with many third countries on WTO rules, it is usually supplemented by hundreds of bilateral agreements that cover areas not addressed by the WTO, such as data or air travel.
Finally, all WTO members need to submit their own schedules (which are lists of tariffs, quotas, and subsidy concessions) that need to be approved by every other member. While it is true that the UK is already a member, its schedule is shared with all other EU states and cannot simply be reapplied once it leaves the EU, since it covers things like oranges and olive oil. The UK’s new proposal has already been objected to by the US, Canada, Australia, Brazil, Argentina and others, and is likely to force the UK into wider negotiations, further adding to the workload required before Brexit.
The Grayling View
The fact that a no deal Brexit is now a real option means that WTO trading rules need to be seriously examined as the UK's main enabler of trade. It is not so simple as applying a catch-all set of comprehensive rules that will allow for frictionless trade, as has previously been suggested. The UK will now be at the mercy of the other 163 members and will likely be forced to renegotiate trade agreements with the 60+ countries with whom the EU negotiated on the UK’s behalf, a task which now seems impossible before the Brexit March 2019 deadline. This makes the disruption that will be caused by Brexit all the more severe, and makes securing a deal, and thereby benefiting from the two-year transition period, all the more important.
Dates for your diary
18-19 October 2018 - EU Summit and deadline for negotiations on Withdrawal Agreement
1 January 2019 - Romanian Presidency of the Council
29 March 2019 - UK expected to leave EU
31 December 2020 - Expected end of transition
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