FOR two years, I have advised businesses to prepare for Brexit assuming no UK/EU Trade Agreement. A trade deal would be the best outcome.
But the Chequers plan is moribund and it is time to recognise that ‘no deal’ is likely and would be a good second best – making a better deal possible later.
Leaving with no trade deal with the EU has four consequences.
First, we would trade with the EU on World Trade Organisation (WTO) terms. As Trade and Industry Secretary, I spent 10 days incarcerated in the Heysel Stadium negotiating the Uruguay Round which set up the WTO.
Far from ‘falling off a cliff’, WTO terms are designed to provide a ‘safety net’ ensuring all members can trade without discrimination. The EU will have to offer us the Most Favoured Nation terms its other major trading partners enjoy.
The Uruguay Round also halved most tariffs. So, the average tariff the EU would levy on our exports would be four per cent. Non-tariff border costs could add one per cent according to the Dutch, but the Swiss put actual border costs at just 0.1 per cent.
Either way, tariffs and other border costs are dwarfed by the 15 per cent boost to our exporters’ competitiveness from movement of the pound since the referendum. There would be winners and losers – a 10 per cent tariff on cars, higher still on food. But applying EU tariffs to our imports from Europe would yield £13bn. Even if we slash those tariffs, as we should, it would leave enough to compensate the losers.
Some argue that tariff-free access to the EU market was worth paying for. But Britain’s £10bn net contribution is seven per cent of the value of our exports. Paying seven per cent to avoid four per cent was not a good deal!
We will be free to join the Trans-Pacific Partnership, negotiate trade deals with America and others, and slash tariffs on goods we don’t produce – especially necessities like food and clothing.
Second, without a trade deal, Parliament will reject any Withdrawal Agreement offering the EU £40bn. The whole Agreement – money, citizens’ rights, Ireland, transition – then falls. That leaves Britain £40bn better off, and ends our annual £10bn net contribution immediately – boosting our GDP, balance of payments and public finances. We must guarantee unilaterally – as we should have on day one – EU citizens’ rights in Britain, shaming the EU to reciprocate.
The unjustified Irish border ‘backstop’ commitment disappears. HMRC says Britain will not “require any infrastructure at the border between Northern Ireland and Ireland under any circumstances” – tariffs can be collected alongside VAT returns. The previous Irish government agreed an invisible customs frontier, as will Varadkar, given no alternative. Then the conventional trade deal with the EU becomes possible.
The third implication of ‘no deal’ emanates largely from Remainers’ fevered imaginations – motorways becoming lorry parks, food and drug shortages, planes grounded.
How we control imports is in our hands. Lorries laden with fresh food will not be queuing for hours at Dover since Dover sees no need for new physical checks. Tariffs would be collected electronically like Excise and VAT. If some firms initially fail to complete electronic customs declarations, HMRC will avoid delays by waving lorries through. If the French slow down Calais, the Dutch and Belgian ports will offer speedier service.
We will continue to authorise medicines we currently import – the EU can either reciprocate or put their patients at risk.
British Airways chief Willie Walsh has dismissed fears of planes being grounded and all the airlines are selling tickets way beyond March 2019. Spain would not forego 1.5 million British tourists a month.
The hostile non co-operation envisaged by Remainers would be not only impractical but illegal three times over. It contravenes the EU’s Constitution which requires it “to establish an area of good neighbourliness” with neighbouring countries; the WTO Treaty which forbids discrimination against trading partners; and the new Trade Facilitation Treaty which commits members to facilitate trade not obstruct it.
The threat is intended to portray leaving the EU as costly. In fact it demonstrates that membership has no significant benefits.
Remainers’ threats of EU hostile non co-operation if we leave with no deal are an admission that remaining in the EU confers no net benefit. They seriously underestimate the British people if they think we will cave in before such threats
Finally, freed from the constraints of EU membership and Article 50, we could negotiate our new relationship with the EU as equals.
Peter Lilley is a former Trade and Industry Secretary. He is now a Tory peer.