Clean Brexit Can Avoid Cliff-Edge Chaos

My Christmas holiday wasn’t entirely spent eating turkey sandwiches and watching television. A sizeable chunk was devoted, instead, to reading European Union Treaties, typing furiously at my keyboard.

The result is “Clean Brexit” – a paper I’ve written with the highly-regarded City economist Gerard Lyons, copies of which are doing the rounds at Westminster.

I voted to leave the EU – as regular readers know. I also think the UK should come out of both the so-called single market (SM) and the EU’s customs union (CU). Some say that makes me an extremist “Hard Brexit” nutter – wishing for an isolated, poorer UK. I’d say that’s nonsense – and here’s why.

Leaving the EU, as we heard before the referendum, means leaving the SM. As “members”, our laws stay under European Court of Justice jurisdiction and the multi-billion pound annual payments to Brussels continue. We’d also remain unable to control numbers of EU migrants living and working in the UK – which, after our referendum, makes the SM a non-starter.

The economic advantages of being “in” the SM are, anyway, wildly exaggerated. We can trade freely with the EU, yes, but it’s the slowest-growing economic bloc in the world. Since 1999, the share of UK exports sold in the EU has fallen from 61pc to 44pc. The real number is probably below 40pc given the “Rotterdam effect” – with UK goods bound for that port often going on to global markets.

Even on official numbers, then, 56pc of UK exports go to the non-EU – outside the SM. We chalk up a surplus on our fast-growing non-EU trade, but shoulder an even bigger deficit on our EU trade – not least as the SM barely covers the service exports in which the UK excels.

The US, China and Japan trade happily enough with the EU – from “outside” the SM. American EU exports totaled a huge $247bn last year – with US firms gaining “access” by meeting EU regulatory standards and, where necessary, paying tariffs averaging around 1pc. Ours can do the same, without subjecting the UK to endless laws our government can’t control, not least “freedom of movement”.

Then there’s the CU, which imposes a Common External Tariff on EU imports. That pushes up consumer prices, not least on food. Free of the CU, food in Britain could be some 15pc cheaper. That would help UK households, not least those struggling on lower incomes.

“Ah, but being in the customs union means the UK benefits from dozens of EU free trade agreement with the rest of the world,” I often hear. Really? The EU is ghastly at cutting joint trade deals – given the conflicting interests of big member states. Talks with both the US and China have failed, despite years of trying – hindering UK trade with the world’s two biggest economies. EU deals that do exist, mostly with tiny countries, account for under a tenth of the global economy. They do few favours for service-sector exporters like Britain, either, being driven by French and German interests – the same old EU story.

Outside the CU, Britain can strike its own trade deals, designed to help our exporters, boosting our trade with the 88pc of the world economy outside the EU once we leave. It is vital we forge deeper trade links not just with the US, but also the fast-growing emerging markets that increasingly dominate global commerce. This is impossible inside the EU’s protectionist CU.

Big businesses like the SM, of course. By tying-up all UK firms in EU red-tape, including the 90pc-plus that don’t even export, it keeps smaller rivals in check. The CU, also, helps big incumbent exporters while making imports more expensive for us all.

Last weekend, the Prime Minister reconfirmed that, by the end of March, she will “trigger Article 50” – marking the start of the two-year period after which we formally leave the EU. Many hope a “bespoke deal” can be struck during that “negotiation window”, the UK achieving a compromise between free trade and the open borders that are integral to SM “membership”.

To my mind, the chances of that are remote. If the EU bends the rules, with discontent rising over the continent’s lack of border controls, any flexibility shown to the UK would see electorates across the EU demanding their own exit referenda. The “European project” could implode.

Consider, also, that a Treaty-busting UK-EU deal needs to be ratified by 27 EU Parliaments and a bunch of regional assemblies – and even then, it could be vetoed by an increasingly hostile European Parliament. All that within two years? At the very least, it’s extremely risky.

An inevitably bitter negotiation over the EU’s core principles would, at best, seriously harm UK-EU relations, undermining future cooperation on a range of issues. It could also spark a systemic EU-wide crisis, traumatizing pan-European politics for a generation. The chances of a stalemate, or any deal being blocked, are anyway very high. As the Article 50 period expires, the UK would face a “cliff-edge”, amidst a frenzy of closed-door, last-minute bargaining – what Lyons and I call a “Messy Brexit”.

In the UK, and across Europe, voters would despair at the chaos and nationalistic finger-pointing that goes with a Messy Brexit. Prolonged uncertainty would damage business sentiment too.

“Clean Brexit” works – avoiding “cliff-edge” chaos. So we should declare now we’ll be outside SM and CU, spending the two-year Article 50 period negotiating our own trade deals with the wider world, while preparing for a knowable Brexit. Better that, than tearing UK-EU relations to pieces, for extremely dubious economic gains.

+ “Clean Brexit”, By Liam Halligan and Gerard Lyons, Policy Exchange (forthcoming)

http://www.telegraph.co.uk/business/2017/01/14/clean-brexit-can-avoid-cliff-edge-chaos/

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