Tag Archives: no deal

Where do MPs want to take Brexit?

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What justification for an Article 50 extension can the Commons provide?

MPs are almost certain to vote on Thursday for the Article 50 process to be extended so that the UK does not crash out of the EU on March 29. But what do MPs want an extension for? This is the central question hanging over the Commons — and in many ways the only one that now matters. We know what the Commons does not want. Last night MPs voted for the second time to reject Theresa May’s Brexit deal.

We know, too, that the Commons does not want no deal, at least on March 29. A motion to that effect is pretty certain to be passed this evening — even if the text of the government motion is not quite the resounding rejection of no deal that many in business would like to see. The problem for the UK is that if it wants an extension, this needs to be agreed by all 27 EU member states, probably at next week’s EU heads of government meeting. And securing that agreement will not be straightforward. As Michel Barnier, the EU’s chief Brexit negotiator, said on Wednesday: “[The British] have to tell us what it is they want for their future relationship. What will their choice be, what will be the line they will take? That is the question we need a clear answer to now. That is the question that has to be answered before a decision on a possible further extension.”

So what justification for an extension can the Commons provide? And how will it reach that decision? One possibility is that the Commons decides to hold what are called “indicative votes” on alternatives to Mrs May’s deal. This would mean that MPs vote on the three main options available: the Norway-style membership of the European Economic Area; the Corbyn plan for a customs union; or a second referendum. An amendment to hold these indicative votes could well be tabled on Thursday when MPs vote on an extension. But even if indicative votes are held as early as next week, the process might not be conclusive. It is not certain that any of the three proposals outlined above enjoys a majority in the Commons — so the deadlock might continue. What then? It’s hard to believe the EU would withhold an extension altogether.

Instead, at its summit next week, it might at least allow an extension of six weeks to mid-May to allow the UK and EU to finalise their no-deal planning. That might set the scene for Mrs May to put her deal to the Commons one more time (as Robert Shrimsley argues) before March 29 — on the grounds that there really is no alternative to what she is offering. Perhaps the Brexit hardliners would decide to back her then after all. But if Mrs May were to lose a third time, the only course of action might well be for parliament to revoke Article 50 altogether, asking for a much longer extension and possibly moving to a second referendum.

Further reading

THERESA MAY’S BREXIT DEAL IS DEAD — MPS MUST NOW TAKE OVER “After two years of tortuous negotiations, Theresa May’s strategy for taking the UK out of the EU lies in ruins. From the moment the stentorian attorney-general, Geoffrey Cox, pronounced that late legal changes won by the prime minister did not remove the risk of the UK being ‘trapped’ in the so-called Irish backstop hated by Eurosceptics, her withdrawal agreement was headed for another crushing Commons defeat. The priority now must be to avoid chaos — chaos in parliament that could be exploited by extremists of left and right, and the chaos of a no-deal exit. MPs must stabilise the political situation and create the space for a Brexit rethink.” (The FT View)

PAUSE IT AND RETHINK “A pause is required because a pivot to a new arrangement is easier said than done. Most of the proposed alternatives to our membership of the EU have, under Mrs May, seemed unattainable, unappealing or both. For the UK to be in a better place politically will require a different, better politics. That will take time, and Mrs May needs to ask Europe for it.” (Editorial, The Guardian)

FORGET ABOUT ABSURD VOTES ON NO DEAL — MPS OUGHT TO BE INVOKING GATT ARTICLE 24 “The 164 member WTO offers Britain a remarkable opportunity to leave the EU cleanly, avoiding all of the apocalyptic predictions set out by the likes of the CBI, Bank of England or chancellor. Because through GATT Article 24, the EU and UK are able to agree a very basic Free Trade Agreement that would keep tariffs at zero for the duration of the period the two sides negotiate a comprehensive Free Trade Agreement.” (David Campbell Bannerman, MEP, BrexitCentral) Hard numbers

BRUSSELS BRIEFING — LOSING CONTROL OF BREXIT By Theresa May’s standards, it was not that bad. But the still breathtaking 149-vote margin of defeat over her Brexit deal has sailed the UK into uncharted waters. The options for reviving this treaty look almost completely exhausted. A dark mood has gripped both sides.

DCB Calls for Clean Brexit, Govt to Slash Tariffs in No Deal

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David Campbell-Bannerman has called for the Government to forget about the “absurd” vote to take no-deal off the table, and use World Trade Organization (WTO) Article 24 to continue trading with the EU tariff-free until a good deal is made.

Writing for BrexitCentral on Wednesday, the Conservative Party MEP and board member of Leave Means Leave said that the General Agreement on Tariffs and Trade (GATT) Article 24 “offers Britain a remarkable opportunity to leave the EU cleanly” by allowing the UK and EU to “agree a very basic Free Trade Agreement that would keep tariffs at zero for the duration of the period the two sides negotiate a comprehensive Free Trade Agreement.”

The Brexiteer argues that it would provide a trade negotiation “stop gap” and still allow the UK to leave the EU as scheduled on March 29th, “while at the same time, avoiding any uncertainty that could negatively impact our economy or that of the EU” and save businesses from calculating tariffs.

After Prime Minister Theresa May lost her second vote on her Withdrawal Agreement Tuesday night, the House of Commons is set to vote today on whether to leave the EU with a No Deal — a proposition Mr Campbell-Bannerman labelled “absurd,” urging instead for a “meaningful vote” on GATT Article 24 “as a safe, alternative Brexit deal that would get Britain out of the EU with minimal drama” and which “deliver[s] on the result of the referendum.”

Meanwhile, the Government has announced that around 87 per cent of import tariffs could be slashed if the UK leaves the EU without a deal, The Times reported Wednesday, and there would be no controls at the Irish border, with all goods crossing into Northern Ireland doing so without checks for a “strictly temporary” period.

Levies will remain on some items coming from abroad including cars as well as fertiliser, fuel, certain ceramics, beef, lamb, poultry, and some dairy products to protect British producers from “unfair global trading practices.” The move may also bring down the price of goods in shops for British consumers.

In an attempt to stop the mass resignation of Cabinets Remainers, Mrs May last month offered the House the opportunity to vote to take a no-deal off the table should she lose her second vote, and if a clean break is voted against, allow MPs to vote to extend Article 50, thereby delaying the country’s exit from the EU.

After the prime minister lost her vote last night, May told Parliament that she would not be whipping Conservative Party MPs to back a no-deal — holding out that the only acceptable option is for the UK to leave with a deal — and the Europhile-dominated lower house is likely to vote against a WTO exit.

However, the European Research Group’s chairman Jacob Rees-Mogg told the BBC after the vote, “The default legal position remains, as the Prime Minister pointed out, that we still leave on March 29th.

“The House of Commons voted twice for bills that became Acts of Parliament that mean that they leave on the 29th of March. They voted for the Article 50 Act, and the Withdrawal Act. The Article 50 Act paved the way for the 29th of March and the Withdrawal Act specifically mentions it.”

“It would have to be changed by law, and the law is not easy to change,” he added.

The ERG chairman noted that the only way to extend Article 50 could be to ask of an extension of the EU; however, Brussels bureaucrats immediately responded to the news of the vote and Mrs May allowing MPs to potentially vote for a Brexit delay by saying that instead the UK should prepare for a No Deal exit.

Chief Brexit negotiator Michel Barnier, in comments to the European Parliament this morning, said that “This treaty is and will remain the only available treaty” and extending Article 50 would only be granted if there were a “clear plan.”

“We are at a critical point — the risk of no deal has never been higher,” Mr Barnier added.

You can read the aritcle as it appears on www.breitbart.com here.

There is no such thing as ‘No Deal’

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On March 13th, if the meaningful vote on the deal fails again in spite of Geoffrey Cox’s legal acrobatics, there will be an MP vote on something that doesn’t actually exist: the so called ‘no deal’ exit.

It doesn’t exist because even what people call ‘no deal’ involves some negotiated deals. They may be smaller, bilateral, sector specific deals, often termed ‘standstill’ agreements, but are nevertheless important.

As an MEP I have already voted for four such mini deals – an arrangement for British car certifications to continue under ‘no deal’, permission for the EU to sell us their goods as a third country (!), an aviation deal to allow flights to continue to fly and a road haulage deal to allow trucks to continue to roll. The Strasbourg European Parliament next week will see hours of voting on more ‘no deal’ measures under (emergency) ‘simplified procedure’.

The EU’s chart of recommended ‘no deal’ measures runs from reciprocal fishing rights and shipping inspections to nuclear energy to continuing the Northern Ireland PEACE and Erasmus Plus student programmes. The Mayor of Calais is actually offended the U.K. thinks there will be any holdups.

In the UK meanwhile the port of Dover says it is ‘prepared’ for ‘no deal’. Eurotunnel say “with or without a deal, traffic flow through the Tunnel will be maintained”. The City of London is ready too – Lord Mayor Mr Estlin says Brexit has been a “pain in the backside” but “businesses have prepared already”.

The Bank of England and the European Securities and Markets Authority have signed baffling Memorandums of Understanding on things like the Central Securities Depository, and EU regulators continue to recognise U.K. clearing houses.

Brexit Minister Chris Heaton Harris lists what is ready from citizens’ rights, such as the welcome Spanish deal for U.K. residents, to chemicals to food labelling to holidays to archives. BMW is moving its summer shutdown to April and Toyota stockpiling parts. The U.K. car industry managed to survive 211 days over 20 years of ‘Operation Stack’ where lorries couldn’t get to/from Europe.

There is even an outbreak of naughty bilateral deals behind the EU’s back such as Italy’s bid to stabilise financial services and trade.

All of this is being done by professionals with no sign of the hysterics of extreme politicised Remainers in the U.K. The relentless ‘no deal’ silly stories from the BBC are a case in point, from food shortages being like “walking off a cliff in the dark without a torch” (we do actually import food from outside the EU) and Eurostar’s ‘one mile queues’, when passport checks exist now.

There is further confusion over what the deal in ‘no deal’ is. It isn’t a ‘no trade deal’ or ‘a no Future Relationship deal’ – we haven’t even started negotiating those yet. It is a ‘no Withdrawal Agreement deal’.

Let’s be clear. Up until now we have been dancing to the EU’s tune. The Withdrawal Agreement is specified under EU law – Article 50 of the Lisbon Treaty – and went wrong from the start. Without one, all the EU treaties stop applying as of 29th March.

But trade deals are done under the global trade rules of the 164 member World Trade Organisation (WTO) that the U.K. helped establish.

The WTO gives us a way out of the EU under Article XXIV/24 of the General Agreement on Tariffs and Trade (GATT) which preceded it.  A GATT Article 24 compliant standstill trading arrangement forms one of the three ‘safety nets’ within the Malthouse Compromise Plan B, along with continuing to offer Plan A (a changed WA deal) and seeking to purchase the Implementation Period (IP) via funding.

GATT Article 24 means the EU and U.K. agree a very basic free trade agreement (FTA) that allows us to keep tariffs at zero whilst negotiating a comprehensive U.K.-wide Free Trade Agreement, the sort of ‘SuperCanada’ FTA I have long advocated (bigger, better and wider than the EU-Canada CETA deal), and which the EU has offered to us three times starting a year ago (7th March).

Article 24 is just a bridge – an alternative transition. It only needs literally a one page Free Trade Agreement to be signed. The neutral Cambridge law expert Dr Lorand Bartels has helpfully written one.

This protects you from discrimination claims by other WTO members. Even if there were legal challenges, these would take at least two years, and the FTA would in place before any verdict was reached.

Yes it will need other small deals such as interim regulatory recognition of goods and services, but the core remains Article 24. Its feasibility has been confirmed to me by top WTO and EU trade experts.

Article 24 also takes away the hassle of businesses having to calculate nearly 20,000 tariffs. Tariff rates are very complex and vary enormously even within one category such as lamb meat.

OK so businesses will have to fill in customs declaration forms, as they do for non-EU suppliers, but no tariffs mean the processes are simple. HMRC have helpfully enacted Transitional Simplified Procedures (TSP) for the 145,000 VAT-registered businesses who trade with EU (only 7{6c073e6ddc991e32b987c2976a0494c1ef7e7c4976e02d56946b9937f4a8f0f4} of U.K. businesses and 12{6c073e6ddc991e32b987c2976a0494c1ef7e7c4976e02d56946b9937f4a8f0f4} U.K. economy do) to remove need for full customs declarations at Borders and import duty payments.

The objection that the EU would refuse to agree Article 24 if the WA deal fails because of a lack of goodwill is patently absurd. The Eurozone is again implementing emergency measures as it falls into serious recession, whilst it would save the EU £13 billion in tariffs with their largest single customer. The U.K. would agree to pay a contribution too as per Malthouse (for 2019 budget, maybe 2020 too, but not the £39 billion).

The objection it does not address ‘non tariff barriers’ is equally silly. It’s not its job – the comprehensive FTA will address non tariff barriers, services and the whole shooting match.

So my earnest request to Government is this: if the favoured deal is not passed on 12th March, then please let’s have a meaningful vote on something that does exist and is deliverable.

Let’s amend the so called ‘no deal’ vote on 13th March to incorporate GATT Article 24, and Plan B of Malthouse, as this is a sensible alternative basic deal. Also, if necessary, let’s allow a strictly temporary extension of Article 50 of three months to 29th June, appealing to those who would favour an extension in a possible third vote. This extension will not be to renegotiate the Withdrawal Agreement, but to prepare to enact Article 24 and its happy band of mini deals.

With only an 8 MP majority for the Spelman amendment, just 5 MPs need persuading.

It might just pass.

David Campbell Bannerman MEP
Conservative MEP for the East England and Joint UK Spokesman on the International Trade Committee.

You can also read David’s article above, as it appears online at thetelegraph.co.uk

Five levers to tackle the economic shock of no-deal Brexit

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10.2.19

www.politico.eu

Five levers to tackle the economic shock of no-deal Brexit

None of the weapons at the UK’s disposal comes without downsides.

It’s 11:01 p.m. in London on Friday, March 29 and it’s no deal. Britain will need to take immediate action to try to shield the economy from shocks, probably before markets open, on April Fools’ Day.

Here we take a look at some of the emergency levers that U.K. policymakers can pull.

Britain’s import-dependent economy has never looked so vulnerable in peacetime. An inflation bomb is set to explode. A diving pound and tariffs on key products from the EU such as food would hit consumers hard. Britain runs a hefty trade-in-goods deficit (of about £130 billion in 2016 and 2017), and sources about half of its food from abroad.

Policymakers will have to make hard choices on how to manage the currency — particularly on whether to hike or cut interest rates — when core elements of the economic model will be under fire. Markets have traditionally been tolerant of U.K. debt and deficit levels because the country was a prime venue for foreign direct investment from big companies such as Airbus and Nissan, but these are now in question.

As Bank of England Governor Mark Carney put it, Britain relies on the “kindness of strangers.” This has been drying up because the U.K. is becoming a less attractive investment destination outside the EU single market. Foreign direct investment more than halved to $15.1 billion in 2017, from $32.7 billion in 2015, according to U.N. figures.

Here’s our look at the five responses that the U.K. will need to consider. All have disadvantages.

1. Drop import tariffs to avoid big price hikes

If Britain leaves the EU without a deal, tariffs would be imposed on imports that used to come in freely from the EU. For example, Britain’s tariff on beef purchases would be around 40 percent.

To avoid food price inflation, Britain could lower or completely scrap tariffs on things such as food, car parts or medicines.

Catch No. 1: The World Trade Organization’s “most favored nation” principle dictates that these tariffs must be the same for all WTO members, unless you’re in a trade deal or in a regional bloc like the EU. This means not only French but also South American beef or cheese would come to Britain tariff-free.

Farmers would lose out, as cheap imports undercut their products. The government’s brutal calculation would have to be that farmers are far less important to the economy than supermarket prices for the whole population.

Trade Secretary Liam Fox told the U.K. parliament’s international trade committee on Wednesday that waiving tariffs to stimulate trade is a “possibility.” But the “full liberalization of tariffs … would certainly expose the U.K. to sudden competition in sectors to which it’s not currently,” Fox said.

Catch No. 2: By slashing tariffs, you have effectively gifted away your leverage in trade negotiations with other partners. They will already be shipping their goods tariff-free, they don’t need a deal. British tariffs may be down, but those of trade partners won’t be — putting British exporters in a difficult spot.

2. Use the Article 21 ‘nuclear option’

A hard-line solution would be to only lower tariffs to EU imports and ignore the WTO rules. Other countries would probably complain and launch WTO disputes, but Britain could fend them off by calling on Article 21 of the WTO rulebook, the infamous “national security” exemption, favorite of Donald Trump.

British Conservative MEP David Campbell Bannerman suggested this option in a Telegraph op-ed last month, saying the “national security” justification is possible because Britain would be “seeking to avoid security issues at the Northern Ireland border.”

Article 21 has long been a taboo in the trade world, but over the past one and a half years it has gained some dubious popularity as the United States, Russia and the United Arab Emirates invoked the exemption to justify questionable actions such as protective tariffs and border restrictions. The EU is a sharp critic of such steps and has warned that abusive use of Article 21 risks undermining the entire multilateral trading system.

Triggering this “nuclear option” would be risky for Britain too: “It would be an incredibly damaging way for the U.K. to start its new role as an independent member of the World Trade Organization,” said Dmitry Grozoubinski, a former Australian WTO negotiator. He warned that using such an “excuse for breaching most-favored nation rules” could backfire as Britain would likely use all the goodwill it would need in other talks, both bilaterally as well as at the multilateral WTO level.

3. Rates. Should I cut or should I hike?

Money is Britain’s supreme challenge. Many economists think the Bank of England will probably inject the markets with fresh money to try to prevent a meltdown. But this will also come at a cost for consumers, who will have to face higher prices.

Those looking to give the economy a shot in arm also reckon that the Bank of England would likely slash the base rate from the current 0.75 percent, accepting that this will exacerbate inflation.

Such a cut is not guaranteed, however. The Bank of England’s Carney has warned that businesses should not rule out an increase in the base rate. While this would help bolster the pound, a hike poses big challenges in the U.K., where mortgage debt is high and higher rates could create a housing crisis and sap household spending.

According to the Bank of England, Britain’s economic activity would fall by as much as 8 percent in the case of no-deal. The bank warned that in this scenario “output falls by more than it did in the financial crisis.”

One of the biggest immediate risks on Brexit day is that banks stop lending money to businesses or even to each other, out of fears that they won’t get their money back.

“Like at the moment when Lehman Brothers collapsed or 9/11, the central bank would certainly respond by injecting short-term liquidity,” said ING Chief Economist Carsten Brzeski.

In order to stimulate growth, the BoE may then want to use quantitative easing. “You will have to ask yourself how much you can stimulate without driving up inflation,” Brzeski said. “The pound will be weaker, so there will already be what we call imported inflation.” Further monetary loosening would make this worse.

Another of Britain’s vulnerabilities is that economists caution that a weak pound is not unadulterated good news for exporters. Many manufacturers insist they would prefer a stable to a weak currency because they are so dependent on imported raw materials and components.

4. Stop customs checks

Slashing tariffs will help soften the blow of higher food prices on consumers. But it won’t help businesses whose shipments are stuck in ports. Customs checks could lead to kilometers of trucks at highways and at the entrance to the Channel tunnel.

That will be one of the main costs of a hard Brexit, some economists say, in that it disrupts supply chains and ruins businesses that rely on just-in-time production. That’s why some businesses and pharmacies have started stockpiling supplies.

To avoid such a mayhem, the U.K. government could decide to wave through imports at its ports. It has already announced that it would do so for EU goods.

The risk of that is obvious: Suspend customs checks for too long, and Britain could become a smugglers’ paradise.

The EU may not do the same for U.K. exports coming in, meaning British exporters will struggle to get their merchandise into their biggest market.

The longer this situation persists, the more manufacturers would move their factories into the EU, meaning the U.K.’s trade deficit could widen.

5. Deregulate to become a fiscal paradise

This is the dream of hard-line Brexiteers like Jacob Rees-Mogg and Daniel Hannan. Once Britain leaves the EU without a deal, it could become a fiscal paradise, dropping taxes and deregulating its industry. This could attract investors as France and Germany show signs of pursuing a more protectionist model.

This is a longer-term solution, however, and will do little to resolve instant shocks.

The political risk is that deregulation could mean lowering standards on things like food safety, scrapping checks on dangerous chemicals, environmental protection, unemployment, or health benefits and consumer rights.

You can read the article as it originally appears by clicking here.

A ‘Managed No Deal’ WTO option using Article 24 of GATT can avoid raising tariffs or quotas

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WTO imageIn the aftermath of Parliament’s rejection of the draft Withdrawal Agreement, there is a way forward for the Government which allows a smooth transition into a No Deal scenario after 29th March, if found necessary, and then allows the UK to negotiate its desired comprehensive Free Trade Agreement with the EU without having to impose tariffs or quotas in the interim. There is a mechanism to ‘manage’ a No Deal scenario; one that works within existing WTO rules, and that is not widely known about.

This is essentially an alternate transition or interim period, but within WTO rules without having to levy tariffs or (arguably) pay membership fees to the EU, but requiring some customs forms levied on the 7{6c073e6ddc991e32b987c2976a0494c1ef7e7c4976e02d56946b9937f4a8f0f4} of UK businesses (400,000 out of 5.7 million UK private registered businesses) that actually trade with the EU. This is the deal with the EU used by China, the USA, India, Australia and New Zealand for example.

These recommendations are based on my nearly ten years of experience as a member of the European Parliament’s International Trade Committee, working on EU trade deals such as those with Canada, New Zealand, India, South Korea, Japan and Columbia/Peru, and drawing on high level discussions I have had with senior trade representatives for the EU and the World Trade Organisation (WTO).

In the event of No Deal, there is a strong case to maintain preferential tariff and quota rates at zero between the UK and the EU for a limited period – thought to be around two years. There are a number of arguments for exemptions to what are termed ‘Most Favoured Nation’ (MFN) rules, which require the same treatment in terms of tariff rates and treatment between WTO members to avoid discrimination. They are:

1) It is to the advantage of fellow WTO members to minimise disruption between our two large markets, which would reduce knock-on impacts to their imports/exports to the UK or EU markets. WTO members have to show financial harm to justify objections to practices (or tariff schedules). Civitas calculate that £13 billion of tariffs would have to be levied on EU goods entering the UK and £5 billion on UK goods entering the EU Single Market if standard tariffs are levied under No Deal. This is one justification for keeping preferential rates of tariffs for a period whilst a full trade deal is finalised.

2) There are exemptions under National Security grounds such as over the issue of Northern Ireland, which the IEA have argued as a case for an exemption, but this is less appealing given its association with US and Russian cases for exemptions, such as over US tariffs on Chinese steel.

3) Exemptions to ‘Most Favoured Nation’ (MFN) rules under Article 24 of the General Agreement on Tariffs and Trade (GATT) 1947. This appears to be the most substantive argument. WTO rules state that preferential benefits, such as tariffs and quotas for goods which are more favourable than MFN treatment, may only be extended to another country if it is part of a customs union or a free trade area. The ultimate legal authority to grant such preferences is Article 24 of GATT , incorporated into the WTO regime when that body commenced operations in 1995.

Article 24 is helpfully the ultimate basis in international law for the existence of the EU itself as a preferential trading bloc, which grants preferential treatment to its members within the Customs Union.

If the UK accepts Donald Tusk’s offer of a free trade agreement along the lines of CETA+++ or what I propose as ‘SuperCanada’, then the UK and EU will be in the process of moving towards creating a free trade area – Tusk has offered a tariff and quota free deal plus services (whilst leaving the EU Customs Union) – so qualifies under this criterion.

There are two under-appreciated aspects of Article 24 which have direct relevance to our situation, and which provide reassurance.

Firstly, Article 24, para 3 states:

The provisions of this Agreement [i.e. the requirement to extend MFN treatment equally to all] shall not be construed to prevent:

(a) Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic

  • This has direct relevance to the position of Northern Ireland, and our adjacent country of Ireland. Some commentators have claimed that a sensitive and appropriate management of trade which respects and upholds both the letter and the spirit of, for example, the Good Friday Agreement would be in some form an unauthorised infringement of MFN treatment. That claim is clearly untrue.
  • There is also no obligation under WTO rules to erect a so-called “hard border” on 29th March. Government may continue discussions with our counterparts in Dublin to arrive at adequate and effective technological measures for the management of trade with minimal friction. You will have noticed the encouraging signs that the Irish Government already appreciates this fact. (See, for example, “Ireland has no plans for hard border after Brexit, says Varadkar”, from The Guardian of 21st December 2018)
  • We can expect that there will be considerable international sympathy for measures which support the situation in Northern Ireland, and hence a reluctance on the part of third countries to lodge objections. Although given the sensitivities this should not be stressed too heavily, such an exemption falls into ‘National Security’ related actions.

Secondly, Article 24 not only authorises member states to operate lower/zero tariff free trade agreements, it also permits them to offer lower/zero tariffs pre-emptively during the course of negotiations. The relevant provision, Article 24 para 5, is worth quoting at length, with emphasis added to the critical wording:

Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of… a free-trade area or the adoption of an interim agreement necessary for the formation of… a free-trade area; Provided that:…

(b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and

(c) any interim agreement referred to in subparagraph… (b) shall include a plan and schedule for the formation of such… a free-trade area within a reasonable length of time.

(A WTO declaration, the Understanding on the Interpretation of Article 24, 1994, clarifies that the ‘reasonable period of time’ in para 5(c) will generally taken to be no more than 10 years.) I estimate based on EU trade deals to date, that a UK-EU comprehensive Free Trade Agreement could take around two years, especially given the unique reality that the UK is starting from a convergent position with the EU, with zero tariffs and quotas and with our laws and standards currently harmonised.

  • If, before 29 March, the UK has reached an ‘interim agreement’ with the EU to pursue negotiations towards a comprehensive free trade deal, both sides would be permitted under WTO rules to continue with the present zero tariff/zero quota trading arrangements. There would be no disruption to the man or woman on the high street. No Deal would mean No Change, as the cost of goods would not go up.
  • In the present situation the ‘interim agreement’ would not have to be an extensive document running to hundreds of pages. The schedule of items covered by the negotiations would be all goods, as already envisaged in our discussions with the EU. The plan which the document sets out would have to amount to little more than a timetable for regular meetings and an ultimate deadline, some years hence, by which point negotiations will have to be concluded.
  • An ‘interim agreement’, then, need be little more than an agreement to continue talks – while also continuing zero-tariff and zero-quota trade on both sides – plus a deadline no later than 29th March 2029. I accept that the EU has so far declined to agree any deadlines (other than 29th March) but since the absence of a final cut-off point has been a major contributing reason for Parliament’s rejection of the Draft Withdrawal Agreement, perhaps the EU will now reassess that stance.
  • Whilst legal challenges at WTO level might be expected from an unhelpful member, the reality is that any such challenge is unlikely to get to the WTO ‘court’ – its appellate body – for at least two years and possibly longer, and only if that body finds the UK non-compliant would any compensating actions be authorised such as tariffs. This is within WTO rules, and if any challenges arise a fully compliant Free Trade Agreement should already be in place by the time any appellate body were to meet. The EU is now under extreme pressure from EU27 industry and commerce who enjoy a £96 billion surplus with the UK.
  • You will recall that the draft Political Declaration indicates the EU want to reach a comprehensive Free Trade Agreement with the UK on the basis of zero tariffs and quotas (see paras 17, page 5, and para 23, page 6) and extending to services (para 29, page 7). Those provisions are fully in line with numerous public statements made since the 2016 referendum by Donald Tusk, President of the European Council, and Michel Barnier, European Chief Negotiator – offering a CETA+++, or what I term a ‘SuperCanada’ trade deal, on 7th March 2018, 30th August and 6th October 2018.

It is significant that Heiko Maas, Foreign Minister of Germany, has already indicated a willingness to continue talks (see “Germany says EU ready to talk if UK rejects Brexit deal” on Reuters, 15th January).

Conclusion

This approach would continue the pre-29th March status quo in trading arrangements and patterns without interruption, justified by an explicit provision of the WTO regime. The possible grounds on which any third country could lodge an objection to this are extremely slight (unlike for schedule changes).

An ‘interim agreement’ would therefore be an important component of a ‘Managed No Deal’ outcome from 29th March. It permits trade between us and the EU to continue without tariffs or quotas under No Deal while creating a space for negotiations to be reset and recommenced on the basis of reaching a SuperCanada or CETA+++ trade treaty.

I urge the Government to now adopt this course of action, as it will mitigate the main impacts of a ‘No Deal’ Brexit and eliminate the task of having to assess and charge tariff rates on 19,753 MFN tariffs under the EU Customs Union, thereby substantially reducing friction at borders.

You can read this piece by David as it originally appears on brexitcentral.com here