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Image of Alan Winters4 December 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

The Prime Minister seems to think that an ‘oven-ready’ Brexit deal is the best that we can choose from the menu of policy alternatives. It sounds neither appetising nor nourishing, but if it really were quick and easy, maybe it would be worth it.

But it’s not quick or easy: ‘oven-ready’ is just not true.

It is true that a Withdrawal Agreement exists and could be put to Parliament in December, but even that is not ready-to-go and passing the Withdrawal Agreement is not the same as Brexit. A couple of examples of how the Withdrawal Agreement is part-baked:

  • The financial settlement (the price tag) is not specified.
  • The Conservative manifesto promises Northern Ireland ‘unfettered access’ to the market in Great Britain. Launching it, two Cabinet Ministers said ‘There will never be any fees or tariffs on goods flowing between Northern Ireland and Great Britain and vice versa … .’ In fact, the Withdrawal Agreement clearly states that many goods flowing between Great Britain and Northern Ireland will face tariffs (at EU levels!) and the Brexit Secretary conceded in Parliament that there would be forms to fill for any goods flowing the other way.

Passing the Withdrawal Agreement and exiting on 31st January 2020, is just the start of a complex negotiation between the UK and the EU, which will be painful, long-lived and probably chaotic.

First, consider the parties.

For the EU, the negotiations will take place under Articles 207 and 218 of the Treaty on the Functioning of the EU, which govern negotiations with countries outside the EU, and which have a far more demanding process for approval than the Withdrawal Agreement. The member-states have to agree to any deal unanimously and if the deal spreads into areas which are still governed by the States themselves (some services and investment), each will have to go through a ratification process that may involve their national and regional parliaments. The EU’s agreement with Canada, which took seven years to negotiate, was held up for nearly a year because the Wallonian Parliament declined to agree.

On the UK side, there has been no effort to spell out the implications of the Free Trade Agreement (FTA) that Mr Johnson wants, let alone the one he will get. For example, Michael Gove claimed on 26th November that because there was effectively no EU Single Market in services, UK services firms will suffer no adverse effects from Brexit with an FTA. Wrong! OECD has shown that EU barriers to service imports from third countries are, on average, four times higher than those between members. Canada failed to get much in services from the EU after seven years negotiating; the same will apply to us.

Second, consider the commitment to get it all done by December 2020. Any deadline puts pressure on both parties, but particularly the one with more at stake (the UK). The default at the end of 2020 is not the status quo but a ‘no deal’ Brexit, so the cliff-edge that plagued the March and October 2019 deadlines will be repeated.

Third, the content: we may agree to keep zero tariffs on all goods, but there will still be border formalities. In order to claim tariff exemptions, UK exporters will have to prove that their goods are substantially made in the UK. Most commentators reckon that together these frictions add perhaps 4% or 5% to the cost of exports. We may be able to negotiate better conditions than average, but not by December.

Worse than tariffs will be regulations.

First, UK exporters will have to prove that their goods meet EU standards. It doesn’t matter that the UK says they do, they have to prove it. Where standards are critical, either the UK government will have to enforce EU regulations throughout the UK (which a Johnson government won’t) or exporters will have to obtain certification from an EU-approved inspection agency. If that task is to be done in the UK, it needs to be negotiated.

If the EU is to give up its tariff protection, it will want to know that UK firms are not obtaining ‘unfair’ competitive advantages through lax labour or environmental rules or through subsidies or violations of competition law. (These are the so-called level-playing field conditions.) The current government clearly hates such constraints, but the EU will not commit to free trade without some such commitments – result impasse. Mr Johnson’s casual suggestion on 29th November that the UK relax EU rules on state-aid to companies will make this doubly difficult.

Finally, there are issues strictly lying outside an FTA, but which will inevitably be bound up with it. For example, whether airlines based in the UK can fly between EU cities and whether EU fishermen get access to UK waters in return for the UK selling its fish in the EU.

You can’t help feeling that it is us, the British public, that is oven-ready, who are going to get ‘done’.

We will have a torrid 2020 deciding what we want of an FTA and a worse time getting even a part of it. Much will remain undone by December 2020, and so the subsequent years will be spent trying to patch up the holes, one-by-one from a position of weakness. The UK will spend five years trying to restore commercial relations with the EU and still end up with something a lot less satisfactory for traders than we have at present.

This blog was first published by Remain United.

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December 4th, 2019

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Alasdair Smith, author17 October 2019

Alasdair Smith ian Emeritus Professor of Economics at the University of Sussex and is a member of the UK Trade Policy Observatory.

Most of us may not yet have found the time to read and absorb the text of the new Brexit withdrawal agreement, but we can read the texts which “a Number 10 source”, whom we non-journalists are allowed to call Dominic Cummings, has sent to journalists. These texts deserve critical scrutiny. (more…)

October 17th, 2019

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27 August 2019Alasdair Smith, author

Alasdair Smith ian Emeritus Professor of Economics at the University of Sussex and is a member of the UK Trade Policy Observatory

The adjective ‘undemocratic’ has for a few weeks now been mysteriously attached to the Ireland backstop provision in the Withdrawal Agreement. The prime minister’s letter of August 19th to Donald Tusk, president of the EU Council, at least explained why: the backstop is said to be undemocratic because it binds the UK after Brexit into EU trade and regulatory policies in which it will have no say.

This is not a new idea. From early on in the Brexit debates, many economists assumed there would be compelling economic incentives for a post-Brexit UK to remain in the European Economic Area (EEA). Alan Winters pointed out that this would mean the UK would have to pay (financial contributions to the EU) and obey (EU rules) but with no say (in setting the rules). The Irish backstop is not the same as the EEA, but ‘obey with no say’ is the ‘undemocratic’ objection.

The prime minister’s solution is that the backstop should be replaced by alternative arrangements for the Irish border which would allow the UK to choose its own different trade and regulatory policies. There is widespread agreement that no such alternative arrangements are currently available.

(more…)

August 28th, 2019

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15 July 2019

Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and  Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are Fellows of the UK Trade Policy Observatory. 

A favourite band (of at least one of the authors of this blog) from the 1980s was the Cocteau Twins (See, or rather listen to…Sugar Hiccup) – well-known for the dreamy unintelligibility of their lyrics.  Which of course leads to the dreamy unintelligibility of some of the promises being made around Brexit. Supporters of Brexit have argued that the UK need not be overly concerned with a ‘No deal’ Brexit. This ranges from positions that ‘No deal’ would not be “as frightening as people think” although there would be “some hiccups in the first year” (David Davies), and that although there may be “some disruption” Britain would “survive and prosper without a deal” (Jeremy Hunt), to arguments that the idea that ‘No deal’ would have a negative impact were “a fantasy of fevered minds” (Jacob Rees Mogg). (more…)

July 15th, 2019

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Image of Alan Winters03 July 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Last week I was challenged twice for using the term ‘no deal’. There is no such thing, I was told, because, even if the UK does not ratify the Withdrawal Agreement of 25th November 2018, there will still be plenty of deals. At the time I thought, for several reasons, that this was wrong in substance if not literally, but more recently I have concluded that it is also dangerous.  Like we saw in the referendum campaign, it undermines informed debate by deliberately confusing the terminology.

‘The deal’ is an agreement between the EU and the UK ‘setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union’ (Article 50 – Treaty on European Union). ‘No deal’ is the absence of such a deal. For business and the economy, ‘no deal’ has come to mean the absence of a trade agreement under which the UK and the EU trade with each other on terms better than those provided for under the World Trade Organization. The former ‘no deal’ implies the latter – as I argue below – but the reverse is not true. (more…)

July 3rd, 2019

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28 June 2019

Nicolo Tamberi is a Research Assistant in Economics for the UK Trade Policy Observatory. Dr Ingo Borchert is Senior Lecturer in Economics at the University of Sussex and a fellow of the Observatory.

On Wednesday, the Department for International Trade (DIT) released its official statistics on inward foreign direct investments (FDI) for the financial year 2018-19.[1] As stated by the DIT, these data measure the inflow of ‘new investment, expansion, and mergers & acquisition’ projects, both publicly announced and not. (more…)

June 28th, 2019

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Erika Szyszczak26 June 2019

Erika Szyszczak is a Research Professor in Law at the University of Sussex and a Fellow of UKTPO

The Dispute Mechanism Systems (DMS) in many trade agreements have lain dormant because countries preferred to use the World Trade Organization (WTO), with its Appellate mechanisms, as the forum to resolve international disputes. This may change in the coming years as the confidence in, and reliability of the WTO, is slowly paralysed by the disruptive attitude of the United States. One question that emerges is whether the use of EU dispute resolution mechanisms offer a faster and clearer approach towards dispute resolution and might serve as a model for future regional trade treaties. (more…)

June 26th, 2019

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Image of Alan Winters10 December 2018

L. Alan Winters CB, Professor of Economics and Director of the UK Trade Policy Observatory and Ilona Serwicka is Research Fellow in the economics of Brexit at the Observatory.

Today we are publishing a study of the economic impact of no deal’ and ‘soft’ Brexit scenarios on the 632 Parliamentary constituencies in Great Britain. It shows that calculating the effect of Brexit on the residents in an area gives a very different perspective from the more common calculation based on the jobs in that area.

For example, a ‘no deal’ Brexit would imply a shock equivalent to losing some 42,400 jobs in the parliamentary constituency of Cities of London and Westminster. However, 41,250 of these jobs are held by people who live elsewhere. At the other extreme, Streatham may suffer a loss equivalent to 650 of its jobs, but around 2,250 of Streatham’s residents would lose their employment. (more…)

December 10th, 2018

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Photo of Emily Lydgate19 September 2018

Dr Emily Lydgate is a lecturer in Law at the University of Sussex and a fellow of the UK Trade Policy Observatory.

In its Chequers White Paper, the UK government has proposed that, in order to facilitate a frictionless border, it will operate a dual customs regime known as a Facilitated Customs Arrangement (‘FCA’). By replacing rules of origin checks at the EU-UK border with internal monitoring, the FCA requires firms to establish ‘robustly’ the destination of their products to ensure that correct duties have been applied, and then, if they wish, to seek rebates if they have been overcharged. Past UKTPO blogs have addressed logistical challenges and strategic downsides of this ‘Fantastically Complicated Alternative’ (see also Does the Chequers Agreement provide any steps to Brexit heaven?)

But would it be compatible with the rules of the World Trade Organization? The precise details of the FCA’s operation remain unclear. Barring a dispute, it’s not possible to settle the question definitively, but the FCA does prima facie pose a risk of WTO non-compliance. We presume that the UK government has undertaken some analysis of this, and that it covers (at least) the following issues. (more…)

September 19th, 2018

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7 August 2018

Nicolo Tamberi is a Research Officer in Economics for the UK Trade Policy Observatory.

In a recent post on Brexit Central , Michael Burrage examines the growth of different countries’ exports to the EU12 over 1993-2015 and asks:

‘How can trading with the EU under WTO rules be the worst possible option when the exports to the EU of 15 countries which have been doing just that over 23 years of the Single Market have grown four times as much as those of the UK, despite all the tariff and non-tariff barriers they have faced?’

The answer is ‘easily’!

(more…)

August 7th, 2018

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