The Path to a Smooth Brexit - Marcus Fysh MP

A smooth path for our trade with the EU is in the interests of all on both sides of the Channel. It has the overwhelming support of the majority of the British people as well as most sensible politicians who respect the result of last year’s EU referendum. The political argument about how to achieve this is getting in the way though, and in my view our political discourse on it needs rapidly to grow up.

That was also the subtext of EU negotiator Michel Barnier’s recent comments, which essentially pointed out that terms like “transition”, “single market”, “customs union” and “frictionless” are sometimes promoted by politicians and commentators without full technical accuracy or understanding.

There has been much talk of types and lengths of transition to avoid “cliff edges”. The difference of opinion as to practical ways forward between those who respect the result and understand the detail on these matters is in reality small.

M Barnier was stating the obvious. Not only would seeking a deal to remain in the EU’s Customs Union make it impossible for the UK to sign its own third party trade deals with growing international markets, it would indeed mean we remain in the EU, because the Customs Union is a legal feature of the EU itself.

Similarly if we were to seek a deal to be members of the “Single Market” this would restrict our ability to agree third party trade deals relating to services, in which we have substantial interests and comparative advantage as a nation. This is because as members of the “Single Market” we would not directly control our own regulation.

Retaining “Single Market” status would either mean remaining a member of the EU, or seeking accession to EEA status such as granted to Norway, and having to observe the “four freedoms” including freedom of movement, which the EU has repeatedly said are non-negotiable.

Those who argue that we could use safeguard provisions of the EEA agreement to restrict freedom of movement perhaps do not appreciate that proving an impact sufficient to justify their use would be very difficult. To be effectively restrictive they would need to be redrafted, and for us to expend political capital and time demanding the EU allow us to “cherry pick” without realistic hope of success would be a fool’s errand.

When the Article 50 period ends, our participation as members of the EU’s Customs Union and Internal Market will automatically cease. The Repeal Bill, published this week, is an essential step in the UK’s transition from being in the EU to being outside it with constructive new arrangements and avoiding cliff edges in trade. It is also a step we can take on our own. It is not subject to agreement or negotiation with the EU.

By bringing EU law and regulations into UK law, the Repeal Bill enables a smooth transition and gives space for constructive dialogue on the detail of our ongoing arrangements. Aside from the basic legal certainty it attempts to give us, the fact that our regulation would be the same as the EU’s when we leave because of the Repeal Bill is of crucial technical importance.

This fact would mean that under the WTO agreements on Technical Barriers to Trade and Sanitary and Phytosanitary Measures, the EU could not legally refuse to recognise our standards and conformity assessments for goods crossing borders, at the outset of our new arrangements with the EU.

The fears about cliff edges in ability to trade because standards might not be recognised as equivalent (regularly cited in the argument as “non tariff barriers” to which we might be exposed) are therefore overdone. We would have legal redress should the EU seek to impose such barriers, as long as the Repeal Bill is passed.

This legal obligation would be in addition to the moral and reputational obligations for the EU to maintain or improve trade with its neighbours as under Article 8 of the Lisbon Treaty, and the large pragmatic incentives to maintain existing and enhanced trade and security relations on both sides of the Channel. These, for example, include the EU jobs in the German car industry which export products to us worth 21 billion Euros a year, and the need for European business and banking to maintain access to deep and efficient capital markets in London and to maintain existing recourse in banking, derivative and insurance products.

As long as by the end of the Article 50 period there is a broad framework agreement to maintain tariff free trade between the EU and UK, which could be passed by qualified majority vote in the EU Council and need ratification only by the European Parliament, there would not be a tariff cliff edge.

Zero tariff preferences with the EU could also in such circumstances be maintained without them needing to be offered to other nations under WTO Most Favoured Nation terms for up to ten years under Article 24 of the General Agreement on Tariffs and Trade. This would give ample time for the signing and full ratification of a comprehensive free trade agreement or other association agreement with the EU that gives ongoing certainty.

We must not forget that non-EU countries also want certainty on their trade with the EU area, of which we currently form a very important part, and the EU’s third party Free Trade Agreements will be simple to grandfather for us at least on a provisional basis, if this simplicity and staging is established. The EU already has deficiencies in its enlargement updates of its WTO schedules, and other countries will be looking for resolution of the necessary adjustments to tariff rate and subsidy quotas, not for the EU to be playing games.

The question of how mutual customs and market access arrangements between the EU and UK might evolve after we leave the EU is certainly for consideration as part of the ongoing comprehensive agreement both the EU and UK have set as their negotiating objective. The passage of the Repeal Bill would allow both sides to focus on important and potentially more difficult technical aspects, such as regulation and co-operation in finance, aviation, science, nuclear, research and other services, and how we might manage divergence in these over time.

There are reasonable arguments for considering the model of the EFTA court, or a system analogous to the Investor Court System as mooted by the EU’s free trade deal with Canada, to help manage disagreement over potential divergence in a mutually agreeable way. However these do not of themselves mean we need to be part of the EEA (“single market”).

One certainty is that in all future circumstances we will need a modern, flexible and high capacity system for declaring and sharing customs data so that assessments for rules of origin and VAT are as simple and costless to users as possible, and as many transactions and movements as possible are pre-cleared and able to be shared efficiently with the EU and other trading partners. Getting this system operational by March 2019 and making it flexible for different tariffs, rules of origins cumulations etc should be the Government’s top priority. The Canada/US and Norway/Sweden borders are examples of how border arrangements can be very efficient and support repeated cross border supply chains without being part of a customs union with common external tariff.

If time can successfully be devoted to discussion of these issues and other key facets of co-operation in justice and security - and bear in mind that there is need to engage in these early in relation to Irish border arrangements - there is no reason to think that acceptable solutions will not be found that minimise the risk of major impairments to trade.

This is a message which all Ministers and MPs should be communicating, and as I have said and written before it is not at all helpful that the Treasury’s public economic analysis on these matters to date has been myopic and flawed, relying as it does on modelling of a complete collapse in trade with the EU that will not happen as long as we keep to the path outlined above.

Companies are beginning to make decisions now as to how to arrange themselves in advance of April 2019, and politicians have a responsibility to work together where possible to give them confidence, not re-run arguments of the Referendum.

Hopefully the Repeal Bill, together with plans for Trade, Immigration and Agriculture Bills that will enable anti-dumping, worker movement and common commercial policies under which we can technically manage our own trade arrangements, and an early understanding that there in fact need be very few cliff edges, will enable business to continue confidently investing in the UK.

Politicians of all prior persuasions must try to understand these essential pieces of legislation that will enable our country’s future prosperity and harmony. Just as I have eternal confidence in the collective will and wisdom of the British people, I am confident that we their elected representatives can rise to the challenge.