In the 19th century, a web of disputes concerning the relations of two duchies along the border of Denmark and the German Confederation, Schleswig and Holstein, came to epitomise the exhausting complexity of the European political landscape in that era. Lord Palmerston, perhaps Britain’s most famous Foreign Secretary, famously remarked: ‘Only three people have ever really understood the Schleswig-Holstein business—the Prince Consort, who is dead—a German professor, who has gone mad—and I, who have forgotten all about it.’
As the 29th of March draws near, the date when the United Kingdom will leave the European Union, it seems as if we’ve found the modern equivalent of the Schleswig-Holstein Question: Brexit. Running to 585 pages, the draft withdrawal agreement between the UK and the EU put forward by Theresa May confuses everybody and pleases nobody. As has often been noted, the referendum gave a mandate to leave the EU, but no instruction as to on what terms. The Eurosceptic wing of the Tory party, possessed by an almost theological hatred of the EU, cry betrayal on the grounds that May’s plan fails to deliver on sovereignty and control of trade policy. They particularly object to May’s Northern Irish ‘backstop’. This stipulates that if free movement of goods and persons along the Irish border isn’t sorted out in two years, then all the UK will remain in the customs union to prevent a hard border arising, and Northern Ireland will functionally remain in the single market. By contrast the more centrist Conservatives, such as Dominic Grieve and Anna Soubry, rightly oppose May’s Brexit as an economic disaster in the making, as do most of the opposition, give or take a few odd Labour leavers.
But not only has the mandate of the Brexit vote proven poisonously ambiguous, it is totally unclear if May’s proposed deal will even survive the next few weeks. The EU needs to agree to it in an emergency summit in late November, Theresa May needs to hold on amidst high-profile cabinet resignations and a brewing no-confidence vote, and then the deal needs to be approved by parliament, which looks decidedly unlikely for the moment. If any of these hurdles is not passed then Brexit flies totally off the tracks. The Eurosceptic Tories are scared we’d then end up staying in the EU, and everyone else is scared we’d crash out of the EU with no deal whatsoever. The former group verge on openly endorsing a no-deal outcome, with Jacob Rees-Mogg dismissing it as ‘nothing to fear’, whilst a lot of the latter group secretly wouldn’t mind if we just called the whole thing off. But if Theresa May’s deal does survive, (and that’s a big if), there’s a third ominous uncertainty – what happens after we leave.
If the 585 page withdrawal agreement is terrifyingly complex, the government’s position on the UK’s future trade relationship with the EU is terrifyingly basic. It comes down to eight bullet points in a seven-page declaration, which amounts merely to a statement of intent; none of the details of our relationship with our largest trading partner have so far been ironed out. What that relationship looks like is the single most important issue raised by Brexit; a poor trade arrangement would tank the UK economy and jeopardise the livelihoods of millions. A good trade deal could make Brexit merely bad rather than disastrous.
David Davis declared in January 2017 that ‘we can get a free trade and customs agreement [with the EU] concluded before March 2019’. That has turned out to be a total fiction. Eight months ago the government conceded to a transition period – two years in which the UK would stay in the single market and the customs union, following all of the EU’s rules, during which a trade deal could be hammered out. But that was never going to be long enough either considering that the EU-Canada trade deal took about a decade to conclude. In May’s plan the transition period can now be extended for some unspecified amount of time after the two years elapse.
The Brexiteer vision was much simpler. A ‘Nike tick’ was how Boris Johnson put it, a brief downturn as the UK left the EU, and then we’d be in the boom times as Britain, unfettered from pesky EU regulations and the customs union, would rapidly conclude trade deals with the US, China, and various emerging economies. The EU weeping at its own hubris would crawl back to the reborn British Empire, and we would magnanimously consent to a trade deal, getting all of benefits provided by membership of the single market with none of the costs, such as having to allow free movement of labour or paying into the EU budget.
It is difficult to overstate how delusional this is. The arch-Brexiteers want us to leave both the customs union and the single market. That poses two major problems. Firstly it would be disastrous for the British economy. 50% of our exports go to the EU, and about 50% of our imports come from it. With regards to exports, under WTO rules tariffs on British goods entering the EU would as much as quintuple. Outside of the single market, there would be no guarantee that British goods would satisfy the quality standards demanded by the EU, and as such British goods would have to undergo extensive checks before export causing massive delays. The service sector, which contributes 80% of national GDP, would also be hard hit. British banks would lose passporting rights by which they are authorised to do business throughout the EU – rather they would have to apply to do business in each of 27 EU member states. As such financial institutions would have an enormous incentive to simply relocate to within the EU. As for EU goods, under WTO rules the UK could not lower tariffs on EU imports unless it did so for the imports of all other countries, which would flood the UK with cheap products and put British manufacturers out of business. The alternative is that EU goods would become much more expensive for UK consumers.
Secondly, leaving the single market and the customs union would necessitate customs checks on the border between Northern Ireland and Ireland, which would cripple the Northern Irish economy. That would also severely undermine the Good Friday Agreement, dredging up old conflicts over identity and borders which took thirty years to settle in the first place.
The Brexiteers of course believe that it will not come to this, that a comprehensive trade deal will be concluded with the EU which would replicate all our current benefits. That’s highly unlikely. The EU is perfectly aware of the massive cost that trading on WTO rules would have for the UK. Only 8% of EU exports go to the UK – a drying up of trade between the EU and UK would comparatively hit us a lot harder than it would hit them. This gives the EU massive leverage in trade negotiations, and the EU will drive a hard bargain. Giving the UK the same benefits of membership while the UK avoids paying into the EU budget, is not something the EU or its member states would accept as fair. Crucially, while free trade in services is guaranteed between single market members, the EU’s trade agreements with non-EU countries are not so expansive, as in the case of the EU-Canada trade deal often cited by Brexiteers as a model. The four freedoms of the single market, free movement in goods, services, capital and labour, cannot be separated according to the EU. Given that Brexiteers cannot accept free movement of labour as that would allow uncontrolled EU immigration to the UK, the EU cannot let the UK enjoy the other three freedoms. This is a particular obstacle in the context of the Irish backstop. The EU has made abundantly clear that any deal that produces a hard Irish border is ruled out, while arch-Brexiteers cannot accept anything but a hard border given their aims of curbing immigration and relaxing UK product standards. It is virtually impossible to imagine any trade deal which would satisfy both parties.
But Brexiteers may insist that in a no deal scenario, increased trade with other parts of the world such as rapidly growing countries in Asia would outweigh any loss in trade with the EU. That already seems exceptionally unlikely given how massive that loss would be. Furthermore, the EU is collectively the first or second largest economy in the world, and about eight times larger than the UK economy. That gives it more power to extract favourable terms from other countries. It is perfectly plausible that China could bully the UK into accepting lower quality imports as a condition for a trade deal. The US has already signalled that keeping the EU’s high quality standards on goods would stymie any potential post-Brexit deal with the UK, even setting aside Donald Trump’s protectionist inclinations. It is also worth keeping in mind that as well as the EU being in and of itself the largest free trade area in the world, it also has comprehensive trade deals on goods with some of the largest economies in the world including South Korea, Canada, South Africa, Mexico and Singapore. The Japan-EU trade deal is the largest in human history. The UK would benefit from precisely none of these arrangements. And even if by some miracle favourable trade deals to rival those of the EU could be negotiated by the UK, trade deals take a lot of time to negotiate, at least a few years, in which time the UK would left in economic free-fall.
Given the calamitous nature of such a scenario and EU insistence on a soft border in Ireland, the likeliest trade arrangement remains a poor imitation of single market membership, which appears to be Theresa May’s plan. The government’s seven-page declaration calls for ‘comprehensive arrangements creating a free trade area combining deep regulatory and customs cooperation’. That sounds awfully like the Chequers agreement which aimed to keep us out of the customs union, allowing us to unilaterally agree trade deals with non-EU countries, whilst maintaining frictionless, tariff-free trade with the EU. The only problem with Chequers, (apart from that it would provide a massive incentive for smuggling goods into the EU via the UK), is that the EU has already rejected it. It looks more likely then that we would remain in the customs union, which would rule out trade deals with countries outside the EU, quashing any fantasy that Brexit would give us access to new markets. But if we’re in the customs union and attempt to mimic the single market by eliminating tariffs and differences in product standards between the EU and the UK, then Brexit begins to appear entirely pointless.
This arrangement would just be an inferior version of EU membership, with less comprehensive access to European markets, without EU investment in poorer parts of the UK or its enormous funding of our universities, whilst still being functionally subject to the rulings of the European Court of Justice, in direct contradiction of Brexiteer promises. But most crucially, inside the EU we can shape EU laws and policy, rather than just having to submit to them. The great irony of Theresa May’s desperate struggle to replicate the benefits of the single market whilst keeping us outside it, is that the single market is history’s greatest testimony to UK influence in the EU. The EU’s crowning achievement was pioneered and lobbied for by the British.
Whatever the 52% voted for back in June 2016, it was not chaos and backtracking. It was not a vote to make themselves worse off. As the reality of leaving the EU finally becomes clear, the Brexiteer vision has been exposed as a cruel lie. The only decent thing now is to go back to the people with another referendum, and ask them if this is what they really want. If we vote to leave again, so be it. At least that would be a fate of our own making.