What on earth is really going on with the Brexit negotiations?
Over the last few months we have had numerous media reports of the EU’s unelected Brexit negotiator Michel Barnier demanding an exit payment of up to a staggering £100Bn.
Yet there appears to have been no confirmation from him of the actual figure that the EU have calculated, or any breakdown of the sums he calculates the UK should pay on exit.
Furthermore there in fact seems to be no legal basis upon which any payment is due. The EU Treaties makes no stipulation in this regard whatsoever.
The UK Will Honour it’s Obligations – But What are They?
The British Government, in the form of David Davis, have stated that as a nation we will pay our dues – we will honour our obligations. That seems reasonable but what are our obligations exactly?
Clearly in 18 months time, our obligations to pay the EU anything cease – we will no longer be a member. There have been rumblings that the EU, partly on our behalf, have committed to spending beyond the time at which the UK leaves the EU. If so, on what basis were those commitments made?
If the EU has committed to spending money it doesn’t have on the basis of nations continuing to fund it, whilst each nation’s funding commitment to the EU only extends to the two year window of Article 50, then such commitments beyond this time period of two years were ill-founded and very un-wise.
Surely what Barnier should be doing is giving the UK a breakdown of such commitments and asking us to consider which commitments we would be willing to continue supporting and for what period? Our negotiators can then scrutinise this list and determine what we feel is fair and reasonable and can be broadly supported by the electorate – it is after all our money that they would be committing.
There would need also to be conditions placed on any financial commitment to ensure that other EU nations continue to contribute for payments to continue, and with clear end dates agreed. If the EU has made unfunded commitments which we do not feel obliged to support then they will have to tailor this funding to the resources available.
What is the Value of EU Assets owned by the UK?
Likewise, the EU has assets in the form of buildings and financial institutions to which we have contributed. These need to be valued and the proportion of these that are ‘owned’ by our state agreed, together with a basis upon which the EU will sell these assets and release the cash to us – a sensible schedule of payments.
The EU has stated that it expects our exit bill or perhaps ‘exit dividend’ depending on how the numbers stack up, to be settled before they enter into any discussions about trade. They also tell us that until we leave we cannot negotiate trade deals with other states outside the EU.
The British Government wisely ignored this baseless dictat and appointed Liam Fox as International Trade Minister. The Government accepts that whilst we can’t sign any trade deals with other nations, whilst we remain an EU member, we can line up as many as we want ready for signature on our day of departure. There is clearly no shortage of willing trade partners in the wider world.
In fact, the idea that the EU can delay trade talks with the UK has no basis in the treaties. There is no clause stipulating this.
In fact therefore, surely the EU is simply frustrating the process. Their unpreparedness to enter trade discussions is simply creating financial uncertainty for EU and UK companies – causing a little more financial damage to European economies many of which, such as Greece, Spain and Italy, have been devastated by the EU’s Euro project.
The UK is Happy with Continued Free Trade – Is the EU?
The clock is ticking. The EU have received the clear message from the UK that we are happy to continue trading with the EU on a tariff-free basis. There is no call from the UK electorate to erect trade barriers. Unless they wish to impose such barriers, having extracted an exit fee from us then what is the purpose of delay?
David Davis has been extraordinarily courteous to Michel Barnier to date. But surely now enough time has elapsed? Whilst a cordial approach is desirable it surely is now time for the British Government to provide it’s assessment of the value of the EU’s assets, and our share of them, and ask them to provide their list of onwards spending commitments for scrutiny.
Only then can the real settlement discussions be had and concluded.
The longer the EU prevaricate, the more unlikely it seems that the EU are in fact interested in a free-trade relationship with the UK. They have after-all stated clearly, on numerous occasions, that unless all of the ‘freedoms’ of the single market can be delivered then the ‘benefits’ cannot be had and the only clear mutual benefit is free-trade.
And in reality that means that we would have to accept free movement of people and subjugation of our legal independence to the European courts.
As we all know, every major player in the Remain and Leave campaigns alike, as well as the major figures in the European Union made it clear that leaving the EU meant leaving the single market and the customs union. A few did, unwisely after the Referendum result, try and claim that this was not the case, only to be made to look very foolish by the clear evidence on Youtube.
Why are the EU Slowing Everything Down?
So why are the EU slowing things down by refusing to make their demands and refusing to commence trade talks?
Surely it can only be in the forlorn hope that the UK will, as a consequence of the EU’s slow movement, wish to accept an ‘interim period’ during which we will continue to contribute to EU coffers in order to maintain free-trade.
Surely that would not be acceptable? To do so would be to either effectively continue EU membership beyond the legal limit or perhaps through some legal construct mean that we had technically left whilst stlll paying for a free-trade-relationship – in other words free-trade at a cost.. not free trade at all in reality..
Hard vs Soft Brexit
There has been much talk of Hard and Soft Brexits in the UK. In reality this is just a construct by Remainers wishing to redefine the whole concept of leaving the EU. Leaving the EU means leaving the single market and the customs union – there was never any secret about this.
I would suggest that in reality a ‘Hard Brexit’ is one where uncertainty is created, where governments and businesses cannot plan with certainty and therefore can only move forward cautiously. And therefore surely this Hard Brexit is what we are now experiencing as a consequence of the inability of the EU to define and justify their demands and their delay at commencing trade discussions..
If you believed the dramatic depictions from the Remain side during the referendum campaign you might expect therefore that in the midst of this ‘Hard Brexit’ our economy would be in a state of collapse. Yet in reality as we have seen unemployment is low, growth is steady, the deficit is reducing (albeit much more slowly than many would like) and our exports to the rest of the world are growing very substantially – we are not in bad shape at all.
In fact it seems that ‘Hard Brexit’ is not that tough in reality.
A Mighty Cliff Edge or a Bump in the Road?
But what of the mighty cliff-edge. What of the terrifying drop over the precipice that occurs if we leave the EU without a free-trade deal?
Again we have to look at the facts and conclude that the reality is far less dramatic than the project fear Remain campaign attempted to depict during the referendum campaign and which some still persist in pedalling.
If we leave the EU in 2019 without a free-trade arrangement, our exports will be subject to an average of around 3.5% tariff. So on average, the selling price for £100 worth of goods sold by a UK producer to an EU customer would increase to £103.50.
Would this reduce the amount of goods we sold? – yes it may a little. If something goes up in price from £100 to £103.50 some people may not buy it any more.
But bear in mind, because we have our own currency and are not in the Euro, our currency and therefore the prices paid for our goods fluctuates much more than 3.5% on a regular basis. Fluctuations over the last few years have been in the range of 15-20%. The supposed ‘cliff-edge’ is actually little more than a small bump in the road which our UK producers are entirely used to.
But on the flip-side on leaving the EU without a trade-deal, our government would be entitled to charge EU equivalent tariffs for every item sold to UK customers from the EU and keep the money. (Rather than send 75% of the money we collect from tariffs charged to suppliers outside the EU to the European Union as we do today. )
These tariffs, due to the type of goods exported to the UK in fact, on average, attract higher tariffs as they are largely designed to limit competition for French agriculture and German manufacturing from suppliers outside the EU.
These tariffs are on average around 4%. And, because the EU sells considerably more to the UK than the UK sells to the EU we would derive revenues at a higher rate on a higher amount of trade – in reality billions of additional revenue per year to add to the big saving made by no longer having to pay in EU membership fees.
Would this be disruptive?
Yes. It would be for some. There will be some UK producers who sell primarily to the EU and who will be affected to an extent.
And surely it’s this scenario that the UK government must now plan for – unless the EU very rapidly change their approach.
Hard Brexit is the EU’s Creation
The Hard Brexit is one where the EU continues to delay. Where it continues to keep its intentions a secret. Where it lives in hope that the UK can be kept in the EU, if not in name, then by finding some way of getting us to continue paying the EU bills by prevarication.
Certainty is needed. If the EU aren’t willing to continue on a free-trade basis then we need to work out how to divert the additional billions in revenue that our leaving will generate to mitigate the costs of leaving for affected UK producers (some farmers for example) for long enough for them reasonably to adapt to selling to different markets or to producing different goods if those markets simply reduce in size.
Smooth Brexit is Best!
A Soft, or Smooth as I prefer to call it, Brexit – a smooth transition to whatever the new circumstances will be is what we now need.
Hard Brexit is what we have. A slow, painful trudge towards the finishing line with the vain hope that the line can be extended endlessly in the future and the conclusion never reached.
Perhaps David Davis knew this all along. Perhaps he knew that the EU really didn’t have a negotiating position just a desire to keep our contributions going for as long as possible and that he had to just let that play-out until it became very clear to the UK electorate that the EU were just delaying the conclusion of the process.
The Labour party have dramatically u-turned this week and are keen to convince everyone that an interim or transitional period when we continue to pay the EU and stay in the single-market is the only option. In so doing, their support in the country is inevitably going to slide. This is no solution to the slow pace the EU have set. It’s just support for delay and lack of conclusion. In reality it’s a fairly staggering about-face considering that so many of their voters were Leave voters.
Those of us who concluded during the referendum campaign or before that Leaving the EU was strongly in Britain’s interest have been relatively quiet until now – hopeful that good old British fair-play will prevail.
But this will not last unless the process gets moving. The voices on social media in the still highly active Brexit groups are becoming more urgent and insistent. Some are even speaking ominously about ‘Civil War’ – perhaps a far-fetched idea or perhaps a far sighted one if attempts to stop Brexit, dressed-up as merely tactical delays, continue for much longer.
Eventually an under-current of raw anger is released from people who feel that democratic process has been ignored. There are countless bloody lessons from history as to what happens when people cannot achieve their collective aims via the ballot box.
This is a Hard Brexit. The European Union is making it hard, and the longer it goes on the harder it will be.
Robin Horsley, 3rd September, 2017. – Please Share if you care!