Brexit update for those interested

With thanks to THE WEEK. (3 November 2018). which compiled this situation report. I have lightly edited it for length! (still too long, but it is mind-bendingly complicated)

Brexit has arguably been the most threatening issue that has faced Britain since the Civil War nearly 500 years ago, (or, some would say, the Norman Conquest) and has destroyed the ataraxia of many thousands. I am reproducing this situation report for those worried and confused:

There are four main models over which British politics is tearing itself apart. If a deal can be made, it will be some variant of any of the first three. If not, it’s no deal. The clock is ticking…

29 March 2019. That is the date on which the UK is set to leave the European Union. The assumption has been that by that date there would be a negotiated a withdrawal agreement with the UK. That would then need to be signed off by the European Parliament and a supermajority (72% of the 27 states) in the European Council (made up of the leaders of EU member states).

The rights of British and EU citizens after Brexit, the UK’s “divorce bill” from Brussels, were settled, and the issue of the Northern Ireland border was apparently smoothed over when Britain accepted a compromise – the so-called “backstop”. This March, the two sides also agreed a transition period, running from March 2019 until the end of 2020, during which Britain’s relationship with the EU would remain effectively unchanged.

But the Irish border remains the big, stubborn sticking point. The only deal anywhere near the table – the Chequers plan – is unpopular in Westminster and in Brussels. Every option, from staying in the EU to “no deal”, is still up for grabs. These are the options going forward:

Option 1 The Norway model

This is the option that preserves the closest possible trading relationship with the EU without being part of its political union. In 1994 it was agreed that Norway should remain a member of the newly created European Economic Area (EEA), and thereby of the EU’s single market, but not its customs union. It has left Norway free to decide its home affairs, farm and fisheries policies, and to negotiate trade deals with non-EU nations. Under this model, Britain would be able to sell most goods and services to EU states without paying import tariffs. But it would have to conform to EU regulations on goods and services, and to its four freedoms (on the movement of goods, services, capital and people).

The Norway option holds the least risk of economic upheaval, allowing for the same level of uninterrupted trade with the EU as today, including the services sector. But it would also mean the UK having to pay into the EU budget and accepting swathes of EU rules on which it had no say. Like Norway, the UK would have to accept EU migration; the EEA agreement does allow some latitude in this area, but the extent is contested. Besides, the Norway tag conceals two very different options. Barnier has expressed support for “Norway plus”, which means “being part of the single market plus a customs union”: that would ensure frictionless EU borders, but would stop the UK from trading freely with the rest of the world. Conversely, “Norway minus” – leaving the customs union – would mean trouble at the borders, particularly the Irish border.

Some Eurosceptics support this, arguing that at least it offers a plan for freeing the UK from the EU; it has also been mooted as a temporary solution while a trade deal is concluded. Whether Brussels or indeed the EEA would accept that is less clear.

Option 2 The Chequers plan

The Chequers plan means going one step further than the Norway model. It would end the free movement of EU citizens, and have Britain leave the EU customs union and the single market for services – but keep it in a single market for goods. That would entail accepting Brussels’ rules and standards for all goods and agricultural products. It would enable the UK to make its own trade deals with countries outside the EU, but to do so, a complicated new customs system would be required: UK customs would apply domestic tariffs for goods intended for the UK, but charge EU tariffs for goods passing through Britain to the EU.

This would allow for some degree of independence, while preserving frictionless trade – a major concern for British business, from retailers importing fresh food, to car manufacturers who rely on the timely delivery of parts using supply chains that stretch across Europe. But like “Norway”, it involves indefinitely accepting EU regulations – albeit only those covering goods – while having no say in Brussels. The EU, for its part, has flatly rejected the plan: to accept a single market membership for goods, but not services, capital or people, it says, would undermine the single market and encourage EU members to “cherry pick” rights and obligations; it is all or nothing. Barnier also thinks the customs bureaucracy involved would be “insane”. Nor is he convinced it can achieve one of its main objectives – obviating the need for a hard border in Ireland.

The CBI, the UK voice of business, says this option is workable, but to Brussels and the Eurosceptic wing of the Tory party, it is unacceptable. But if – a big if – Brussels were to agree to a version that didn’t involve too many further concessions, May might get it through Parliament with the backing of Labour rebels.

Option 3 Canada plus

This would be a free-trade agreement like Canada’s Comprehensive Economic and Trade Agreement (Ceta) with the EU. Nearly all goods could be imported tariff-free, and non-tariff barriers (regulatory checks, quota controls) would be kept to a minimum. It would also put an end to budget payments to the EU and free movement for EU citizens. The “plus” signals that the UK deal would go further than the agreement with Canada, though it’s unclear how far: it might involve making it easier for the UK to sell services to the EU and forging other joint arrangements – on security, for example.

To many Brexiteers it represents a clean break with Brussels. The European Court of Justice’s jurisdiction over British affairs would end; EU immigration would once again be a matter for Parliament. And we’d have complete freedom to trade freely with the world. But most economists think it would impose a heavy cost. There’d have to be new customs and “rules of origin” checks on goods moving over the borders: additional border formalities would create long queues and uncertainty in ports used for UK-EU trade, notably Dover. And it would make the need for some sort of controls at the Irish border almost inevitable. Besides, free-trade deals also take years to negotiate: Ceta took seven years, though presumably a UK deal would be easier, because British and EU regulations are currently identical.

This option could be viable and could get the support of Brexiteers, but it is subject to a satisfactory resolution on the Irish border. The CBI is dead against it: “It would introduce friction at borders, it would not solve the Irish border, it would damage the supply chains on which thousands and thousands of jobs depend.” And at the moment, there is nothing like a majority in support of it in the Commons.

Option 4 No deal

This would mean leaving the structures of the EU without any deal to replace them. In practice, the term covers quite a few different scenarios, all the way from utter chaos – with planes unable to fly between Britain and Europe, British meat prevented from entering Europe, medicine shortages and the Channel ports gridlocked – to a basic but more orderly contingency plan to move UK-EU trade to World Trade Organisation (WTO) rules. Either way, there’d be immediate and extensive border checks and heavy tariffs on some goods. For example, on WTO terms, cars and car parts would face 10% duties every time they cross the border. Agricultural tariffs would be significantly higher, up to some 35% for dairy products.

This would be a catastrophe for Britain and Europe, with disastrous effects on supply chains, trade and transport, and sending the UK into recession. The IMF says it would cost us about 4% of GDP in the long term. (I have heard figures of up to 8% from economist friends. Ed.) And Brexiteers fear that it could trigger a political crisis that would end with Britain staying in the EU. But looking on the bright side, the average WTO tariff for EU imports is in general not particularly high (2.6% for non-agricultural products) and, in the absence of a deal, Britain probably wouldn’t have to pay its EU divorce bill, which would give it £39bn to offset the negative economic effects.

Almost no one actively supports this, but extremists claim it’s preferable to agreeing punitive “Carthaginian terms” with the EU. They claim that the UK could unilaterally slash tariffs and taxes, and embark on a bright Singapore-type future. However, Toyota recently warned that if the firm’s sizeable investment in the UK is to continue, a no deal scenario must be avoided. Trade probably wouldn’t stop stop, but the outcome would likely be disastrous. (Stories circulate about banking staff slready being moved to Paris or Frankfurt. Ed.)

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