Why Theresa May’s hard Brexit might be softer than you think

The real plan's under wraps?

Plan b, image via Shutterstock

Analysis The reality of red tape might mean the UK’s exit from the EU will take longer, and be softer, than the Prime Minister outlined today.

Theresa May ruled out “partial” membership of the EU in a bullish speech today. The UK would conclude a free trade agreement (FTA) within the two years permitted by the Article 50 process, she asserted, and if not, would leave with no deal rather than a bad deal. Nor did she want to be stuck in a “permanent political purgatory”

Her logic, she said, was that UK had voted overwhelmingly to end open borders, which after EU enlargement had seen a flood of cheap labour from Eastern Europe – a boon to bosses, as it suppresses wages. One can hardly blame a politician for putting self-preservation first in wanting to get re-elected; in reality, no politician outside a handful of mostly leafy, Left-leaning city enclaves can run on a ticket of EU-style open borders and have a hope of getting elected.

But May now faces a cliff edge, argues Richard North, the pro-Leave author and writer whose multi-year "Flexcit" process has exhaustingly outlined the practical challenges of leaving the EU. It just can’t be done overnight, he points out. And two years is "overnight".

North’s logic goes like this. Although we can make much of the process of Leaving easier – by accepting the acquis, as the government has promised, and guaranteeing to match EU funding for recipients in education and agriculture, we can’t hope to conclude a FTA in two years. These take several years to conclude.

“The basic mechanics of agreeing a free trade agreement are such that it is not practically possible to achieve a conclusion within two years. This is equivalent to the commander in chief addressing his troops on Salisbury Plain saying: "OK chaps, tomorrow, we're invading Iraq", then adding, "Oh, and by the way, we're walking there". It cannot be done. It doesn't matter how many Muppets say that this is what we are doing. It can't be done, and no amount of prattling can make it so,” North wrote today.

Secondly, it isn’t the tariffs that we should fear: it’s the red tape, and the vast 60-year accrual of regulation The re-balancing of overvalued sterling, which most of the commentariat had called for since the UK became a petrocurrency a the start of the Thatcher era, has now happened. It’s already made UK exports much more attractive, far in excess of the tariffs importers would pay if we “cliff edged” and without an EU FTA, defaulted to the WTO tariff structure.

But without sorting out the red tape, lorries would be backed up to Liverpool. Today, global standards are set at bodies such as the UNECE which actually pre-dates the precursor of today’s EU (the European Coal and Steel Community) by several years.

The Leave argument is that modern nation states can now cut out the middle man – the EU – and implement global standards and procedures directly. Border freight processing, for example, is one of the roles where UNECE has not fully computerised international freight. So instead, importers and exporters must deal with the Union’s Custom Code. North outlined the argument in a short monograph here [PDF]. Three million TIR customs carnets are issued each year, each one giving a freight shipment passage as it crosses the border.

“The problem is that, as it stands, there is no applicable UK law of significance. The entire body of law has been replaced by the Union Customs Code (UCC) as part of a broader legal package,” North explained. “Outside the EU, though, it is unlikely that this law could just be copied out. Substantial adaptation would almost certainly be needed. This would be a complex and time-consuming process and, assuming that the UK had lost Union law as a result of the expiry of the Article 50 process, it might be an unplanned event.”

He adds: “No doubt a series of emergency orders could be rushed into place but, during the period when new legislation was being produced, there would be no legal code applying to UK Customs operations. Temporary measures aside, it is difficult to see how a comprehensive code could be quickly or easily replicated, even if there were the personnel available with the necessary skills and experience.”

In addition, the UK would need to be prepared for the many obstacles the EU has erected to deter trade outside Fortress Europe, raising costs for American, Asian and African exporters. In two years' time, the UK would need a Mutual Recognition Agreement (MRA) with the EU:

“Should the UK leave the EU, goods exported by the UK and presented for circulation in the Union market will be defined as "non-Union goods". If we have left without securing an exit settlement, UK testing and certification bodies previously approved by the EU would lose their approvals. Documentation generated by them may no longer be recognised by EU authorities.”

Now comes the crunch.

How Flexi is your Brexit?

None of these challenges are insurmountable: but to smooth out the bumps would require compromises which make a “Hard” or a “cliff edge” Brexit impossible. A “Flexcit” process would entail a transitional period in which the UK retained membership of the EEA economic area and rejoin EFTA, the European Free Trade Association the UK joined in 1960, and left when it joined the (then) EEC.

Oxford Professor George Yarrow of the Regulatory Policy Institute also outlined this option in a paper [PDF] last year. It gives lie to the received wisdom that a zero sum choice faces a trading European nation with migration pressure. This would give the UK border controls the voters have demanded – Article 112 of the EEA provides an option for an “emergency brake” – yet continue to allow the UK access to the single market. It would also give negotiators the time it needs to conclude a FTA and other areas of co-operation.

On the other hand, the UK would need to retain around 20 per cent of EU regulation and make payments to access the single market. This isn’t acceptable to the Tory right.

So is May aware of a Flexcit-style exit option, or not? It depends which parts of the “12-point” speech you choose to emphasise.

North thinks she has no Flexcit plan, that she naively believes a FTA can be concluded in two years, and therefore, “we’re fucked”. Then again, May’s team has emphasised a transition period – it’s being branded a “transformation” period. And notably, May did not promise to end all payments to the EU. She promised to end “huge contributions” and “huge” sums. The phrase “not a penny more” was absent.

It’s entirely plausible that May knows what a hard Brexit entails, but her slim majority does not allow her to signal her true intentions. A General Election would most likely increase her majority significantly, and fix that. But until then, we’re guessing. ®

Useful links

May's 12-point speech today
Flexcit [PDF] and Monographs (a must read)

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