Richard North, 16/06/2019  
 


A few days ago, the European Commission published a report on the state of play "on preparations of contingency measures for the withdrawal of the United Kingdom from the European Union".

As regards the UK's position, the Commission tells us it has consistently stressed that contingency measures can only mitigate the most significant disruptions of a withdrawal without an agreement.

Refusing to speculate on the possible economic implications of different scenarios, the Commission nevertheless asserts that the UK's withdrawal without an agreement, trading on WTO terms, "would have a serious negative economic impact" and that this impact "would be proportionally much greater" in the UK than in the EU-27 Member States.

To back its assertion, the Commission relies on a number of "external studies" that include both trade and non-trade channels, which suggest a short-term reduction in UK GDP.

One of those is the IMF World Economic Outlook for 2019, which estimates a reduction between 3.7 and 4.9 percent, while the Bank of England (November 2018) estimates a reduction of between 4.75 and 7.75 percent over five years. By contrast, the IMF estimates the average short-term impact on the EU-27 Member States as well below one percent.

As to the long-term impact, the "external studies" on which the Commission relies suggest a long-term negative impact of around 3 to 8 percent on UK GDP. The IMF (2019) estimates almost 3 percent; and the UK Government (2018) 7.7 percent. As regards the average long-term impact on the EU-27, the IMF (2019) estimate is well below one percent, in line with most other studies.

Over term, most of these studies have taken their share of criticism and the "ultras" have been quick to dismiss them as part of "project fear".

And that dynamic is still very much in play with Liam Halligan sounding off in the Telegraph, as he so often does, this time arguing that "Boris Johnson must go through with Brexit no-deal threat".

As one might expect from this source, we get the usual mix of complacency, half-truths and dissimulation, the game being to make out that no-deal is no big deal at all.

Writes Halligan, under WTO rules, UK-EU trade continues, something which he says is "a statement of the obvious" but on "in the current climate of fear" needs restating. And here we go again as he trots out the same dire propaganda, asserting that: "the US and China annually sell hundreds of billions of pounds of exports to the EU from outside 'the club' – the UK can do the same".

Yet, back in April 2015 I was writing about the skein of agreements which bound trade relations between China and the EU, from which the UK benefits. And a year later, I was doing the same for the United States.

At the time, I worked out that China had multiple agreements with the EU - 65 over term, including 13 bilateral agreements, ranging from trade and economic co-operation to customs co-operation. The United States, on the other hand, had 38 "trade deals" with the EU, of which at least 20 were bilateral.

Nor are arrangements confined to formal treaties. Much of the work is carried out through departmental Memoranda of Understanding, such as the 2012 MoU signed between the International Trade Administration of the United States Department of Commerce and the European Commission's Directorate General for Enterprise and Industry.

This set up bilateral cooperation on Small and Medium-Sized Enterprises which paved the way for the more detailed 2015 Cooperation Agreement on SMEs.

The point I made at the time in respect of the US – which applied with equal force to countries such as China – was that the EU managed its trade relations through a variety of instruments, some formal and many informal, binding parties in intricate networks of deals.

Furthermore, each network has its own bureaucracy, so that the 2020 Strategic Agenda for Cooperation with China works through 60 "high level and senior officials dialogues", while the US works with the EU through the Transatlantic Council, described as the "primary plenary forum for economic dialogue between the United States and the European Union".

All of this passes by the likes of Halligan though, who asserts that "Britain already conducts most of its trade outside the EU, largely under WTO rules". He then claims that "such trade is growing and generates a surplus", whereas "Our EU trade, in contrast, despite the single market, is falling and generates a deficit".

For all that, these tiresome assertions are simply lies. The UK, as a fully paid-up member of the EU takes full advantage of the network of agreements between the EU and third countries. By far the greater part of our third country trade is conducted under the EU umbrella, cover which we lose when we leave the EU.

But not only do we have to put up with Halligan's lies, we're also dealing with a man who knows next to nothing about trade. "Under WTO rules", he claims, "we charge relatively low reciprocal tariffs – generating billions for Britain given our EU deficit". He then goes on to say that "such funds could support UK exporters facing higher EU tariffs".

Little does he realise that using tariff income to support specific enterprises would be in breach of WTO rules, contradicting the national treatment provisions of Article III of the GATT Agreement. Any income from tariffs must be paid into the general fund and must not be hypothecated or used in any way which gives an advantage to national businesses.

Another canard raised by Halligan is that the no-deal Brexit also means withholding much of the £39 billion "divorce bill", allowing us to spend the money at home instead. But one can see that lasting only for as long as it takes Brussels to withhold further talks on trade, making any negotiations conditional on us paying the financial settlement.

And, like so many of his ilk, the man is asserting that "deal have been struck … so hauliers will have licences and planes will fly", missing out that these are unilateral contingency measures implemented by the European Commission, made entirely in the interests of its member states.

No doubt, fears have been "exaggerated", but that does not support an argument that there is nothing to fear. Border checks will be carried out on UK produce which, with the application of customs formalities and VAT rules, will substantially slow down trade and add to costs.

Since exports to the EU amount roughly to £274 billion, in goods and services, this is not a volume we can afford to mess with and, when we add the £350 billion or so in imports, this makes for a significant portion of our economy.

Furthermore, it is not only exports which generate economic activity. Every imported car, for instance, requires servicing, while the marketing, sale and financing of the vehicles creates British jobs and income for British businesses. Interruptions in imports can be just as damaging as delays to exports.

Then there is the question of services, where there will be no special access for the UK. Currently, the UK's single largest service export to the EU was "other business services", valued at £31.0 billion, representing 28 percent of the total service exports. These include legal, accounting, advertising, research and development, architectural, engineering and other professional and technical services. Little of this will survive a no-deal Brexit.

In other words, no matter how the "ultras" want to spin it, a no-deal Brexit is a big deal, and not one we can afford to treat lightly. We can do without the propaganda, but could use a lot more honesty, even if that's something we've never seen before in the debate.






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