The Daily Reckoning UK

“Cliff Edge Brexit Would Be A Disaster” – Interview With Ian Dunt

Pieter Cranenbroek

by

Posted 8th February 2017

The day after Britain’s historic decision to leave the EU, people on both sides of the fence were most likely thinking: ‘Right. What now?’

That’s why Ian Dunt, editor at Politics.co.uk, decided to take matters into his own hands and write a book called Brexit: What The Hell Happens Now?

With Prime Minister Theresa May only weeks away from triggering Article 50, I figured it was time to ask Ian what we can expect once the government starts the Brexit procedure.

I started off asking Ian what he meant by a ‘chaotic Brexit’, the thing he argues in his book Britain should make sure to avoid.

Ian:  I guess the key phrase that we use for this now is the ‘cliff edge’. And that’s basically that the exit happens before there has been enough time to deal with what we do not currently have in Britain.

So, for instance we do not have any tariff-free deals with the EU. We do not have any trade agreements around non-tariff barriers, things like bureaucratic checks.

We don’t have any arrangements for financial services in Europe. We also don’t have a domestic legal framework, and a regulatory framework that can handle the work the EU has done until now.

So, not only do we not have the tariff arrangements, but we actually don’t have the laws for customs checks. We literally don’t have the legislation in place.

We also don’t have the legislation in place for applying sanctions. That was also done through the EU.

We have regulators which either don’t exist because we were using European regulators, or, which are very tiny and scrawny, which need to have a bunch of powers passed to them – the things that Europe used to do.

So, chaotic Brexit, or the cliff edge, is what happens if we ‘Brexit’ without having sorted all that stuff.

And the answer is: disaster. That is an absolutely catastrophic situation for us to find ourselves in.

Since I wrote the book, it now appears much more likely that this will happen. Theresa May seems to be explicitly threatening it.

I have to say that even now, I just simply don’t believe that you would find a situation in which this took place. It’s just such an obvious act of catastrophic national self-harm.

But it is looking more likely today than it was when I published the book.

Pieter:  Yes, very much so. So, there’s a lot to do.

Still, hard Brexit advocates argue that even if Britain doesn’t agree these free trade deals, trade wouldn’t stop.

They give the example of the US being the biggest single country that Britain exports to, and that the US trades with the EU without being part of it.

Why do you think it’s so vital that the UK does walk away with a deal from the Brexit negotiations?

Ian:  Well, it’s true that the US is the largest nation with British export, but it’s still a drop in the ocean compared to how much we send to the EU. I mean, we send almost half of our exports to the EU.

And the other funny part of it is that the Americans do have a trade agreement with the EU. It’s not a full trade deal that’s like the TTIP (Transatlantic Trade and Investment Partnership) which looks like it’s falling apart.

But they have trade agreements, for instance on non-tariff barriers. There’s a mutual recognition of product standards that allows goods to flow without having very long, lengthy and costly bureaucratic checks on the border.

So actually part of our trade with the US is based on these agreements the EU has done. And we lose these agreements when we leave the EU.

I think the key, and a really useful way to think about it is, if you imagine that you’re in New York and you need to send one package to Los Angeles, and another one to Montreal.

Even though Montreal is much closer to you, you’re going to pay much more money to send that package to Montreal because it’s got to cross a border and there are all sorts of checks that need to take place.

Well, that is exactly what we’re about to do to half of our exports. Half of our exports are about to undergo a much more expensive, costly and bureaucratic process than they would otherwise.

So, for people that claim that this will have no effect, it’s beyond post-truth. It’s completely insane.

Pieter:  Some people feel Britain should have a crack at negotiating trade deals with the US and China because the EU doesn’t have treaties with these countries.

Another argument goes that because the EU negotiates on behalf of 27 other countries as well, it may not be the best Britain can do.

How likely do you think it is that Britain can get better deals on its own post-Brexit?

Ian:  I think it’s unlikely.

I mean, there is a halfway house solution which Theresa May has chosen not to take, which I think sort of gives us the best of both worlds. That would be to leave the Customs Union and stay in the Single Market.

The Customs Union means that you can’t negotiate trade deals on your own. If you leave the Customs Union, you can go and do your own trade deals.

It’s what Norway does all the time. Usually within EFTA (European Free Trade Association), but nevertheless it does it.

And yet, you do it with the consumer strength of half a billion people, because you keep access to the Single Market. You keep your economic strength, but you gain a degree of trade negotiation flexibility, which we currently don’t have.

The issue is that you have far less strength behind you as just the UK than you do if you’re operating as part of the EU.

There is a payment to that, which is that you lose flexibility. That’s true. But actually having a bit of strength behind you bolsters your hand.

Look at what’s happened with the Americans since NAFTA (North American Free Trade Agreement).

Once the Americans secured NAFTA they used it as a sort of stamp. They used NAFTA as a template for all future trade deals. It just became their rule one, page one script for how all the other ones would work.

So they went in, they’re obviously the much bigger partner of basically everybody, and they just sat there and went: ‘Look, accept this or we’re going to walk away’.

And almost every single country did accept it. Australia did quite well working its way around the edges and managed to carve out a more tolerable outcome with that.

Pretty much every other country accepted it, but not the EU.

It gives you an indication of the difference between a country going up against something like China or America compared to what you can do as part of a massive market.

Pieter:  Basically, in the EU the US has found its match, and Britain just basically has to swallow whatever the US dictates?

Ian:  That’s exactly correct.

Britain will put up a bit of a fight. Especially because of the domestic political dangers of Theresa May giving way on elements around drugs and the NHS, and agricultural reports to the UK. These are some very severe political dangers.

But nevertheless, it has a much stronger position when it’s part of a huge trade bloc than it does when it’s just on its own.

Pieter:  You write that the real threat after Brexit lies in the Great Repeal Bill, which basically means that Parliament has the power to absorb parts of EU legislation into UK law and then scrap the elements it doesn’t want to keep.

What are the implications of this bill?

Ian:  That’s right, yes.

Even as it is the Great Repeal Bill is a bizarre piece of work because it doesn’t quite achieve what it sets out to achieve.

There are all sorts of bits of European law that aren’t even in the European Communities Act, and it’s a much more complex problem than it seems.

But putting that to one side, we’re basically about to create a bill that puts nearly half a decade of entwined EU/UK law into a sort of coma state, or a zombie state.

It’s present and the law works, but it can be repealed pretty easily using something called statutory instruments.

These are a form of legislation which allow the provisions of an Act of Parliament to be changed without Parliament having to pass a new act. Sometimes with a vote, sometimes without a vote. It’s very easy to change law without full public debate in that way.

And we’re going to take this massive slab, mostly of rights and standards, on the environment or on labour, and keep it untouchable in that way.

All we’ve got right now is promises from the ministers that they won’t take away workers’ rights. But no promises yet that they will stick to primary legislation for making this kind of major changes.

That’s going to take place in an environment where we’re about to go into a bunch of trade deals where our negotiating partners will invariably say to us: we would rather you reduced your standards to make it easier for our exports.

That is a very, very dangerous sort of combination of factors.

If you’ve got Brexit and you’ve failed to go out and get trade deals, what the hell have you done? There’s no upside. There’s no positive side to what’s happening.

We need these trade deals and other countries will apply the pressure.

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