The Daily Reckoning UK

Interview With Liam Halligan Part 1

Pieter Cranenbroek

by

Posted 6th February 2017

On 17 January, Prime Minister Theresa May set out the UK government’s approach to the Brexit talks after months of speculation.

At the Lancaster House in London, the PM made it clear that Britain will not be looking to stay inside the EU’s Single Market or its Customs Union.

It’s the right thing to do, Telegraph columnist Liam Halligan (@liamhalligan) argues.

By making it clear from the start that Britain will not try to bend the rules of the single market, which are basically set in stone anyway, the government will avoid damaging its future relations with the continent.

Leaving out sensitive issues like freedom of movement and budget contributions, Britain and the EU can simply focus on negotiating a deal in those areas that leave both parties better off.

Together with Dr Gerard Lyons, Liam’s written the Policy Exchange paper Clean Brexit, which was published last month.

As the view set out in the paper corresponds rather well with the UK government’s position, I was keen to ask Liam more about this type of Brexit which seems to have become the most likely scenario.

I caught up with Liam last week and started by asking him if he could explain what he meant by a ‘clean Brexit’ and why he thinks it would be the best outcome for both Britain and the EU.

Liam:   Okay, let’s first explain what a messy Brexit is.

A messy Brexit is where the UK attempts to negotiate with the EU about things like staying in the Single Market and things like the particular degree of border control and freedom of movement.

So there’s obviously the Four Freedoms of the European Union. [Editor’s note: the Four Freedoms are the freedom of movement of capital, goods, services, and people across EU borders]

If we try and bend the Four Freedoms of the European Union, so we want to maintain our membership of the Single Market but we don’t want to have open borders, then I really believe that you will have an incredibly acrimonious and very, very damaging negotiation with the European Union.

I think the European Union will have a complete nervous breakdown because you are trying to dismantle the rules of the European Union.

Pieter:    Yes, they’re not likely to bend on that, are they?

Liam:    They’re not likely to bend, and you’re just going to be really butting heads, yes – to use an American phrase – rather than trying to come up with an arrangement that’s okay for everybody.

Now, some people say we should stay in the European Economic Area, the EEA. That’s a complete mistake, because the EEA is a waiting room for full European Union membership, rather than a departure lounge.

We’re in the departure lounge and, under EEA, you still remain under the jurisdiction of the European Court of Justice, you still have to pay, as Norway’s position shows, large, multi-billion-pound contributions each year, and you’re still under the conditions of freedom of movement.

So it is just basically the European Union membership by a different name. My view, and I think the government’s view, is that EEA membership is not Brexit.

If we have this really acrimonious negotiation with Europe – a messy Brexit – while we try and have all the conditions of Single Market membership but not freedom of movement, I really think you will have a horrible breakdown in relations between Europe and the UK.

And there’ll be a breakdown in relations across EU member states themselves, because some of the others will want what Britain wants, and it will be really, really messy.

You could destroy diplomatic relations for a generation. You could even provoke a systemic crisis across the Eurozone, as we say in our paper.

So what you should do instead is have a clean Brexit.

A clean Brexit means you just leave the Single Market, leave the Customs Union, and then the negotiation that you have with the European Union isn’t about things like border controls and massive annual contributions and really high-profile, emotive issues; the negotiation with the European Union is then about sector-specific trade deals as part of a broader free trade agreement.

There’s absolutely no problem with doing this at all.

Once you stop the sloganising and ignorant bleating of, frankly, completely economically illiterate MPs and lobby groups, who think that being outside the Single Market and outside the Customs Union is turning yourself into North Korea… It’s total nonsense.

We have no free trade deal with America. We’re not in some Single American Market. We export like crazy to America. And America, by the way, isn’t in the European Single Market.

Still, America exported $259 billion of goods and services into the European Union from January to November 2015.

Pieter:    That’s a clear point, that being outside the Single Market doesn’t mean that you can’t trade with the Single Market.

Liam:    We constantly confuse membership of the Single Market and access to the Single Market.

You can get access to the Single Market by paying very low tariffs, often under 1%, and rarely more than 2% or 3%. You can access the Single Market.

Japan, America, China, they all sell stack-loads of stuff to the European Union without subjugating themselves to the rule of foreign courts and making multi-billion-pound annual contributions and being part of a project to create a single super-state.

You don’t have to do this to trade with the European Union. It’s insane to think that you do.

You don’t need trade deals with the rest of the world to trade with the rest of the world. Trade happens because commercial people see opportunities and sell to each other.

It doesn’t happen because politicians eat cake and sign bits of paper and talk tough.

So my point is that if you’re not a member of the Single Market, it really is not a disaster. You just trade with the European Union the way 85% of the world economy that isn’t in the European Union currently trades with the European Union.

And our trade with the European Union is, anyway, fast diminishing. It’s already fallen from about 60% of our exports to about 42% of our exports.

By the way, you can’t negotiate trade in services when you’re under ECJ jurisdiction, by definition. So if you’re in the Single Market, you can’t negotiate your own trade deals on the part of the economy that makes up four-fifths of our GDP.

Again, I’ve yet to meet a Remain MP that understands that, even though my 12-year-old daughter understands it.

Pieter:    All right, you’re saying Britain doesn’t need to fear losing Single Market membership. What about staying in the EU Customs Union?

Liam:    It really is not impossible, at all, to be outside the Customs Union, and there are many benefits to being outside the Customs Union.

The Customs Union is a protectionist bloc that discriminates against trade in services.

Now, inside the Customs Union, we’re not allowed to negotiate our own free trade deals. We have to take the European Union’s trade deals negotiated on our behalf.

There are two problems with that.

The first problem is that the EU is very, very bad at negotiating trade deals, despite the fact that they have, you know, endless ranks of paid, pensioned bureaucrats working on our behalf.

Why’s the EU really bad at negotiating trade deals?

One reason is that the EU is 28 different countries at the moment, and they often have conflicting objectives.

The second reason is that the general culture of the EU is anti-commercial, rather than commercial.

The third reason is that the EU protects agriculture at all costs, which makes it very, very difficult to do trade deals, again, with the 85% of the world’s economy that’s outside the EU.

The 53 trade deals that the EU has signed, a lot of them are with little single-city states and principalities. The EU has no trade deal with the United States, it has no trade deal with China.

They haven’t got a trade deal with the world’s two biggest economies, because of the French agricultural interests and there are so many different conflicting objectives between the 28 countries.

So the actual trade deals that we are part of under the EU, even though there are 53 of them, they cover less than 10% of the world economy.

They’re not all that big a deal, and they are generally cut in a way that’s completely unsuitable to the UK, so they don’t give trade in services at all.

They don’t suit the UK’s purposes at all, they’re very small in number, and they’re even smaller in terms of volume of the world economy that they cover.

Now, there’s every possibility that we could cut a free trade deal with America and with China within just a couple of years.

I mean, we have serious links to these countries, and if we cut a free trade deal with America and China, that’s getting on for a third of the world’s economy right there.

This is three times more than all the EU trade deals put together, which are less than a tenth of the world economy.

And we can cut those trade deals in a way that suits Britain, because they’d be British, bespoke trade deals.

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