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As Brexit Process Begins, PM May Shouldn't Expect a Helpful EU

Wednesday, March 15, 2017 12:25
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(Before It's News)

Ryan Bourne

Brexit is coming. That should have been obvious for some time, but, in the aftermath of the June 23 vote last year, many “Remainers” were in outright denial it would actually happen.

Like the doubters in early episodes of Game of Thrones who could not believe that undead White Walkers actually existed, Remainers listened when commentators and politicians promised that Brexit was indeed coming, but refused to believe it. Now, despite all their attempted delays, court cases and special pleading, legislation to enable the triggering of Article 50 has passed the British Parliament. 

Prime Minister Theresa May is likely to start the formal process around March 27. This will begin a two-year formal exit negotiation with the EU, during which time she hopes to foster agreement for a smooth exit, coupled with a pathway for the longer-term relationship outlined in January.

Britain should be fully prepared for the negotiations to fail and for Britain to exit the EU without a trade agreement, leading to trade under WTO terms.

Economically, this would see the U.K. leave the European Economic Area (the so-called “single market”) and regain control of tariff policy. It would replace the single market with a U.K.-EU free-trade agreement and a separate deal to eliminate customs checks.

This is a decent set of aims, as far as they go. It is in both parties’ interests to maintain tariff-free trade to avoid disruption to supply chains and to avoid imposing costly taxes on consumers. What’s more, the cost of losing access to financial services’ expertise in London will be far greater for other EU states in the short-term than any benefits from mercantilist attempts to “attract business”.

A mutual recognition deal on services should, in theory, be easy at the point of exit. After all, the U.K. has been complying with EU regulation already. If this can all be done alongside a smoothing of genuine difficulties, then bravo.

There are three big barriers to May achieving her objectives. The first is that negotiations entail two parties. The EU has shown that rational economic interest does not always dictate its actions. It is an inherently political project, which is one good reason to leave it.

Many prominent EU leaders would prefer to engage in self-harm in order to “punish” Britain on the basis that this would deter other countries from exiting. For these federalist ideologues, the worst outcome from Brexit would be a British economic success story.

The second issue is time. The U.K. has been in the EU for 44 years, meaning it is signed up to many programs, agreements, commitments, and regulations. Though the experience of other countries shows that signing free-trade agreements should not take a half-decade, we should not underestimate how Brexit might be used as an excuse to assuage producer interests in different EU states.

The need for agreement between 27 members in such a tight time period, with the usual ebbs and flows of domestic politics in each, could be the biggest barrier of all.

Finally, there is a risk (and the U.K. tabloid press is pushing this hard already) that vast amounts of time and political capital will be expended debating when Britain’s budget contributions should cease and how much is owed. Divvying up liabilities and assets must be part of the settlement, but media attention is likely to dwarf its real importance and potentially reduce goodwill for other more technical matters.

For these reasons, Britain should be fully prepared for the negotiations to fail and for Britain to exit the EU without a trade agreement, leading to trade under WTO terms. If the government can use this as an opportunity to embrace freer trade, opening up the country to global competition through unilateral tariff and non-tariff elimination, then the country has nothing to fear in terms of long-term economic health.

Indeed, exit without a deal could be the catalyst the country needs to really embrace the free market reforms necessary to return to sustained robust growth. But failure for May to achieve her ambitions will be seen as a political failure. Just ask former Prime Minister David Cameron. Given the EU’s current position, it is a political failure that’s all too likely again.

Ryan Bourne occupies the R. Evan Scharf chair at the Cato Institute and was a founding member of Economists for Brexit.



Source: https://www.cato.org/publications/commentary/brexit-process-begins-pm-may-shouldnt-expect-helpful-eu

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