LONDON — It seems more and more likely now that the U.K. could be forced to leave the EU without a deal in March of next year. There are plenty of criticisms to make about the conduct of the British side in the negotiations, but overall the prime minister has negotiated in good faith and sought to agree a future relationship far closer than many Brexiteers would have wanted. Yet the negotiations are at an impasse. No deal is a growing possibility.
Why? Because of the so-called Irish backstop — the only real outstanding issue preventing an orderly divorce. The ultimate irony of the current Brexit imbroglio is that negotiations are in danger of falling apart over an inability to find an insurance policy to prevent a hardening of the Irish border. And, because of an inability to find a legally-watertight insurance policy to prevent that hardening of the border, there might be no deal and so a possible hardening of the border.
Yes. It really is that silly.
Throughout the negotiation the EU has repeated the mantra that the U.K. cannot cherry pick. But they are saying the U.K. cannot be in only part of the single market, while simultaneously insisting that only part of the U.K. must be in part of the single market. For the Irish backstop, as Brussels sees it, would mean Northern Ireland — and Northern Ireland alone — staying in just elements of the single market, plus customs union.
The Commission demands the U.K. must agree a legal protocol which would in perpetuity guarantee that Northern Ireland was essentially fully aligned with EU rules on goods regulations and customs. The U.K. must sign up to this, without being able to agree the overall framework for its relationship with the EU.
No British government could or should agree to the sort of protocol Brussels is currently demanding to unlock an orderly divorce.
So, in agreeing it, the U.K. would risk creating a new customs border between Great Britain and Northern Ireland — the very thing which MPs from across the political spectrum from Remainer Hilary Benn to Brexiteer Jacob Rees-Mogg have argued would be constitutionally unacceptable.
The EU have agreed that there will be a political declaration outlining the shape of the future U.K.-EU relationship at the point of divorce. But such a document would have no legal standing. And it is hard to feel confident about it when an EU diplomat privately described it to me this week as “worthless.”
Worse still, Brussels demands the U.K. must commit that the Irish backstop is not only a bridge to a future agreement (which they make no guarantee of agreeing) but also would at any point in the future be triggered if the U.K. sought to diverge too far from the EU. No wonder some MPs consider this little more than an attempt at annexation.
“But Britain agreed to a backstop,” goes the usual refrain. Yes and no.
Theresa May’s allies say she’ll get a deal through, but with several knots left to untangle, it’s unclear how it will be done | Christopher Furlong/Getty Images
The December agreement (also a political declaration by the way) was one giant fudge. And it was pretty contradictory. It promises no hard border with Ireland, while also saying there will be “no new regulatory barriers” between Northern Ireland and Great Britain unless “the Northern Irish Assembly and Executive” sign them off.
The same document that promises “full alignment” with elements of the single market and customs union, notes that the whole of the U.K. will be leaving the single market and customs union. It’s not even clear whether it’s Northern Ireland or the whole U.K. doing the full aligning.
In short it was a triumph of can-kicking-down-roadery but the Commission is literally pretending the parts it doesn’t like in that text don’t exist. (One source told me those bits were “British commitments” as if the whole document did not have the title Joint Report and was not hosted on the Commission website.)
So it’s an impasse. It can only be easily resolved by a fudge which defers the question of Northern Ireland. No British government could or should agree to the sort of protocol Brussels is currently demanding to unlock an orderly divorce. So, reluctantly, and in sorrow not in anger, the U.K. must seriously consider no deal.
No deal will doubtless cause significant disruption on both sides. There are real and complex issues to resolve — for example with aviation and other transport, with ports and haulage, with citizens’ rights. But the economic consequences of no deal are often wildly over-stated.
Open Europe’s new report on no deal, which will be published Monday, models the effect on U.K. GDP of a situation where tariffs were raised on U.K.-EU trade, as well as additional costs for customs. Our report finds, unsurprisingly, that there would be some impact on medium-term GDP growth. But that impact is small — just a 2.2 percent reduction in growth in 2030, compared to what it would otherwise have been, equivalent to an average annual drag of 0.17 percent. Importantly our model finds that British GDP would grow by 30 percent over the period to 2030, even if we left the EU without a deal and both sides put up tariffs.
But we also show that the U.K. government could take unilateral actions to mitigate the effects of no deal, including by reducing our own tariff regime. We could take these steps without negotiation.
This would mean that the entire reduction in GDP growth would be just 0.5 percent over a 13-year period — well within the margin of error of most forecasts and dwarfed by other possible drivers of GDP growth over the same period such as the rise of AI.
The prime minister has rightly sought to compromise to achieve a deal with the EU but she has also correctly argued throughout that there might be circumstances where no deal is better than a bad deal. Unless the EU side is willing to move on its demands on the Irish backstop, we may be about to see one such scenario.
Henry Newman is the director of Open Europe.
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