No deal is better than a bad deal. A bad deal would be one where we paid for talks and paid to trade, where we ended up accepting EU rules and European court jurisdiction as if we had not left the EU.
No deal is a bit of a misdescription. The No Deal model which the government is now preparing in case there is no wide ranging agreement with our EU partners could be better called the WTO Agreement. Both the EU and the UK are members of the WTO. All the time we remain in the EU the UK has to accept EU leadership in the WTO, where the EU uses our vote and voice subsumed within its own. As soon as we leave we will be a welcome senior member of the WTO as one of the world’s large economies with a policy of promoting free trade around the world.
The WTO model is well known to us, as it is how we trade with most of the rest of the world at the moment. The EU does not have free trade agreements with China, the USA, India, Brazil and many of the other large trading partners we work with. Our trade with them depends on WTO rules and tariffs. There are some lesser trade facilitation agreements with these countries. The good news is the WTO has now adopted and brought into force a wide ranging Trade Facilitation Agreement which covers its members which replaces many of these bilateral arrangements. Where the EU has Free Trade Agreements with countries these will be inherited by us as well as by the rest of the EU through a legal process called novation.
The one drawback of the WTO model is it does still allow the imposition of high tariffs on agriculture. The EU imposes fierce tariffs on food from outside the EU, but allows tariff free trade in food on internal EU transactions. Outside the EU we would probably impose these high tariffs against EU food as we currently have to do for the rest of the world, and they will probably impose them against us. As the rest of the EU exports £20bn a year more to us than we to them they will have more at risk from this imposition.
We will not want UK consumers to be worse off as a result of WTO food tariffs. The UK government will have several options. It can give all the tariff money collected from UK consumers by the UK government back to the consumers in the form of tax cuts and benefit boosts. The UK can through its own domestic farming policy promote more UK produce that will be tariff free. It can unilaterally or following bargaining cut tariffs on food from the rest of the world to make that part of the shopping basket cheaper. Over time you would expect our imports of EU food to reduce, back to more like the levels in the 1980s when we were much more self-reliant from our own farms.
The WTO Option should be the base case for leaving. It delivers much of what we want. It means there will be no need to pay the EU any money beyond our regular contributions up to the date of leaving. We will leave free of any European legal controls and able to settle our own borders, laws and taxes. We will be able to promote our own free trade deals as we wish.
Some say we need a long transition period which will entail living under EU rules for longer and paying them more money. Under the WTO model there is no need for this. There is time enough over the next seventeen months to ensure a smooth transition to the WTO model. That should be the government’s aim. As the EU comes to understand how this can work, they will then be more likely to want a wide ranging partnership agreement that goes beyond the WTO model. We should only agree to a partnership model where it is better than this WTO one.
The Prime Minister has been rightly consistent in saying we will leave the EU in March 2019. That is what the Leave majority expect. She has been strong in saying No deal is better than a bad deal, which rules out the punishment deals some in the EU say they are designing. The Prime Minister has been clear that we only need an Implementation period if there is an Agreement to implement. I support her all the way.
When she says she wants a wide ranging partnership with the EU including free trade I also agree that would be better. Paradoxically it is only by preparing seriously for the WTO model that such a better agreement becomes more likely. We will not get a better deal by making more concessions. Business wants more certainty. My best advice is prepare for No Deal, and with any luck we will get something better.