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May’s deal is not Brexit, and neither is ‘Common market 2.0’ – they both mean economic serfdom

The Economist and Project Fear
Written by Harry Western

The government is claiming that, if its Withdrawal Agreement is rejected, parliament will take over and impose a ‘softer’ form of Brexit. This line of argument is dishonest, because the differences between the economic end-state that would result from the government’s WA being passed, and the end-state resulting from ‘Common Market 2.0’ or ‘Norway plus’, are almost non-existent.

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  • The government is now trying to force MPs to vote for its withdrawal agreement by threatening that parliament will impose an ‘even softer’ form of Brexit such as a ‘permanent customs union’, ‘Common market 2.0’ or ‘Norway plus’
  • The choice the government is trying to force MPs to make is a false one. The differences between its withdrawal agreement and so-called ‘soft Brexit’ options are miniscule: both would result in non-voting versions of EU membership that would deny the UK all the main benefits of Brexit while keeping most of the costs of being in the EU
  • The government’s claim that parliament might impose a ‘permanent’ customs union as part of a ‘soft’ Brexit is also dishonest: the withdrawal agreement it is trying to push through also creates an indefinite customs union
  • The only Brexit option offering a genuine exit now is a WTO exit, which is perfectly manageable and would probably lead to a free trade deal with the EU over the medium term

The UK government’s withdrawal agreement (WA) with the EU has now been decisively rejected by parliament on two occasions. However, rather than pushing ahead and leaving the EU on schedule without such an agreement, the UK government is delaying and still trying to push its WA through.

The government’s latest tactic is to claim that, if the WA is rejected, the UK parliament will take over and impose a ‘softer’ form of Brexit. This might take the form of a ‘permanent’ customs union, or so the so-called ‘Common Market 2.0’ or ‘Norway plus’ options being touted by some MPs.

This line of argument is dishonest, because the differences between the economic end-state that would result from the government’s WA being passed, and the end-state resulting from ‘Common Market 2.0’ or ‘Norway plus’, are almost non-existent.

Let’s first consider what these alternative ‘softer’ Brexit options involve.

‘Common Market 2.0’ or ‘Norway plus’ mean:

  • The UK remaining in a customs union with the EU, with no say
  • The UK aligning entirely with EU single market rules, on an ongoing basis, with no say. This might occur via a mechanism similar to the EEA agreement which governs the relationship between the EU and Norway, Iceland and Liechtenstein

It is clear from this that both ‘Common Market 2.0’ and ‘Norway plus’ are misnomers. The ‘common’ market would actually be the EU market; a complete ‘rule taking’ position for the UK, whereby all key decisions on tariffs, quotas, product regulations and standards, environmental and also some tax rules will be taken by the EU, with no UK say.

Meanwhile, the ‘Norway plus’ option is actually nothing like the deal Norway has with the EU: Norway is not part of a customs union with the EU – it has an independent trade policy.

So, it’s certainly correct to say that ‘Common Market 2.0’ or ’Norway plus’ are ‘soft’ Brexit arrangements. But crucially, the government’s WA will lead the UK to the same place, economically, as these ‘softer’ options would: there is essentially no difference between them.

Under the government’s WA, the UK will effectively remain a non-voting EU member for two years. After that, the ‘backstop’ arrangements will kick in, unless a ‘final deal’ supersedes them. Under the backstop, the UK will:

  • Remain in a customs union with the EU and will only be allowed to leave it if the EU agrees. This is essentially a permanent arrangement – there is no exit door for the UK
  • Northern Ireland (NI) will implement all EU single market regulations. And, to prevent a ‘regulatory’ border appearing between NI and the rest of the UK, the UK government has recently committed to the rest of the UK to following all these regulations too

So, under the backstop, the UK will effectively remain a non-voting member of the EU customs union and EU single market.

And, crucially, there is no prospect of this changing as a result of a ‘final deal’. The EU will only accept a final deal that is almost identical to the backstop arrangements, as it has already made clear. The Political Declaration that accompanies the WA also states this quite plainly; it talks of the future relationship being based on a single customs territory with no rules of origin checks – conditions only possible in a customs union.

With no exit clause in the WA, there will be nothing the UK can do to get around this – all roads under the WA lead to a customs union and de facto single market membership, with no say.

Indeed, it is quite likely any ‘final deal’ flowing from the WA will be even more restrictive of the UK’s economic freedom than the backstop is. This is because the backstop has some very unpleasant features for the UK including a costly and cumbersome system of movement certificates for UK exports to the EU. In order to get rid of these elements, the UK is likely to have to concede on other key issues such as fishing and freedom of movement.

From the above, some crucial conclusions flow:

  • Threats about the UK being forced into a ‘permanent’ customs union if the WA fails are empty. The WA already leads the UK into such an arrangement.
  • Threats that parliament will impose a ‘softer’ Brexit if the WA is rejected are also empty. The WA already implies a Brexit that will be a Brexit in name only, with no economic upsides and no way out. The ‘softer’ arrangements being threatened are just a re-badged version of the same thing.
  • MPs who think that supporting the WA now will allow the UK to negotiate a ‘looser’ Brexit arrangement later are fooling themselves. There is simply no mechanism to do this under the WA: all the exits have been blocked.

Both the government’s WA and alternative ‘soft’ Brexit options would leave the UK as essentially a non-voting EU member and remove any scope for the UK to reap the potential economic benefits of Brexit: no free trade deals with third countries, no gains from better regulation, no benefits for consumers from lower tariffs, no control of EU immigration. Both would also leave key UK industries like financial services at risk of regulatory assault from the EU and leave the UK under the jurisdiction of the ECJ, which will have become a foreign court.

The only route to a genuine Brexit now is for the UK to reject the WA and leave the EU on time, trading with the EU under WTO rules. Preparations over recent months now mean this is a perfectly viable option, and over the longer term the trade and regulatory freedom it would grant could yield major economic benefits for the UK – up to £80 billion per year.

Harry Western is the pen-name of a senior economist working in the private sector.

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Harry Western