Article 50 and Project Fear

David Cameron asks three questions he claims those who would leave the European Union “must answer”:

The first question is: what trading relationship would Britain have with Europe after leaving?

The second question is: how long would it take to put a new relationship in place – and how great would the uncertainty be for families and businesses in the meantime?

Sunday Telegraph of 28 February 2016

His third question (about security) I will cover in a future blog.

The first question is a shrewd tactic on the part of the Prime Minister because he knows that no one in the Leave camp will be able to answer it. There are two reasons for this. The first is given by the PM himself in the very same article:

As you consider these questions, bear in mind the process for leaving the EU, as set out in Article 50 of the European Treaty. A Leave vote would set the clock ticking on a two-year period to negotiate the terms of exit.

Article 50 is here. The process for a member state to leave the EU requires that the intention to leave be announced before negotiations can begin. The PM asks a question whose answer could never possibly be known in advance. If any country is ever to leave the EU, it is required to take a “leap into the dark” with regard to its future relationship. Perhaps that is deliberate. (On the other hand if the EU was bound to negotiate possible exit terms with countries that had not decided to leave that could be an endless and unproductive task. I don’t suppose any other of our trading partners will be willing to negotiate hypothetical new trade deals until we have called time on our existing EU-based trading relationship either).

In any event the terms of Article 50 were certainly known to the PM at the time he promised us a referendum. If leaving was always going to be unacceptably uncertain whatever the terms offered for remaining then his threat to back Leave unless the UK was given a better deal was a sham.

The PM has also answered his own second question. The process would take less than two years, unless both parties agree to take longer. Claims that it would take a decade are clearly scare-mongering.

The second reason is that on 23 June we will be having a referendum, not a general election. If the Leave side wins, it will not be in government. Nigel Farage will not be PM, and will not be in charge of negotiating the terms of exit. To whom will that task fall? The Conservative Government. And on 24 June the PM will still be David Cameron, the man who by then will have spent four months telling the country that such a thing is too difficult, too dangerous, and a good outcome is hardly possible.

So it is surely inconceivable that the task of negotiating the UK’s exit from the EU should be entrusted to the man who made such a poor job of negotiating a better deal within it. Whatever anyone says today, if the PM loses the referendum then his position will be untenable and a leadership election is sure to follow. It is also unlikely that the Conservative party would, under those circumstances, choose any of the Remain supporters in the cabinet to replace him (1). That narrows down the list of candidates.

The upshot is that the only prominent Leave campaigners who are likely to have any direct say in the exit negotiations are those in the current conservative cabinet (plus Boris). And there are two very good reasons why they can’t and won’t say what their negotiating stance would be.

First, they are in the Government and so can’t speculate in public about taking the PMs job. Second, even if they could, it would be a massive strategic blunder. There will be no official response from the European Council because notice under Article 50 has not yet been given. However it will be in the interests of anyone who wants the UK to stay in – including most MEPs and leaders of EU member states – to rubbish the proposed terms and declare them impossible. To propose terms now is merely to invite rejections that those making them would find it embarrassing to go back on. It would hinder rather than help the actual negotiations to come.

In the cold light of the morning of June 24 the posturing will end and the EU will be compelled by self interest to come to sensible and amicable arrangements with the UK. But nothing whatever can be achieved before then.

So there we have it. The only people in the country who would have any real standing in the exit negotiations can’t talk about it, and the PM can spread his message of doom unopposed. He must be feeling very clever indeed. The Scottish referendum was won largely on uncertainty, and Cameron must think he can do the same in June. But the cases are very different. The Scots had 300 years of union to unravel (400 since the Union of Crowns), the UK has been in the EU (common market as it then was) for just over 40. The UK was a self-governing democracy well within living memory and not everyone finds the prospect of regaining that status frightening. The SNP could not plausibly answer the most basic questions such as what currency an independent Scotland would use. But we know what currency the UK would use, and indeed almost everything else about our post-independence status.

The UK would still be in NATO, the UN, the Council of Europe, the G7, the G8, the G20, Interpol and the Commonwealth. We would regain our own seat at the World Trade Organisation (currently the EU speaks for us). We would regain the ability to negotiate our own trade deals with the rest of the world. The regulations of foreign states would apply only to the goods we export to them and not (as with the EU) to our entire economy. We would be outside the Common Agricultural and Fisheries Policies (CAP and CFP).

The only question we can’t answer is what the renegotiated terms of our trade deals would be, because we have not yet negotiated them. With regard to non-EU countries there is no reason anyone prepared to trade with us on the EUs terms would not be willing to continue on the same basis after exit, and we would be able to offer them better terms outside the EUs tariff area. (In particular we would be able to import food from outside the EU much more cheaply).

The EU will not attempt to punish the UK with a trade war. Even if they wanted to (they don’t) and could afford to (they couldn’t) World Trade Organisation rules don’t allow it. The worst case scenario for us is (as the PM says) to fall back on WTO rules. That, says the PM, “could be crippling for our industries, as we’d have to accept tariffs that are sometimes as high as 50 per cent” I don’t know what kind of goods have a tariff of 50%. Dave should tell us. Here is what the EU itself says on the europa.eu website:

The EU is already one of the most open trading economies. With an average level of duty at around 4%, EU tariffs for industrial products are among the lowest in the world.

It is true the tariff on agricultural products are higher – on average 18%. That is because the EU use the Common Agricultural Policy to protect its inefficient small-scale farmers. But the UK is a net importer of food (40% of what we eat ) and so would benefit from leaving the EUs tariff area.

WTO rules would not be “crippling” and would leave us freer and more prosperous than we are now. But we can almost certainly do better than that. There are several examples of countries outside the EU have free trade agreements with it. For example Turkey has been in a Customs Union with the EU since 1996 which removed all tariffs for nonagricultural products, and for 60% of its agricultural exports to the EU. Turkey does not participate in the free movement of people. The countries of the European Free trade Area (Norway, Iceland, Switzerland, Liechtenstein) have a different arrangement.

The UK has a larger GDP than those five countries put together. There is no reason to doubt we can come to an arrangement that meets our specific circumstances. A lot more could be said about possible models for the UKs future relationship with the EU and I hope to return to this in future posts. But we must recognise that this is not a topic that the politicians who are most likely to involved in negotiations can discuss publicly in any detail before the referendum.

Finally David Cameron says: “A vote to leave is the gamble of the century. And it would be our children’s futures on the table if we were to roll the dice”. Now I am a big fan of probability theory. But there are some processes that are not well modelled as a random process. In particular any situation in which you yourself are participating as a rational agent interacting with other rational agents requires the use of other tools, such as Game Theory. Trade is not a zero sum game, and the EU will not cut off its nose to spite its face.

The outcome is uncertain to a degree, but it is not a game of chance. It is up to us, the British people, and our democratically elected representatives to make the best of the opportunities that arise. That is what independence means, and that is the future I want for my children.

NOTES

  1. Under Conservative party rules MPs select two candidates who are put to the wider membership in a postal ballot. Since the MPs are almost certain to choose at least one Eurosceptic candidate, and the general membership is Eurosceptic, the next PM probably will be too.

 

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