Why I think it is possible that the UK will leave the EU completely on 31 December 2020
Michael Gove is in effect the UK's Deputy Prime Minister. He is in the centre of things and has been since the start of the EU referendum campaign.
In the attached article he states
categorically that the UK will leave the EU on 31 December 2020.
In this article I seek to set out a way in which that may be possible (positive thinking people).
Next Steps
Just as clarity, the "deal" including the political statement will pass the UK Parliament and the leaving process will therefore move on to the next phase of leaving the EU on 1 February 2020 - the transitional phase. That lasts until 31 December 2020.
Transitional Phase
During the transitional phase nothing much changes for Joe Public or for businesses.
But the UK and the EU27 will need to
negotiate a trade deal by 31 December 2020. The UK is determined to meet this
date, stating that a lot of the hard work has been done in the political statement
(it hasn’t), and I think the EU will try to meet this date as well - despite
everything, I can see the EU27 continuing to extend goodwill.
Practical difficulties – Trade Deal
We then run into practical difficulties - like it takes five to seven years to negotiate a trade deal. Let me say why I think that there may be a way through this if all are willing to play the game - and I have more fear that the UK would be a problem than the EU27 (I hope I am wrong about the UK).
Regulatory Alignment – to 31 December
2020
Right now, the UK runs on an identical regulatory system with identical checks for agriculture and other contentious aspects of regulatory alignment (there I just couldn’t keep away from that term - I'll come back to it). The UK will run on the same regulatory system between 1 February 2020 and 31 December 2020. So, at the day set to "leave", the UK and the EU27 will be in regulatory alignment. That's for goods moving to the UK from the EU27 and from the UK to the EU27 (and transhipments etc).
Regulatory Alignment – after 31
December 2020
After 31 December 2020, EU27 businesses doing business with the UK will have to obey the UK regulations and UK firms dealing with theEU27 will also have to obey the EU regulations. I'm not going into pallets and issues like that - they’ve got to be resolved, but the main rump of regulation is identical on 31 December 2020 and businesses doing business cross border after 31 December 2020 are going to have to submit to regulatory alignment or they won't be able to do business.
Regulatory alignment - other trade deals from 1 January 2021
Just shooting off at a tangent, we then have the other EU trade agreements which the UK needs to replicate, in theory as at 31 December 2020. If the UK maintains regulatory alignment with the EU, these too will be easier (I’m not saying "easy" to achieve).
The promised bonfire of red tape
I argue, therefore, that maintaining "regulatory alignment" with the EU27 from 31 December 2020 is in the UK's interests, certainly in the short to medium term.
Politically, "regulatory alignment" means that the UK cannot have its promised bonfire of red tape on leaving the EU.
Now that could be an issue. Except if truth be known, Joe Public in the UK, and the vast majority of the 650 lawmakers in the House of Commons do not give a damn about regulatory alignment. It is a technical irrelevance, a detail they do not want to know about (sorry international trade specialists, but we are all grey women and men sitting in cupboards reading huge books of reasons why people cannot do things). I think the UK Government can get away with this, although probably by saying that the EU27 has agreed to maintain alignment with the UK!
UK – Vassal State?
Up pops then the "vassal state" argument.
What this means is that whilst the UK is independent, it must obey the rules of another state (the EU) where it has no say. And I believe that the UK Government has such a large majority that it can ride this as well. Once again, Joe Public doesn’t care as long as it doesn't impinge on their lives.
The point here is that “reliance on WTO rules” means adopting regulatory regimes in any event. So why not start with one that the WTO knows and understands, and work from there. That is a message that any skilful politician or Mr Johnson can deliver successfully to the UK people.
Can the UK really have open borders with the EU?
I think so. But it would involve the EU27 feeling able to trust the UK.
On borders it would be possible to have open borders for trade - very much continuing as we do at present. It works (if you ignore the significant fraud).
In a previous article I've explained how the border between Eire and NI can be managed, and how the border between NI and GB can be managed if there is a will (and goodwill) on all sides. With regulatory alignment we can manage other borders between GB and the EU27.
The real border issue – migration
Here let me be very frank - the issue with borders as far as those driving the UK leaving the EU is not goods. It is not services. It is a practical non-issue about the free movement of people.
Having lit the blue touch paper let me say why it is a practical non-issue.
First of all, this is a narrow political issue about "immigration" and foreign people benefitting from being in the UK. At its heart is racism, and worse than that ignorant racism. Nothing will get rid of this racism. So, don't pander to it.
The UK has existing people border controls having opted out of Schengen – UK citizens have to show their passports to get back into the UK, so that will not change (apart from those who look forward to their blue passports which provide no additional benefit whatsoever).
The UK has not fully implemented the immigration rules permitted by the EU, and a quick easy step to "shut the borders" is to adopt those rules. So EU27 citizens will be required to have, for example, health insurance and sufficient cash to look after themselves whilst in the UK. As far as I can see, that is pretty much what the
UK expects of non-EU migrants and there are more of them than EU migrants.
Again at the risk of provoking a backlash, if the UK Government quietly gets on with this and effectively drops “immigration” as a subject in its propaganda, it will get through this successfully – people will believe that the changes have changed migration from the EU for the better.
Much has been said about introducing a “points-based system” for migrants from the EU. This is nothing new and already applies to migrants to the UK from non-EU countries. And to repeat myself, there are more migrants to the UK from Non-EU countries than from EU countries. Importantly, this means that EU migrants will suffer no discrimination. However, the UK must also expect reciprocation by the EU27 towards UK citizens living within the remaining EU member states. That could result in an exodus from the Eu27 of elderly and infirm existing UK ex-pats who can no longer afford to stay because of healthcare requirements. That is an issue which is not beyond the wit of our politicians to resolve.
Illegal Immigrants
The UK still has lots of illegal immigrants from non-EU 27 countries. There are few if any from other EU member states although I strongly suspect that an awful lot of the UK electorate would not believe that.
There are a few reasons for illegal immigrants - poor border controls (not enough staff, boats etc) which is down to lack of will on the part of successive UK governments to pay for the service, and the lack of an ID card system, which is politically unacceptable to the UK Government and wider. I have no objection to having to carry an ID card. I already must show photo ID in all sorts of places and it is the intention of the new Government is to bring in voter ID in any event.
Changes to legal migration
My point is that moving along the path of changing legal migration requirements would not make matters "worse" than they already are. And that is because the UK seeks to control legitimate migration (OK, reduce it) when the real target is one which the UK Government does not even know the extent of - illegal immigration like those poor Vietnamese people killed in the freezer container..
And let us at least be honest - we do not wish to stop people working cross border between the UK and EU27 and vice versa. The UK wants and needs EU medical staff. The UK wants and needs EU27 agricultural workers. The UK wants and needs EU27 experts (and vice versa).
Suppliers of services do not want their experts stopped (or it being made more difficult or expensive) from travelling between the UK and the EU27.
And in the UK, nor do we seek to prevent free movement of tourists and holiday makers. With our climate that would be a rather big own goal.
I could go on, but if you think about it, migration from the EU27 to the UK is a practical non-issue and can be managed with some window dressing within the existing rules.
Other trade barriers
And I feel strangely sanguine about the other barriers to trade. I think that they can be managed in the interim.
Non-EU trade deals
Ah, but what about the UK wishing to make trade deals elsewhere?
I think there is little problem with replicating trade deals with countries which already have trade deals with the EU - if of course they are willing to enter into a trade deal with the UK. Canada for example, despite sharing a Queen and Royal Family, has already indicated that it will not make that easy.
Donald Trump - The Elephant in the Room
So, we then come to the elephant in the room. Donald Trump - well the USA, but right now you need to get past President Trump to do anything.
Something like 11% of UK exports are to the USA.
I'm afraid I am going to be very cynical here without resorting to chlorinated chicken and the amount of mouse droppings allowed in your porridge. Mr Trump's record on international trade is, in my opinion, poor. He seems happy to apply sanctions and barriers whenever he wants. But when he's made a mistake, he has enough skill to reverse what he has done. To be fair, he does try to work in the interests of the United States of America.
Mr Trump is offering the UK the greatest trade deal ever. I am happy to take him at his word. But I would hope that UK trade negotiators are a little more circumspect. It seems that the USA requires the UK to relax some of its regulations to suit the USA, and that is not compatible with a trade agreement with the EU nor, I suspect, many other countries with exiting EU trade deals.
So does the UK push for a trade deal with the USA for 11% (and possibly an increase on that) of our exports. Or does the UK prioritise a trade deal with its nearest neighbours where some 45% of our exports go. More important is a deal on imports into the UK from the EU27, though, given our reliance on the EU27 for food, medicine and clean water (for example). German and French cars are a red herring and can never be a realistic bargaining tool for the UK.
Common sense dictates that the EU27 deal
is the most important to the UK, and that cannot be put at risk for a deal with
the USA. But Brexit has not been about common sense so far.
GATT 24
An awful lot of rubbish has been talked about GATT 24 (or XXIV if you must). But this is where Mr Gove, either knowingly or accidentally, may have a point.
If a framework of a trade agreement can be agreed between the EU27 and the UK (and possibly between the UK and other countries), then it is possible to achieve a "standstill" under GATT 24 whilst the detail is filled in. My understanding of this is that the UK and the EU27 could trade on after 31 December 2020 dealing with the detail but using the existing rules. Which as I've already argued, businesses in both the EU27 and the UK are going to have to do in order the trade with each other and for he UK, further afield.
Business thrives on certainty
Again, application of common sense is important, and I would like to see the negotiations between the UK and the EU27 to start with a statement of what they both seek to achieve in the coming eleven months with specifics - and one can be the agreement of a framework to the satisfaction of the WTO so that GATT24 can be used from 1 January 2021 onwards. The EU27 likes this type of statement, and the UK should too. Indeed, it would be a superb message to businesses both in the UK and the EU27. They know it can be business as usual for at least a number of years.
Business thrives on certainty.
No deal
Just in case anyone wonders if I am getting soft, let me share my opinion on "no deal". I have no doubt whatsoever that the current UK Government would leave on 31 December 2020 on a no deal basis. There is nothing the UK Parliament can do now to stop this. It is no longer bluff and bluster. It would still be madness, both commercially and for the citizens of both the UK and the EU27.
If M Barnier or any of the EU Leaders believe otherwise they are wrong. The UK will do it (and I am sad about that). So,I plead with them to look at how this can best be managed to get both the UK and the EU27 out of this particularly nasty smelly hole that is Brexit.
VAT to 31 December 2020 and possibly beyond
I see no changes until 31 December 2020.
VAT From 1 January 2021 onwards
Then I see arrivals and despatches, supplies and acquisitions (both for intra-community trade), being replaced with imports and exports.
In the UK, Import VAT is already planned to be simplified by the use of the “Postponed Accounting System” aka PAS. So, we will record imports much the same in the UK as we do already for acquisitions from the EU.
Customs entries will be online and should be simplified to an extent.
The need for Intrastat disappears.
But will EC Sales Lists disappear? If we are to continue to fight fraud, whilst having “open borders”, I think there needs to be exchange of information, and retaining this anti-fraud measure seems to make sense. For the UK to satisfy the EU27 on “open borders” it will need to demonstrate compliance. Frankly, that should not be difficult, providing the UK can avoid scandals such as the Chinese goods one (look it up on Google).
The outline trade deal between the EU27 and the UK, plus GATT 24, should allow maintaining the environment for services, and possibly also some of the VAT cross border simplifications already in place (I remind you that I am being positive and assuming that there will be goodwill on both parts).
Completion of the trade deal
I would like to say we can just let it run its course.
Both the UK and the EU27 will have learned an awful lot about their relationship working under GATT24. If the UK behaves like the enfant terrible it is capable of being, then things could change upon implementation of the trade deal – or moving at that stage to “no deal”, although I suspect that would be totally unacceptable in the UK by then. With my rose-tinted glasses, I think the UK and the EU27 will get used to our “new” relationship and whilst marriage will not be proposed, we will be content to rub along with each other.
In my view, if a plan such as the one I suggest is followed, there may not be a lot of change for VAT then. Yes, we may have zero-rated ladies’ sanitary products, as well as zero-rated domestic fuel and power as promised during the referendum, but I suspect we won’t see a lot of difference otherwise.
Customs
I think this can be made to work as well. We would need the outline arrangement as well as GAT24 to buy the time to modernise and make this work. If I go back to the agreement made in Belfast on 8 December 2017, a lot of the Customs framework was set out within it. Reusing something where there is already consensus makes sense when you are short of time.
No deal – again
I think no deal can be avoided and should be avoided.
I repeat to the EU27 that I do not see the UK leaving without a deal as an idle threat anymore. Many in the UK Government would relish a no deal Brexit. But I think enough UK lawmakers see the real dangers of no deal to make sure the UK leaves with a deal and a pathway to “independence” set out clearly. That includes the trade deal between the UK and the EU27.
Those UK Lawmakers willing to consider the facts will understand that ”regulatory alignment” is going to be essential for trade deals, and not just with the EU. Failing to get those deals could prove to be political suicide and, to be fair, politicians live for power. It may be that a new term for “regulatory alignment” needs to be thought up.
Summary
All in all, therefore, I find myself agreeing with Mr Gove in the round. What is needed now on both sides of La Manche is for businesses groups and other pressure groups to lobby their respective governments, as well as the Commission, to find a path for 31 December 2020 that causes the least damage and disruption. And to get on with it immediately.
I have set out some thoughts.
There is no magic bullet,
No single solution.
But we need to identify what can be done in such a short timetable and achieve that. It could give what both businesses and citizens need for the short to medium term. And that would be good. Not as good as the UK staying within the EU, but I accept that is not going to happen.
Steve Botham
Covertax
16 December 2019
Pragmatically, trying to Improve the Built Environment
5yAs you say, FTAs take at least 5 years. The UK/EU is not going to be fast tracked. Other potential FTAs, with other countries will be dependent upon knowing the UK/EU agreement.