A “no deal” Brexit might not be as bad as you think

In her pre-election, truculent approach to Brexit Theresa May’s much repeated mantra was that no deal was better than a bad deal. She was unable, or unwilling, to spell out what a bad deal (or for that matter a good deal) would look like. Neither did she explain what “no deal” would mean.

According to conventional wisdom Britain would, in the absence of a deal, leave the EU on 20th March 2019 without any special arrangements for citizens of other EU member states resident in the UK or for British citizens resident elsewhere in the EU; and Britain would from that day on cease paying any money into the EU budget or receiving any money from it. Britain’s commercial relations with the EU would operate on the basis of World Trade Organisation rules with tariffs on many manufactured goods (10 per cent on cars, 22 per cent on lorries) and little or no entitlement at all to trade in services or agriculture.

This is indeed one option if there is no agreement. But it is not the only one; and it is not the way the British government should proceed if the negotiations look like stalling. There are precedents from history for a different approach.

In the 1970s and 1980s, when the Cold War was at its height, the United States and the Soviet Union began to negotiate a number of arms control agreements with each other designed to provide predictability and stability in their strategic nuclear relationship. The Strategic Arms Limitation and Reduction Treaties were complex and detailed with intrusive inspection regimes—one of President Regan’s favourite arms control sayings was “Trust, but verify.”

But they weren’t always formally ratified. Negotiations on the second round of Strategic Arms Limitation Talks began in 1972 and Presidents Jimmy Carter and Leonid Brezhnev signed the agreement in 1979. But within months the Soviet Union invaded Afghanistan and Carter withdrew the request to the Senate to ratify it.

But the two governments chose anyway to abide by its provisions. Both Carter and Reagan took the view that it was in the United States’ national interest to have a degree of political predictability about what the other side intended to do, even if it wasn’t enshrined in a formal treaty framework.

This is what Britain and the EU should do if, as is perfectly possible, the European Parliament declines to ratify whatever has been agreed in the Brexit talks. It is also how Britain itself should behave if the talks themselves seem to be getting nowhere.

In practice this would mean that the British government should simply announce unilaterally how it intends to conduct its relations with the EU after 20th March 2019. The core elements of such an announcement might be:

- EU citizens who had lived in the UK for five years before March 2019 would be granted indefinite resident status with exactly the same rights (entitlement to social security, education, family re-unification etc) as British citizens. The bureaucratic procedures for obtaining such resident status would be streamlined and simplified (this is pretty much what the British government has already proposed);

- After March 2019 EU citizens would be able to travel freely to the UK without a visa and would have automatic right of access to British educational institutions paying the same fees as British students. EU citizens wishing to work in the UK would need a work permit, but this would be granted automatically to anyone with a university degree or to anyone offered a job by certain designated organisations or enterprises, for example universities, the NHS, banks or technology companies (The same rule might be applied to citizens of the United States, Canada, Australia, New Zealand, Singapore and perhaps one or two other countries);

- The UK would pay its full share, according to current budgetary rules, of the EU budgets for 2018 and 2019 (including the three quarters of the year after Britain had left); and would offer to pay the equivalent of a full member’s cost share of any EU agency or programme of which it wanted to be an associate member (eg Europol, Eurojust, Erasmus, the Medicines Agency and perhaps Euratom). In addition, the government would undertake to reimburse annually to the EU the cost of the pensions of all British officials in post before March 2019;

- The UK would allow free access to all goods and services from EU member states without tariffs, quotas, customs forms or other restrictions. All products authorised for circulation in the EU’s internal market would automatically be granted authorisation in the UK and all EU regulatory regimes would be accepted;

- Historical fishing rights in British waters dating from pre-1972, ie before Britain joined the EU, would be restored;

- The UK would negotiate trade agreements with other countries, but would co-operate with the EU to ensure that goods entering the UK under the terms of these agreements were not diverted to the EU market;

- As regards the border between the United Kingdom and Ireland the British government would undertake to maintain the Common Travel Area so long as Ireland did not participate in the Schengen Agreement; and would not install any customs or other barriers on the Northern Irish side of the border;

- In the fields of social and environmental legislation Britain would over time adapt laws inherited from the EU to suit its own particular circumstances and traditions; but the government would indicate its intention to maintain standards broadly equivalent to those initially in force;

- The government would also offer to co-operate with the EU’s Common Foreign and Security Policy and would propose the formation of an EU/UK Security Commission.

These measures would be implemented unilaterally. They would be reviewed after ten years.

Proceeding along these lines would have advantages and disadvantages. It would allow the British government to decide for itself what constituted a fair settlement of the divorce terms and to put in place in the UK the sort of immigration and trade regime which it preferred. It makes sense to give EU citizens generous entitlements to education and graduate level jobs in Britain, and to allow the NHS and some other institutions freedom to recruit staff from EU member states, while regulating more strictly access to low paid employment. It also makes sense to maintain free trade for imports.

The disadvantage of course is that there would be no guarantee of reciprocity. The EU might respond by imposing tariffs on British imports, clamping down on the ability of British firms to provide services, kicking out British residents in other EU states and imposing a visa regime on British visitors.

But would it? Of course those in the EU’s institutions (and there are many of them) who want to punish Britain would find it galling to be faced with a fait accompli. But even they have a certain sense of shame and would find it hard to explain why what the British government was doing was unfair or unacceptable.

And ultimately it is the German government, not the Commission or the Parliament, which will decide; and the German government will make a cool calculation of its own national interests. One of these is the financial bill for the divorce settlement where Germany has so far taken the toughest line of all member states. A willingness by the British government to pay into the EU budget up to the end of 2019 and thereafter to pick up the tab for British officials’ pensions (the most significant element of the residual obligations generated by Britain’s membership) would, on any objective analysis, be a fair settlement.

So Germany would probably conclude that the best response from the EU would be to replicate what Britain had done, though no doubt with a less generous treatment of services where Germany has been traditionally protectionist.

There are other disadvantages in a unilateralist approach. It would not provide long-term legal certainly for economic actors; and it would offend WTO purists in respect of the most favoured nation rule. It should not be the British government’s preferred policy. But if it seems that the EU is not negotiating in good faith but seeking to impose a punitive diktat, then it may be the best response.