Tuesday, November 27, 2018

May's Brexit deal rejection may open door to People's Vote

As Theresa May returned from Brussels with a draft withdrawal agreement claiming success in having secured  a deal with the EU one could be forgiven in thinking the Brexit debacle was almost over.

But in fact the 585 page withdrawal agreement [PDF] has instead put the cat amongst the pigeons and ignited a furious debate on whether the deal should even be signed. With many pundit suggesting she is unlikely to get cross party support for the deal the outcome appears to be either a no deal Brexit or, should parliament agree, a so-called People's Vote which could conceivably result in Britain remaining in the EU.

May and her supporters are perhaps banking on pragmatism and boredom of the seemingly endless Brexit process to encourage MPs to back her 'deal' which was agreed upon by the EU 27 on Sunday 25th November at an emergency EU summit.

But there remains a large number of MPs who feel that cannot back the 'deal'. Even before they had even seen the 585 page draft Withdrawal Agreement hard Brexiteers were describing it as a bad deal.

The ERG [European Research Group], led by Jacob Rees-Mogg, said Britons would have "surrendered our destiny" under May's agreement, leaving the nation "half in and half out" of the bloc. Meanwhile Boris Johnson called it "vassal state stuff" and urged the cabinet to "chuck it out".

Rees-Mogg went further and attempted to rally a vote of no confidence in the Prime Minister. But just days later his plot to oust May was ridiculed for having gone "a bit Dad's Army" as only around half the required letters of no-confidence letters were submitted to the 1922 committee [Evening Standard].

Meanwhile remainers within the house were also expressing their concerns over the deal with may saying they would vote against it [BBC].

As May headed to Brussels last week it certainly appeared as though the numbers were not on her side.

Her language had certainly changed from when only months before she had proclaimed "no deal was better than a bad deal".

Having secured what many on both sides had already called a bad deal, Theresa May was now saying that a failure to back her deal risked no deal or no Brexit [Sky News]

But whilst repeating later that Britain would be leaving on 29th March 2019, her line that there might not be a Brexit was also iterated several times [Mirror]. 

Some staunch remainers have perhaps been emboldened by these comments and hope that should the withdrawal agreement be rejected by parliament Theresa May will be forced to implement a 'People's Vote' given the only other alternative would mean Britain crashing out on WTO terms from which Britain would have to renegotiate trade deals as well as more than 700 treaties that would cease to apply between the EU and Britain.

Whilst hard line Brexiteers insist that there is nothing to fear from falling back on WTO rules most economists believe it would be an unmitigated disaster. Britain would find itself without trade deals. It would be forced to draw up its own schedules - in order to trade with other countries - and these could be challenged by any one of the 164 members which could create its own problems for Britain as it suddenly finds itself wanting to trade with the rest of the world.

In fact several countries have already filed objections with Britain's proposed plans should it exit Europe without a deal [Independent].

What few people, both on the hard-brexit side, nor even in the media, appear to address are the some 750 treaties that currently exist between EU member states and other countries around the world and which are not covered by the WTO.

Article 50 clearly states that after two years all "the Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period."

These treaties cover everything from fishing to agriculture to airline travel, nuclear transportation, telecommunications and banking. All of these would need to be renegotiated, though some would be a priority over others [FT].

It is indeed these treaties, seemingly ignored by hardline Brexiteers, which are the major concern for remainers and those with a better understanding of how such treaties work.

A failure to address these issue could potentially result in flights being grounded, cashpoints in Europe not being able to give out cash to travelling Britons and nuclear fuel for British nuclear power stations becoming unavailable.

In real terms, of course, nothing would 'physically' stop such things continuing. However in an interconnected global economy everything has to adhere to rules, standard practices and a recognition of agreed partnerships and treaties.

A plane could, for all practical purposes take off and land anywhere. But if there is no treaty existing between two countries the plane could be denied access to airspace or from landing.

An example that could best describe this is where a UK driving licence is, through such treaties, recognised in various countries, thus allowing a British driver - sometimes with additional documents such as an International Driving Permit - to drive in another country. But not all countries have agreements and treaties covering foreign driving licences. So whilst one might physically be able to drive in China, for example, foreign licences are not recognised there and the driver could face fines or imprisonment.

Without specific negotiations, none of which have even begun as yet, access to a wide number of things simply end on 29th March 2019 unless Britain either remains in the EU or the Withdrawal Agreement is signed off by the British parliament.

Even if the Withdrawal Agreement is signed off Britain only has until December 2020 to renegotiate some 759 treaties as well as striking a trade deal with the EU, whilst at the same time attempting to establish bilateral trade deals with the rest of the world.

Given the slow pace of proceedings thus far one could be forgiven for not being entirely optimistic.

The pragmatists that sign off on May's deal could be forgiven, given the risk that Britain's crashing out would likely be a disaster.

But even May's deal is likely to have disastrous economic consequences.

According to a study by the National Institute of Economic and Social Research the government's Brexit deal will leave the UK £100bn worse off a year than if it had remained in the EU [BBC].

Meanwhile a separate study carried out by the London School of Economics, King's College and the Institute for Fiscal Studies suggests the economy could shrink by as much as 5.5% in a decade's time than it would if the UK stayed in the EU [BBC].

A no deal Brexit would, on the other hand, be cataclysmic. In research published by Rabobank, a hard Brexit would cost the UK 18% of GDP growth until 2030 compared to a situation where the UK would continue its EU membership. In absolute terms, this comes down to a cumulative amount of £400bn, which is equal to £11,500 per British worker 

As Adam Posen, president of the Peterson Institute for International Economics, has said, "there is no economic upside [to Brexit]." [tvnewswatch - No deal Brexit now only likely outcome / tvnewswatch - Prepping for no deal Brexit ]

"No matter how much there's been a 'special relationship', no matter how much the UK tries to be a global exporter, the fact is you've got twice as much trade with the EU, more than twice as much investment with the EU, than with the US or the rest of the world," Posen says.

"As David Cameron pointed out while I was at the Bank of England, the UK does more trade with Ireland than all of the BRIC countries combined; Brazil, Russia, India and China. So this is negative full stop."

There was further bad news today too as Trump suggested May's deal would be bad for securing any future trade deal with the US [BBC / Guardian]. So much for that special relationship!

So where does this leave Britain with only 122 days until Brexit day?

As it currently stands there is little or no chance Theresa May's 'deal' will be passed by parliament in December.

That will then put her in an awkward position of having to decide whether to unilaterally withdraw Article 50 or put the decision before parliament, crashing out without a deal, or allowing a people's vote which could conceivably have only the option of remaining or leaving without a deal [BBC].

A month or so ago it seemed clear Britain was heading for a no deal Brexit. There is now a slim - an ever so slim - possibility that Britain could remain in the EU.

Even if it does - and avoids the disaster that a no deal would bring - there will be much damage to repair. Companies have already gone to the wall over Brexit. Other businesses have left or shifted operations to other parts of Europe. Meanwhile Britain's economy has slowed significantly in the two years since the referendum.

There will be a great sigh of relief should Britain get a chance to vote and decide to stay in the EU, especially from business. But Britain will need a jolt to kick start the economy back to life.

There may be other wounds to heal too, psychologically speaking, as there will undoubtedly be many rifts between remainers and leavers should the UK remain in the EU.

tvnewswatch, London, UK