No surrender to EU blackmail – call their bluff instead

WHEN BARGAINING WITH THE EU, THE UK SHOULD CALL THE EU’S BLUFF

Kevin Dowd

The EU’s bargaining position on Brexit is a case study in blackmail, and the UK should have no truck with it. They have demanded that the UK agree to a budgetary deal before discussions on trade matters can even start. If the UK does not resist this demand, then the EU wins the negotiating game and the outcome is guaranteed to be a bad one for the UK.

The EU’s reasoning is as follows. They assume that the UK needs a trade deal, which would take time to negotiate. Since the UK wants a trade deal, the ticking clock would pressure the UK to accept a hard bargain on the budgetary issue. Once the EU has the budget deal it wants, it would be in a strong position on the trade deal too, because the British would have fewer cards left to play. The intent is to maximise the price that Britain pays to leave: the UK must not benefit from Brexit, they say.

I say that the UK should stand firm and call their bluff.

The EU’s strategy is based on a flawed assumption: it assumes that the UK has to make a trade deal, and that the EU’s bargaining power comes from its ability to withhold any such deal to bring the UK into line.

The reality is that the UK can always walk away: no deal is better than a bad deal. With no trade deal, the UK would be free to establish free trade with the rest of the world, and there are big gains to be had from the UK ending EU protection of food and manufactures: consumer prices would fall by maybe 8% and GDP would rise by maybe 4%.

A trade deal would be nice to have, but the UK doesn’t need it and definitely doesn’t want a bad one. The EU’s strategy then unravels, as there is no reason for the UK even to come to the bargaining table in the first place and the EU has no means of forcing it.

Given, however, that the UK government has (unwisely) already agreed to talk about the budget before trade, then they should take a hard line: they should insist that nothing is agreed until everything is agreed, they should restrict budgetary discussions to methodology only and not discuss numbers until and unless there is progress on trade and other issues. They should also make it clear that UK contributions to the EU budget and the jurisdiction of the European
Court of Justice over the UK will end on 29th March 2019, when the UK leaves the EU. Above all, they should insist that the UK will leave on that date regardless of whether there is any agreement or not.

For their part, MPs who support Brexit should hold the government to account and give it no room to backslide. They should make it clear that holding the government to account includes being willing to vote against it on confidence issues if the government caves in. Fiat iustitia, pereat mundus. They should make it clear that the UK is in a much stronger position than Greece when it comes to dealing with unreasonable demands from the EU. They should make it clear that for the government to give in to such demands would be political suicide.

Nor should the UK be worried about future trade arrangements with the EU. The UK will always have access to European markets. Access to the Single Market does not require membership of it, and the UK will benefit enormously by freeing itself of the onerous regulations that membership of the Single Market entails.

As for tariffs, the EU is welcome to impose them on the UK if it wishes. UK exporters could fairly easily absorb EU tariffs, which average under 4%, especially as they are making large profits due to the fall in sterling. It is also worth pointing out that for the EU to impose tariffs on the UK would be a major act of self-harm.

Their importers would have to pay more on their imports from Britain and they would disrupt their own supply chains, which are very sensitive to tariffs. But if the EU wish to hurt their own importers and risk their supply chains shifting in favour of the UK, then that is up to them.

https://www.economistsforfreetrade.com/wp-content/uploads/2017/12/From-Project-Fear-to-Project-Prosperity-Full-Report-1.pdf

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