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Chequers White Paper. What has gone wrong and why? By David Blake

brexit chequres white paper
Written by David Blake

Professor David Blake takes us through the full story and offers a remedy.

We have ended up with the utter dog’s breakfast of the “Chequers White Paper”, with no trade deal in sight less than six months before leaving the EU, and with the UK now an international laughing stock. How has this happened? There are three strands to the answer: the British establishment’s anti-Brexit campaign, the EU’s reaction to this, and the PM’s own position.  For the sake of our democracy, Whitehall’s Mad Hatters must be stopped right now.

Leaving the EU could have been so straightforward.  In her Lancaster House speech in January 2017, the prime minister made clear her red lines:  leaving the Customs Union, the Single Market, the jurisdiction of the European Court of Justice (ECJ), and ending free movement and the budget contributions. She wanted to continue having a strong trading relationship with the EU.

This was a strong statement which the EU initially took seriously. They then laid out their red lines. Being in the Customs Union means accepting the Common External Tariff – all member states impose the same tariffs on imported goods but there is tariff-free trade between members – and the Common Commercial Policy – whereby the EU negotiates all trade deals on behalf of all members. Being in the Single Market means accepting a common set of regulatory standards, the four freedoms (of movement of goods, services, capital and people) and the jurisdiction of the ECJ as final arbiter of EU law. The EU said that you had to accept the whole package, you could not cherry pick and you could not be half in and half out.

Nothing could be clearer than these two sets of red lines. The EU even helpfully told us that the ONLY free trade agreement (FTA) that would satisfy both sets of red lines was the one the EU had just agreed with Canada. This would allow tariff-free trade in goods between the UK and EU without the UK being in the Customs Union or the Single Market.

The Canada deal could be improved to provide better access to services, for example, especially for transport and financial services. But it was a perfectly good position to start negotiating. Indeed, David Davis, the Brexit secretary at the time, talked about a “Canada plus plus plus” deal and got his department to start working on it – as recent leaks of the “Alternative White Paper” on ConservativeHome make clear.

But the PM turned down the EU’s offer of a Canada deal and we have ended up with the utter dog’s breakfast of the “Chequers White Paper”, with no trade deal in sight less than six months before leaving the EU, and with the UK now an international laughing stock.

How has this happened? There are three strands to the answer: the British establishment’s anti-Brexit campaign, the EU’s reaction to this, and the PM’s own position.

The British establishment – led by senior civil servants and Remain politicians, particularly in the House of Lords – was determined to stop Brexit at all costs. Lord Heseltine and others made this clear the day after the referendum.

Senior civil servants are, of course, in charge of preparing and drafting all the documents that ministers use in their negotiations with Brussels. They also have an important role in setting the agenda for the negotiations.  It is quite remarkable how they have used their position to systematically frustrate Brexit planning.

I have called it the “Mad Hatter” strategy. It involves putting forward proposals that are so completely barking that their intended combined effect is to reverse Brexit.  Just take some early examples. Agreeing, in the context of the fixed two-year time frame for the negotiations, to the sequencing of the three stages of the negotiations (divorce, withdrawal and future relationship) where the EU alone determines when each stage is finished. Agreeing to pay a £39bn divorce bill before any trade deal was in place. And proposing the Northern Ireland “backstop” – which immediately became the Achilles Heel that it was intended to be.

The latest example is the Chequers White Paper. At first sight, it looks completely innocuous. It is very deferential to the EU and most of it reads very reasonably, offering the hand of friendship and cooperation in all areas. But hidden within the text are a whole series of poison pills that effectively prevent the UK from leaving the EU’s legal and regulatory orbits.  Key examples are: the common rulebook for goods which requires the UK to adopt EU regulations and accept ECJ jurisdiction, effectively mimicking membership of the Single Market, but without having any say in how future regulations are determined; the Facilitated Customs Arrangement (FCA) in which importers into the UK pay EU tariffs and then ask for a refund if they can show the goods were consumed in the UK, effectively remaining in the Customs Union, but without any say in setting tariffs; the “mobility framework” which is the new term for “free movement”; and seeking to join the Lugano Convention, whereby the ECJ claims exclusive competence in increasing areas of private international law.  But these are quickly passed over without any mention of the problems or implications. Indeed, the opposite is true.  For example, the text gives the impression that the FCA is a workable solution that will only affect 4% of goods and will also allow us to do FTAs with the rest of the world!

It didn’t take long for the EU to recognise that the British position was in reality not as “strong and stable” as the initial impression given by the PM at Lancaster House. They did not want us to leave, so why not exploit our very public divisions?  Indeed, they were positively encouraged to do so by ex-deputy Lib Dem PM Nick Clegg, former Conservative chancellor Ken Clarke and Labour’s Lord Adonis when they met with Michel Barnier in Brussels in October 2017. And this was followed up by Tony Blair and Lord Mandelson.

Once you understand the Mad Hatter strategy, you can quickly see where all this is heading. The EU has always said that it will not budge on the four freedoms, but it has allowed temporary emergency breaks. This would be how it would deal with our case in the “implementation period”. Then add in a lot of small well-publicised irritations at the border for passengers ( deliberately slow passport queues for UK citizens which would not apply to EU citizens living in the UK …) and for businesses (extra zealous custom checks, despite these being illegal under World Trade Organisation rules).

The EU has made it clear it will not agree any trade deal until after March next year. This means that any deal negotiated could not be approved by a qualified majority vote in the European Parliament. Instead, it will need the agreement of all national parliaments, including Wallonia. It just needs one of them to veto it – which will certainly happen – and we are stuck in limbo, since no other country outside the EU will agree a trade deal on the basis of the White Paper.

This will lead to yet more calls for a second referendum – which are likely to have more support than the current campaign led by the British establishment for a “People’s Vote” – to rejoin the EU. The EU will gladly concede to this, but on terms that include us dropping all optouts, ending the rebate, joining the euro, joining Schengen, and agreeing to a European Army, an EU foreign policy and a single EU president – which could well be Michel Barnier himself by that time. In short, we would be forced into the very EU super state that those who voted Leave in the first referendum want to escape from.  And once in, we could never ever get out.

From the Mad Hatter’s point of view, everything is falling nicely into place, just as Heseltine et al. said it would.  And if it does happen, they will all say with perfectly straight faces, “we can’t see how this means any loss of sovereignty”.

But what about our enigmatic PM – what is her role in all this?  There are at least four possible views. The first is to take her at her word that she is “just getting on with the job” and simply wants to minimize any disruption to trade after Brexit, having listened to the reasoned views of the CBI and the Institute of Directors. The PM’s world view is simply that there cannot be “no deal” and she has now taken charge singlehandedly, bypassing the ministers notionally in charge. She acted in exactly the same way over the divorce bill and over the Withdrawal Agreement last December.

But this is not entirely convincing.  She agreed to pay £39bn in the hope the EU would be nice to us when it came to trade negotiations. She then conceded the backstop. Also the Chequers White Paper must have been months in the making in complete secret with dozens of civil servants involved –  in total deception of the civil servants at the Brexit department. Mrs Merkel was shown the White Paper before the British cabinet. The PM dismissed out of hand President Trump’s suggestion to sue the EU if it failed to abide by WTO rules: the EU has a legal obligation to allow timely customs clearance of inwards goods from the UK – whether or not an FTA is concluded – under the WTO Trade Facilitation Agreement.

But most serious of all is the report that she asked the European Commission not to release a study by Barnier’s top economic adviser, Stephanie Riso, just prior to the Chequers meeting.  That study showed that the UK proposal to accept the common rulebook for goods but be free to diverge on services would actually give a significant competitive advantage to the UK. It used the example of cars, pointing out that that 20-40% of the value of a car was in information technology, research and development, financial services and distribution: these were all areas where the UK could potentially undercut the EU. This study completely undermines a core feature of the White Paper and the PM knew this before the Chequers meeting. Furthermore, the Chequers plan could be illegal under WTO rules, according to David Collins, Professor of International Economic Law at City, University of London. He argues that the burdensome tracking obligations on imported goods which are not imposed on equivalent domestic products amounts to discrimination which is prohibited by the WTO.  Government lawyers appear not to have considered this.

This brings us to the second view, namely that the PM is in reality the “Manchurian Candidate”, a Remainer who is going through the motions of working towards Brexit (“Brexit means Brexit” plus the Lancaster House, Florence, Mansion House and Munich speeches), but has been actively working to defeat Brexit. Far fetched? Maybe, but if you ask her how she would vote again, she always refuses to answer.

The third view is that she is suffering from the Stockholm Syndrome and has developed an empathy for her EU “captors”.  They occasionally let her out in public to give the pretence of normality. But you can see the discomfort on her face whenever this happens.  And always lurking in the background is the creepy Jean-Claude Juncker, ever ready to pounce and slobber all over her whenever it looks as though she is going to say something out of line.

The fourth view is that she is simply incompetent as Lord King, former governor of the Bank of England, implied on 5 September. But whatever the reason, the Chequers White Paper is very much the PM’s creation and she is clearly going to defend it to the hilt – with the full support of the Downing St civil service and in full knowledge that it will all be watered down by the EU in due course.  It is now quite clear that the PM cannot deliver any meaningful Brexit.

And what does a meaningful Brexit look like?  Given the fact that the EU is not willing to cooperate in delivering a deal that is in the best interests of all the citizens of Europe – and indeed wants to punish the UK for daring to leave – then the ONLY solution is a non-cooperative solution based on WTO rules. This is not a “no deal”.  It is precisely how we conduct 60% of our international trade with the rest of the world.  And it works. According to the IMF’s “Direction of Trade Statistics”, 15 of the 22 largest exporters to the EU trade under WTO rules and increased their EU exports by 135% between 1993 and 2015. The other 7 had bi-lateral trade agreements and increased their exports by 107%. The 12 original EU members increased their intra-EU trade by 70%, while the UK increased its trade with the EU by just 25%. UK goods exports to the 111 countries with which it trades under WTO rules have grown at 3% pa, three times faster than UK trade with the EU. The Customs Union and the Single Market have NOT been good for UK trade with the EU.

There are, of course, other issues to resolve, such as agreeing the “enhanced equivalence” of standards, rather than “mutual recognition”, again because of EU spite.  In due course, a “Canada plus plus plus” deal might be agreed which involves services, and especially financial services, as well as goods.  But the idea that planes won’t fly, medicines won’t be delivered, supermarkets will run out of food, or the M20 will be turned into a lorry park is just a new manifestation of Project Fear.  All this would be a clear breach of international law and the EU claims that it follows international law.  Now that does not mean that the EU will not cause difficulties – it will, it is run by some very unsavoury people, although even Michel Barnier concedes that 90% of the technical issues have been resolved.  But if they still go too far, then Trump’s advice to sue is more than valid.

But it is not just a question of trade. Far more important is the question of democracy.  In 2016, the British people voted to leave the EU.  They had all the facts they needed to make that decision – the government spent £9m providing every household with those facts. David Cameron said explicitly there would be no second referendum.  People voted on that basis. So there is no need for the second referendum that Remain politicians and others such as Elmar Brok, the German member of the European parliament, are demanding. Furthermore, there is no need to stop Brexit as Lord Kerslake, former head of the home civil service, is suggesting parliament should consider doing.  In fact, this would be very undemocratic.  It is how the EU operates, by keep getting people to vote until they make the “right decision”.

For the sake of our democracy, Whitehall’s Mad Hatters must be stopped right now. There must be no compromises over the Irish border. We have said many times that we will not impose a hard border and there are a whole range of well-established technological solutions for dealing with customs clearances away from the border that work well everywhere else in the world, as Graham Gudgin and Ray Bassett have pointed out. We should call the EU’s bluff – because if there is no deal, it will be the EU that will instruct the Irish Republic to impose a hard customs border.

And there must be no more delays. Leave Means Leave – on 29 March next year!

Professor David Blake is at Cass Business School

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David Blake