Why One Brexit Trade Myth Refuses to Die

(Bloomberg Opinion) -- One might have thought that the Brexit debate could not be made any more confusing. But the Conservative Party leadership race is doing just that. The obfuscation serves a political purpose.

Early this year, Brexiters who are happy for the U.K. to leave the European Union without a deal latched on to an argument that Britain, once it leaves, can keep its current EU trade benefits while it works out a new arrangement with Europe. This argument, based on obscure bit of trade law, sounded too good to be true, and it was (as I explained). Nevertheless, it has gained momentum among the Tory party members who will choose next month between Boris Johnson and Jeremy Hunt to replace Theresa May as party leader and prime minister.

For proponents of a no-deal Brexit, the trade clause at issue — Article 24 of the General Agreement on Tariffs and Trade (the precursor to the World Trade Organization) — is much like the fictitious claim, famously plastered on the side of a bus during the 2016 Brexit campaign, that leaving the EU would mean a 350 million pound ($443 million) windfall for the National Health Service: It’s easy enough to remember, and it has the ring of precision. Brexit fans call into radio shows citing Article 24 as if such minutiae of global trade agreements were common knowledge.

In fact, under World Trade Organization rules, nations cannot give one trade partner preferential treatment unless they have a special trade arrangement such as a customs union. Once the U.K. leaves the EU, it has to be treated like other nonmembers, and that means it has to start paying tariffs on imports. A seldom used provision of Article 24 allows for an interim period during which the U.K. presumably could hold on to its existing trade terms while working on a new deal. (It’s hardly used because other WTO members have to be notified and can object, which is a hassle.) But first Britain and the EU would have to agree to the terms of an interim agreement, including “a plan and schedule” for a new trade deal. In other words, even a “no deal” Brexit calls for a deal.

If such an agreement were possible, Brexit would already have happened and Theresa May’s leadership would have been declared a raging success. The EU has made clear it will agree to no future trade deal without preconditions, including settlement of the U.K.’s financial obligations, guaranteed rights for EU citizens in Britain and a promise that the border between Northern Ireland and Ireland will always remain open.

The EU will not simply dismiss two years of negotiated agreement so that Britain can enjoy a long period of transition. Think of the sheer reputational damage that would inflict on a bloc that conducts multiple trade agreements.

Some hard Brexiters say the EU will be motivated to compromise by its trade surplus with the U.K. That argument doesn’t carry far either. The EU may export twice as much to the U.K. as it imports, but U.K. goods would be hit harder by tariffs than EU goods would — based on the tariffs the U.K. has said it would impose under no deal. The U.K. under Johnson might change course, but it would still be unlikely to make imported inputs more expensive and thus increase the profitability of smuggling.

Why One Brexit Trade Myth Refuses to Die

Johnson’s allies must know that Article 24 is no magic solution here, and that the U.K. has nothing like the leverage they suggest it has. Yet their argument serves two purposes.

First, its “believe in Britain” message works well with the Conservative Party faithful, who have seen how warnings of economic doom following the Brexit vote itself proved wrong (or at least premature). The real problem, argue the Johnsonians, are the “nattering nabobs of negativity,” as former U.S. Vice-President Spiro Agnew once called the news media.

The second purpose of the Article 24 ploy is to deflect blame. Johnson has made a do-or-die pledge to leave the EU on Oct. 31. He’s also declared the chance of a no-deal Brexit to be “a million to one.” If Britain does end up leaving without a deal, or has to compromise beyond what Johnson has indicated, he must be prepared for the mother of all blame games.

That, indeed, was the clear message Wednesday from Dominic Raab, the former Brexit secretary, who has thrown his support behind Johnson. Interviewed on the BBC, Raab said “political will” is all that’s needed for Britain to prolong the status quo under a standstill arrangement: “If the EU wants to throw up its hands and say we’re not going to budge, we will refuse all reasonable compromise and we end up on WTO terms, it will be a decision made by the EU.”

Other Tories have echoed that sentiment. “They might not say they want such an agreement now, in order to play games with our political process, but in the end it makes sense for the political will to be there,” tweeted Conservative MP Marcus Fysh.

Using the Article 24 distraction to inspire the faithful is essential to gaining power. Using it for blame-deflection may be necessary for holding on to power. Such are the strategies by which populism survives.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

©2019 Bloomberg L.P.

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