18 February 2017
After eight months or so of political tumult this is a good point to take stock, with ten questions and nine of our best guesses at the answers (we duck the last).
1. Should we expect Parliament to derail May's timetable to serve notice?
ANSWER: No. Both houses are altogether cowed by the Tory lead in the polls.
2. Should we expect Parliament to derail May's timetable to ratify the outcome?
ANSWER: No. If Parliament passes May's bill, then that's that: the Article 50 timetable prevails. We can’t rule out some sort of response to (eg) Blair’s speech, intended to gee up amendments from the Lords and more generally to animate his party and the forces of the centre into an anti-Brexit alliance. But we expect the Government to get its bill through without amendments and then to keep up the momentum, not least as the EU is likely to disappoint its pals - see (5), (6) and (7) below.
3 Should we expect significant third parties with Free Trade Agreements with the EU to co-operate with the UK by allowing them to be novated (the legal jargon for transferring an agreement to a successor)?
ANSWER: Yes, though bear in mind that the only ones we’d be interested in are Canada, Israel, Norway, Switzerland and Turkey. Given the chaos within the EU and the US, the first four are likely to see no downside in novation to the UK. Turkey is more complicated, as chaotic itself.
4. Should we expect the WTO to cooperate with the UK in agreeing schedules of tariffs in time for the end of the Article 50 period?
ANSWER: Yes. At one time it seemed possible that those with a grievance with the UK (eg, Argentina) or in the WTO’s awkward squad (eg, Russia) would use Brexit as an occasion to advance their own agenda. Trump’s mercantilism has put the wind up all concerned and places this pretty much off the cards.
5. Should we expect significant third parties without FTAs with the EU or the UK to cooperate with us in negotiating agreements to come into effect at the end of the Article 50 period?
ANSWER: Yes. No-one is paying attention to Brussels as it huffs and puffs that this is illegal under the UK’s treaty obligations to the EU. More to the point, neither the UK nor third parties can be sure of the position at the end of the Article 50 negotiations. This is likely to become a reason to bring them to a summary conclusion - see (6) below. Trump matters less as making the US an outright alternative to the EU than as abandoning leadership in global trade at a time when the EU is unable to kindle its own scanty interest in the topic, making the UK correspondingly more attractive.
6. Should we expect the Article 50 talks to run the course of the intended period?
ANSWER. Probably not, for at least three reasons.
Junker’s pessimism is right: the EU will find it hard to keep a unified front. Individual member-states have objectives which only the UK can satisfy, eg, France and Germany as to car-making (the former all the more so if GM succeeds in offloading Vauxhall onto Peugeot, in which the French state has a 14% stake); Poland as to immigration; Spain as to fishing.
In order to make deals with third parties, the UK needs to know where it’s at. There are two ways of achieving that: uncrossable red lines or abandoned talks. Guess which is more likely.
Twenty four months over three big elections will make it tough even to agree the order of the agenda in a timely way. It’s likely to be just too much to get everything on the table and agreed.
So on balance we see a truncated timetable. Once the penny drops, the UK’s objective will be reputational: showing up the other side as crippled or disobliging.
7. Should we expect an agreement with the EU?
ANSWER. In light of the above, no.
8. What probability should we place upon the UK introducing a tariff-free regime in goods within the next thirty months?
ANSWER. Overall levels are so low that a tariff-free regime would barely be noticeable to consumers, though vulnerable producer-interests might feel a chill wind. It would place the UK on the side of the angels in the court of world opinion and pave the way to take such lead as it might be granted by third countries at a time of US mercantilism and EU incapacity. It would also simplify one aspect of customs arrangements with our neighbours. On the other hand it is the sort of bold manoeuvre which gets mandarins running for the hills. And they’ve got a lot of votes. So on balance, forty to fifty percent, unless someone important in Whitehall grows a pair.
9. What is the character of the disruption of trade in goods which we should expect in the event of no Article 50 agreement?
ANSWER. This is today’s big question. In the worst case, I’d expect a quarter (that is three months) of GDP slowness followed by a recovery spike over trend as suppliers and industrial purchasers adjust, by way of contracts, tooling, warehousing and suchlike. The authorities would do well to look warmly upon easy credit for producers over this period - maybe a bit longer for farmers.
10. What will be the position five years after Brexit?
ANSWER. This is far easier than (9) as it comes in just two words: nobody knows. The UK is an outstandingly flexible and resilient economy. On the other hand, aircraft- and car-making, agriculture, and financial services are about to undergo life-changing disruptions. This calls for deft political leadership and a regime of deregulation and friendly taxation. Over to you, Mrs May.