Certainty For Business And Friction-Less Trade

Sir Simon Fraser, Deputy Chairman and Adviser to Europe Programme at Chatham House and former Permanent Secretary, Foreign and Commonwealth Office, Julian Jessop, Chief Economist at Institute for Economic Affairs, and Jill Rutter, Programme Director at Institute for Government appeared in front of the Committee for Exiting the European Union. They were giving evidence on cross-Government preparations for Brexit and for no deal, and post-Brexit preparations. I asked them about the Chequers proposal and whether it provides certainty for business, and about friction-less trade.

Stephen Kinnock: I wanted to come back to a point Mr Jessop made right at the start, which is that, if you were to measure success based on levels of uncertainty, we are in a pretty disastrous situation. I am paraphrasing, but you in essence said it does not look good from the point of view of uncertainty. A big factor in the uncertainty conversation is this issue of a blindfold Brexit. The political declaration will not be legally binding and could, therefore, be a vague and nebulous document, which in essence does not give us much clarity when it comes to the meaningful vote. That massively ratchets up the level of uncertainty. The vaguer the political declaration is, the less certainty there is for business, citizens, the country at large and ourselves.

That said, what is your view on what the Prime Minister’s official spokesperson said the day before yesterday, which was that there will be no withdrawal agreement unless there are “precise” guarantees in the political declaration of a frictionless trading relationship between the United Kingdom and European Union post-Brexit? Do you think that statement from the Prime Minister’s spokesman will help to increase certainty levels? Indeed, it was confirmed from the Despatch Box by Dominic Raab that that is the Government’s position. I am just interested on your thoughts on the uncertainty question in the light of that statement.

Julian Jessop: First I have a general point on the uncertainty question. Although the degree of uncertainty is clearly very high, it is quite encouraging how well the economy has continued to perform. We can argue about how strong growth would have been without the vote to leave the EU, but the bottom line is the economy has continued to grow at a fairly healthy pace. There has been some uncertainty holding back investment, for sure, but the unemployment rate has continued to fall and so on. Although there is a high degree of uncertainty, I am quite reassured that the economy seems to be continuing pretty much as normal. That is a reflection of the way that most people, outside the Westminster and the Whitehall bubble, view these things. Businesses will deal with whatever they are given. If that is an increase in frictions that is what businesses do; they can deal with frictions. Consumers will deal with whatever is thrown at them as well, so I would not overplay the importance of uncertainty, but there is undoubtedly too much at the moment and it needs to be clarified.

I would rather not comment specifically on what individual politicians or their spokesmen have said. The IEA is non-political. I will just make a general point that, for us, the process of Brexit has always been about a series of trade-offs. You will be familiar with our Plan A+. One of the criticisms we had of the current process is that it always seems to be about the UK and the EU. It is not thinking about the broader dimensions, including trade with the rest of the world. You talk about the importance of maintaining frictionless trade with the EU, but I do not think that can be the be-all and end-all of that process. If it was, by the way, we should join the euro tomorrow, because it would lower frictions in trade with the EU even further, so it cannot just be about that. We have to recognise there are other parts. Just as the euro is a point about the independence of monetary policy and other commitments you might make to members, similarly, leaving the EU is about regaining independence on trade and regulatory policy.

Most sensible Brexiteers, and I would include myself as one of them, would accept there will be an increase in trade frictions with the EU as a result of us leaving, even under a Canada-plus-plus-plus deal. The challenge is to minimise those frictions in such a way that does not also limit the potential upsides from leaving. That is where the Chequers plan in particular falls short. Our own plan and several others would do a lot better.

Stephen Kinnock: Ms Rutter, I am just wondering about your perspective from Government. Our whole posture on these negotiations has been that there will be a legally binding international treaty for the withdrawal agreement and the political declaration will be a non-binding statement of intent. The Prime Minister’s statement—or the Prime Minister’s spokesman, but it is the same thing—seems utterly to have turned that on its head, because it seems now that the political declaration must contains precise guarantees of frictionless trade, meaning at least as frictionless as it currently is, as a precondition for the withdrawal agreement to be finalised. Has that caused confusion in Government?

Jill Rutter: I cannot speak for whether it has caused confusion in government. I am not hardwired into the people doing the negotiation. The Prime Minister has always had a calculation to make about how much precision is helpful in the political declaration. The former Secretary of State was very much of the view that, if you were going to persuade people who might be reluctant to vote for the withdrawal agreement including the financial settlement, you needed basically to have nailed down as much as you could on the future relationship. The EU has always made clear in its guidelines that its position could evolve if the UK’s position evolves. Whatever is in that political declaration could change if circumstances in the UK and the UK’s preferences moved, whether on freedom of movement, the European Court of Justice or things like that. That would be possible after the political declaration. Michel Barnier can always go back for revised guidelines if things change. That was in the EU guidelines in March.

What is difficult is it is almost impossible, as far as I can see it, for the EU to allow language about frictionless trade. I thought the EU has always been clear—I am looking at Simon—that frictionless trade, as the EU defines it at least, means being within the single market and the customs union. We produced a report last year saying that, if you want frictionless trade as now, you have to be in the single market and the customs union. Those are the two bits of architecture that give you frictionless trade. Move away from those and inevitably you will have a bit of additional friction. You can minimise it through facilitation agreements, smart technology, conformity assessment, bits of mutual recognition and a whole bunch of things, but basically there will be added frictions. I would find it very interesting if the Prime Minister gets words saying “frictionless trade”, as opposed to “as frictionless as possible”, which is more often the formulation. We had a long time when we were all talking about the “exact same benefits”. One of Sir Keir Starmer’s six tests is still whether a deal offers the “exact same benefits”.

One of the things that the Irish backstop experience shows us is that it is quite important, even if you go for more expansive language, that both sides understand what each other means by it. You do not want another going through of “That’s not what we meant by the language that we put into the political declaration”. I would hope that people are clear, when we get the political declaration, that both have the same understanding of what it means about the field within which we are negotiating. Otherwise, those negotiations get off to a much more difficult start, but Simon is a much more experienced negotiator than I am.

Sir Simon Fraser: I do not like the term “frictionless trade”, because what is it? It is so vague it does not really help us. It does not help us at all, so it is one of the things that I would like us to get away from and have more specificity. What we are talking about is trying to maintain the freest possible flow of trade and access to markets between the UK and the EU. Whether you are in favour of Brexit or against it that is one of your objectives. If I may say so, my personal reading of the Prime Minister’s spokesman’s statement is that it was largely directed at a domestic audience, in view of things that were being said around her over the weekend and on Monday. It seems to me that the strategy we are taking towards this whole process is dependent on a degree of constructive ambiguity in the political framework. That is why the political framework is non-binding, in order to be a platform for the launch of the second negotiation. We will be seeking language in that framework that sets out principles that both sides agree should underpin the future relationship, but which will not give specificity on the form of that relationship, at this stage.