THE COST OF ‘TRANSITION’

Martin Howe QC

Thursday 19th October: As politicians propose a ‘transition’ phase when the UK leaves the EU, Martin Howe QC warns there could be little gain for much pain.

In the referendum, the British people voted for the UK to leave the European Union and take back control of our laws, borders and money, and to trade with the world outside the restrictive constraints of the EU’s customs union and common commercial policy.So, from 30 March 2019, we will have the right to reduce the very high duties which the EU’s Common External Tariff obliges us to impose on basics such a food and clothing. Reducing or eliminating these tariffs unilaterally – particularly on goods which this country does not even produce and where the sole purpose of the current high tariffs is to benefit Continental producer interests – should be a no-brainer “first day of Brexit” action which would give an immediate and tangible Brexit dividend to lower income families in whose budgets these items form a disproportionate share.

The EU’s slow growing markets now take less than 45% of our exports. We will be able to pursue opportunities for free trade agreements all over the world, and boost the 55% and rising share of our exports which go outside the EU into rapidly growing markets. We can only do trade deals if we are able to offer to reduce or eliminate our own tariffs, and to depart from the EU’s rigid rules on standards for goods or services in our domestic market in order to offer mutual recognition of standards to our trading partners.

We will able to reform the way our economy is regulated, and to escape the compulsory imposition of new EU laws on us, with their economic costs and their continuing political damage to our right to self-government.

The Prime Minister’s Florence speech proposed a transitional or “implementation” period during which the UK would agree continue to apply market-related EU law, and also continue to apply the EU’s common external tariffs to our imports from other countries. We would be under the same constraints as EU members, but we would no longer have vote or judge on the ECJ. During this period – said to last “about” 2 years – we would be unable to take advantage of any of the freedoms which Brexit gives to us to reshape our own laws and regulations and to promote our international trade.

It is said that undergoing another 2 years of such restrictions is unimportant compared with the 45 years we have already spent as EU members. It is said that it is justified by the benefits of businesses being able to trade into the EU market without disruption during the period before a full UK-EU free trade agreement can be brought into force.

But we need to be clear about the costs of the transition arrangement. Attention has focussed on the revenue cost of about £10bn per year which the Prime Minister offered to pay into the EU budget during that period.  But that revenue cost is only part of – and probably a minor part of – the economic costs of the transition period arrangement.

In particular, the customs element of the proposed transition is very costly indeed. Economists for Free Trade have estimated that their favoured policy of unilateral elimination of all tariffs would boost the UK economy by £135bn per year. But you do not need to go all the way in accepting their proposals to appreciate that the reduction or elimination of tariffs on ranges of goods which are not produced in the UK, and where the EU Common External Tariff charges high tariffs for the sole purpose of benefiting Continental producers at the expense of British consumers is a “complete no-brainer”.

However, the proposed transition period would prevent us from doing that at all, at least for “about two years” after March 2019.  Viewed in crude political terms, this means that the Brexit dividend for lower income voters could not begin to come through until a few months before the latest possible date for the next General Election, when it is  probably far too late for it to affect the political climate.

There are some current opportunities to secure trade agreements rapidly, which could well disappear altogether if the transition period causes a minimum 2 year deferment. Most obviously, we do not know where the Trump administration will be by 2021 or the composition of Congress.

This means that the claimed justification for the transition period must be examined closely. Is saving the sector of the economy which exports into the EU27 from disruption really worth other tax payers cross subsidising them with £10bn per year? If so, could that money more usefully be deployed by reducing taxes on affected industries, rather than being paid over to Brussels?

And is the largest cost element, the proposal to keep our tariffs aligned with EU external tariffs, really needed as compared with just getting our customs procedures ready to operate on Brexit day in March 2019?

*Martin Howe QC is a barrister specialising in intellectual property and EU law at 8 New Square Chambers and chairman of Lawyers for Britain. This blog reflects some of the themes discussed in his Politeia publication, The Cost of Transition: Few Gains, Much Pain?. Previous Politeia publications include How to Leave the EU, Legal and Trade Priorities for the New Britain (2016) and Zero Plus: The Principles of EU Renegotiation (2014).