August 21, 2017
Soft, getting softer
In the UK, meanwhile, the signs of a soft Brexit are proliferating. We have argued before that the Brexit referendum gives the UK government a political mandate for a departure from the EU - one that cannot and should not be blocked. But it gives no mandate for any specific form of Brexit. Given the closeness of the result, a soft Brexit with a transitional period seems a sensible political compromise.
We noted a story by Reuters on a policy document by the UK government setting out an arrangement for after the UK's exit from the customs union. This involves electronic tagging of shipments across the border, as opposed to physical border checks. An alternative suggestion is what the document called a "customs partnership", membership of the customs union in all but name, which would remove the need for a customs border. We expect to hear more of the latter. Much of the Brexit debates are about symbols and not content. For example, the dispute about the Brexit bill is not fundamentally about money, but about the notion of a bill itself. If the costs can be hidden in some other way, for example through continued payments to the EU during a transitional agreement, much of the political problem will disappear.
The Times, meanwhile, reports that Carl Baudenbacher, president of the court of the European Free Trade Association, is proposing what appears to us as the only sensible compromise on the intractable question of the role of the ECJ after Brexit: let the Efta court act as adjudicator. Under this proposal, the UK would accept the jurisdiction of the Efta court. Baudenbacher had already met with Brexit secretary David Davis, and with the first ministers of Scotland and Wales. Without such an arrangement, it would be impossible for the EU and the UK to negotiate any form of bespoke arrangement. We consider this another face-saving compromise. The Tory eurosceptics are right, of course, that the Efta court is not really independent and operates in close tandem with the ECJ. But if the debate is more about appearance than substance, this is a potential way forward.
The hard Brexiteers, however, have not given up yet. Patrick Minford, one of the leading pro-Brexit economists, is about to launch a report in the autumn in which he will claim some £120bn in annual savings resulting from a hard Brexit. This results from lower tariffs and benefits from deregulation. But there is an implicit assumption in his calculations: that the EU would offer the UK a free trade deal, as it stands to lose more than the UK (given the EU's trade surplus with the UK). While we think the economics of a hard Brexit is, and will remain, an interesting intellectual debate, no government will risk that outcome in practice if it can be avoided. But a managed hard Brexit constitutes a plausible plan B, in case the Brexit negotiations fail. We don't think this is likely, but the chances of failure are clearly not zero.