Bold Brexit plan will still run into Irish border problem

With a humiliated prime minister’s plans for Brexit in tatters after her treatment by EU leaders in Salzburg last week, a plan for a radical change of direction has been published by the Institute of Economic Affairs, Britain’s most influential and successful free-market think tank.

The paper’s author, Shanker Singham, has worked on projects such as the privatisation of the UK electricity market and the transfer from Communism of Soviet, Central and Eastern European countries, and his vision for post-Brexit Britain (‘Plan A+’) is ambitious in scale and scope. Far from sticking purely to a trade plan, Singham sketches out a holistic picture, diagnosing the fundamental flaws and vices of the EU and laying out a bold political vision for Britain to thrive because – not in spite – of Brexit.

The EU is grossly over-estimated as a modern global power, the report argues, and those obsessed with its importance lack perspective. Centralized and bureaucratic, it is embarrassingly behind the times in the world of 21st Century trade. Examples given of burdensome EU regulatory practices include the now-infamous General Data Protection Regulation (GDPR) and the financial services Directives: “Membership of the European Union stifles prosperity just as it prevents the UK governing itself”, the report claims.

Crucially, the short-term costs of Brexit have been over-emphasized, he says, because they are easier to measure and quantify, ignoring what the IEA identifies as an historic “opportunity to unleash prosperity” if it has the will – the ‘Brexit Prize’.

The report dismisses Mrs May’s Chequers proposal. By tying the UK permanently to all EU rules, past and future (a.k.a. ‘harmonization’), any possibility of a Brexit dividend arising from future free trade deals would be gone. Trade representatives from New Zealand and the United States confirm this, says Singham, stating that it’s precisely the UK’s newfound freedom to make its own trade policy that makes it attractive as an economic partner.

The new report lays out a four-pillared approach that focuses not just on our relationship with the EU but with the rest of the world. It encourages the government to pursue pro-competitive practices in four ways:

1)  “Unilateral”, with the UK aiming to remove tariffs and subsidies at home, with due protection for British farmers.

2) “Bilateral”, in which the UK should seek a simple, goods-based Free Trade Agreement with the EU based on mutual recognition of standards, not the UK obeying EU rules.

3) “Plurilateral”, with Britain seeking membership of international trade blocs such as the North American Trade Association.

4) “Multilateral”, with Britain using its new status as a fully-fledged member of the World Trade Organization to defend its interests, including taking legal action against the EU if they refuse to recognize our standards.

This bold, aggressive new approach treats the EU as a minor actor in a much bigger global picture, and contextualizes Brexit as part of a sweeping plan for economic liberalization that aims at international wealth creation with Britain leading the way in a new economic consensus. The IEA envisages Britain as a champion against protectionism and distortive practices in a freer, fairer future.

So what’s not to like? The EU itself last month made overtures about the possibility of a Canada-style deal as a more plausible alternative to Chequers, so wherein lies the problem?

The catch is that Theresa May agreed to the ‘backstop’ plan that sees Northern Ireland remaining in the customs union (or effective EU alignment) last December, and this has become an albatross. A Canada-style FTA would allow Britain to diverge from EU standards (and become more competitive) after Brexit, but this would create different rules for goods on either side of the Irish border, potentially creating a political wildfire by dividing the economies of North and South. In fact, the whole point of the deeply unsatisfactory Chequers fudge was to avoid such a border, so intractable and knotty a problem has this become.

So, the million-dollar question: will the IEA’s radical new vision work? In theory, yes. It should do. It doesn’t pose a symbolic threat to the unity of the Single Market (the EU’s economic religion), and it won’t break up the United Kingdom if Northern Ireland comes with us. The IEA recommends investment in extensive co-operation mechanisms to make extensive border checks unnecessary. Is this plausible, or pie-in-the-sky thinking?

The border question could indeed be overcome. The vast majority of goods that cross the border are from small-to-medium sized businesses, and the vast majority of cross-border traders are small-time. In fact, there are only 53 businesses that employ 250 or more people in Northern Ireland that export to the South. What’s more, only 4% of UK imports are subject to checks now anyway, and customs issues in other areas where the EU shares a land border with third countries are dealt with smoothly, with minimal checks and the majority occurring away from the border.

What will EU leaders think of the IEA’s plan? The EU is known for its pragmatism when it suits, so surely it will be mature enough to engage in the necessary realpolitik to get this thing stitched up in a way that doesn’t undermine the integrity of the UK.

Let’s hope so, but – sadly – it’s unlikely. The issues are symbolic and political.

If the UK can transition from full member state to third country with a free trade deal, then other member states will wonder why they can’t do the same. Brussels is exploiting the Irish border question not because they care about the subject but in order to strong-arm the UK. Either we accept third country status with all of the costs and burdens that triggers, or we subsist as rules-takers in the customs union, most likely subject to free movement, too.

Anything else will create perverse incentives for other EU member states. Germany is willing to sacrifice its economic ties with the UK in the name of the European project, it seems. What’s more, if an FTA Brexit becomes a success in the long term – as the IEA predicts – then a dangerous precedent is set for the European project as a whole. Of course they want to make leaving as hard as possible – they secretly suspect that we just might make it on our own.

Ultimately the IEA’s vision is only likely to work if a free-trade Brexit is combined with the pro-market, capitalist domestic agenda that Singham strongly urges us to take. Such moves would yield huge benefits long-term, but would be very hard to sell to the electorate, especially with a hair’s breadth majority and Corbynomics on the rise. As a wholesale political project, it’s immensely exciting. Would Theresa May be able to pull it off? That seems unlikely.