How Boris Johnson Is Likely to Handle Brexit

Assuming that a Britain leaves on 31 October with no further Withdrawal Agreement, Boris Johnson should keep his nerve and hold on, writes David Lane, Fellow of the Academy of Social Sciences (UK) and Emeritus Fellow of Emmanuel College, Cambridge University. The short term will have drawbacks but will not be catastrophic. Most things will continue as at present. In the long term there will probably be economic and political benefits.

Britain at present has an extension of the Article 50 (i.e. the article to leave the Eu) until 31 October. Boris Johnson (as well as Hunt) has pledged to leave the EU by that date. This is because

  • The referendum on which the electorate was asked to decide to leave or stay led to a majority to leave.

  • This result was accepted by the two major parliamentary parties and in their subsequent electoral policies.

  • The UKs parliament agreed to trigger the EU’s article 50 which gave the UK legal authority to leave

  • It subsequently by large majority passed an Act of Parliament to leave: European Union Withdrawal Act (2018).

Not to leave would undermine the credibility not only of the Conservative governing party but also the whole democratic process in the UK. The Withdrawal Agreement agreed by Theresa May with the EU has been rejected three times by Parliament. In its present form it would bind the UK into EU law with no say over the making of laws. Even proposals for new agreements by various groups of MPs have not found a majority. Boris Johnson has committed himself to a renegotiation or going forward with a no further withdrawal agreement.

What then are his options?

First, the EU might as a gesture of goodwill come forward with some modification of its previous proposals, the Withdrawal Agreement. The EU is unlikely to present any major concessions. Theresa May and David Cameron have tried persistently to get concessions from the EU with no success.

As goodwill gesture to a new UK government it might make some minor proposals. For example, a limit on the time Britain could leave the EU without agreement on the UK/Irish Border with the EU in the Republic of Ireland.

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Minimal agreements such as this would not be very satisfactory because it would keep the UK in the Customs Union and Single market for many years. This would not receive support from a significant number of Conservative MPs and, more importantly, it would not deliver a real exit from the EU. The electoral prospects of the Conservatives would suffer. So, unless there can be a significant change of policy on the EUs side, any revised Withdrawal Agreement is unlikely.

Now we come to the second option.

Johnson then has to do the best he can with the default position. That is to leave the EU under WTO Rules to govern trade relationships with the EU.

But which WTO Rules?

Johnson’s best position would be to get an agreement under Article 24 of the WTO. This would require both sides to continue tariff-free trade while they negotiated a full free-trade agreement. Such a course would have great appeal. It would minimise disruption. It would satisfy current trade contracts for both merchants and consumers. EU has a large positive trade balance with the UK, consequently its merchants and employees would gain and UK customers would be satisfied. A modification of this position would be to move to a selective agreement – including cars, for example but excluding food.

The uncertainty here is whether the EU would agree to this. Whereas its merchants might gain, it would make the EU as an institution much weaker. There would be a single market but the UK would have none of the obligations of other member states and UK traders could cut more favourable deals with third parties. The EU would get no financial contribution from the UK.

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Commercially, it would favour the UK, as the UK would be able to negotiate other trade agreements with third parties, for example, the USA, India, China and Russia. Recognition of existing standards concerning content of goods and services would continue. The problem here is not for the UK, but whether the EU would accept the deal as it would be too favourable to the UK. It would undermine the political and geo-political objectives of the European Union.

So we come to the third possibility. That is leaving the EU with no Withdrawal Agreementt. What is often referred to as a ‘No Deal’.

The threat of a ‘no deal’ Brexit is currently the major fear of Johnson’s opponents, not only in the Conservative party but also the overwhelming majority of Liberal Democrats and Labour Members of Parliament. This puts Boris Johnson in a very difficult position in Parliament. He lacks majority support. The opposition here is composed mainly of those who did not want to leave the European Union in the first place. A range of public notables from Tony Blair to John Major and leading figures in the European Union, the major Banks and the IMF regularly refer to a ‘no deal’ as nothing short of a catastrophe. Current Parliamentary tactics of those who wish to remain is to stop a Johnson government leaving with ‘no deal’.

The European Union Withdrawal Act (2018) will allow the UK to leave in the event of no further Agreement from the EU. This could only be prevented if Parliament passed a vote of no confidence in the government which would then lead to another election. In terms of political reality this is unlikely as for it to pass Conservative members would have to support the motion and many would consequently lose their seats. However, politics can sometimes be irrational and lead to the unexpected. For example, if Mr Gorbachev could dismantle the CPSU, so can members of the UK political elite dissolve the British Conservative Party.

But we have to assume that political rationality will remain in place, and if so, how detrimental would a ‘No Deal’ be to Johnson?

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First, there is no such thing as a ‘no deal’. The WTO regulations will provide a basis for trade. There are already in place agreements to facilitate a wide range of activities between the UK and the EU, from air travel, student exchanges, security issues, recognition of citizenship. These would undoubtedly be extended to the benefit of both sides following a UK exit. Such agreements might require a short extension of Article 50 to allow the paperwork to be concluded. We could expect some disruption over the first six months. Some British exports would be hard hit – such as the export of lamb to the EU, but the UK government, free of its very large contribution to the EU, could afford to subsidise UK sheep farmers.

Exit with no deal would have far fewer negative effects than the scale of the breakup of the USSR. Nor would it be anything like the disruption that has occurred between the Russian Federation and Ukraine after the latter’s Association Agreement with the European Union.

Secondly, the supposed longer term economic effects are unlikely to be detrimental. We have already successfully overcome previously predicted ‘catastrophes’ such as the UK leaving the European Exchange Rate Mechanism, not joining the Euro, and voting to leave the European Union. Official statements have been unduly negative about the UK’s prospects. There will certainly be some short-term loss of trade but it is unlikely in the opinion of many that UK’s exports will suffer unduly in the long run. The costs of UK goods will fall in real terms as the pound will depreciate against the Euro and will gain from trade with other markets (Commonwealth, China, Latin America, India). East Asia and Pacific countries have had an enormous rise in their share of the world economy and now their share of world GDP is almost double the size of EU’s (without the UK). The UK currently has a significant deficit in trade with the EU – very much greater than before it joined.

Assuming that a Britain leaves on 31 October with no further Withdrawal Agreement, Boris Johnson should keep his nerve and hold on. The short term will have drawbacks but will not be catastrophic. Most things will continue as at present. In the long term there will probably be economic and political benefits.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.