Legislating Murphy’s Law into Brexit

Brexit is roiling markets. The pound dumped, jumped and dumped again as ministers resigned.

Is a soft Brexit more likely than ever? Is a hard Brexit on the cards now? Which of the two is good for Britain and bad for the EU? Or is it bad for both? Or good for both?

Today, we focus on a very particular detail of Brexit. You might call it time. And not the sort of time that heals all wounds. But the sort of time that brings Murphy’s Law into play.

The trouble with time is that it happens to all of us. You might make an international treaty declaring this not to be the case, but it’s unlikely to work. At least not in the way you’d hoped.

Which is what makes one particular aspect of May’s Chequers proposal just extraordinary. According to the proposed plan, Britain would continue to accept EU rules on goods for the sake of trade harmonisation, but those rules would be subject to UK parliamentary approval.

Huh? We agree to pass a law, subject to parliamentary approval? I don’t get it.

The Financial Times explained it like this: “The British parliament could veto changes to the [EU] rule book if it accepts the “consequences for market access”.”

Still doesn’t make sense. Are we agreeing to accept the EU laws or not?

Theresa May explained it like this in her response to David Davis’ resignation:

“The direct effect of EU law will end when we leave the EU. Where the UK chooses to apply a common rulebook, each rule will have to be agreed by Parliament.”

We agree a common rulebook, subject to disagreeing.

This is complete nonsense. It makes absolutely no sense, whatsoever. Not in terms of policy or outcome. It’s just a simple contradiction – a paradoxical law.

We’re back to the first months of Brexit negotiations, where the debate was all about whether we could agree to agree on something, even if we didn’t agree on the agreement.

Yes, part of the problem here is the nature of politics. But you can’t just legislate away a complete contradiction.

How can Britain agree to be bound by EU law, subject to approval by British Parliament? It’s a completely meaningless position – a “definitely maybe”. Or as a friend used to say, there’s “a definite possibility of a firm maybe” the UK will abide by EU rules. That is, pass them into British law, in their precise form.

Should Britain disagree with the EU about how bendy a banana is too bendy to retail, you’d have a major international crisis. May explained it to Davis:

“Choosing not to sign up to certain rules would lead to consequences for market access, security co-operation or the frictionless border, but that decision will rest with our sovereign Parliament, which will have a lock on whether to incorporate those rules into the UK legal order.”

It’s no wonder Davis called this Brexit “illusory rather than real” according to the FT.

He’s perfectly right.

But why on earth does nobody see the opportunity here? May has offered hard Brexiteers the opportunity of a lifetime, and they’ve resigned!? If they’d stuck with May, it would only have been a matter of time before they got a proper Brexit.

Theresa May has proposed Murphy’s Law govern Britain’s trade relationship with the EU. It’d only be a matter of time before something goes wrong and the UK Parliament says “no”. Then we’d have a real Brexit. And a better one.

Brexit by policy instead of protest

Let me take you into the future. Well, thanks to the resignation of Johnson and Davis, it may no longer be our future. Not to mention the extremely unlikely possibility the EU will actually accept May’s proposal.

But imagine May’s plan somehow managed to become a reality…

Next year, after the 2019 EU elections, the EU makes a stupid rule relating to goods. Let’s say it bans chocolate over racism concerns.

The EU law heads over to the UK Parliament for its rubber stamp approval as per the Brexit Treaty. What do you think will happen?

May’s position is obvious. “We cannot veto this rule, because doing so would put us in violation of the entire EU agreement. It’d be a default on an international treaty. We’d no longer be trusted. And our trade deal with the EU would evaporate, putting all trade at risk. Not to mention our security. And the children. Think of the children. We must ban chocolate. It is, after all, just chocolate.”

Do you see how May thinks she has laid a trap? On a case by case basis, nobody would be willing to risk all trade with the EU. Over time, the EU would get its way with British law. We’d be a colony, as Boris Johnson warned.

But just consider how beautifully perfect this scenario is for the likes of Johnson and Davis. They could hardly dream of a better way to stage a proper Brexit.

Here’s what they’d say: “Having demonstrated Britain’s goodwill with the Brexit Treaty, the EU nonetheless continued on its wacky ways. It’s time to say no. The prospect of no chocolate is going too far. This time, we’re doing Brexit for real. And this time, there will be no negotiation with the EU, no process, no payments, no transition and no referendum. There will simply be a ‘no’ vote in the UK Parliament – something as old as Parliament itself. It is, after all, chocolate.”

A vote against rubber stamping the EU’s rules would also trigger the collapse of the government at a time when the new leader wouldn’t be stuck in the same awful position May is in now. The new leader wouldn’t have to negotiate a deal that is inherently doomed to only be popular with a tiny segment of Brexit voters (because everyone envisions Brexit differently).

Instead, they’d have a blank slate in Britain’s relationship with the EU. Suddenly, a quick and good trade deal, which is in both trade bloc’s best interests, is exposed as being in both trade bloc’s best interests. People and companies in the EU and UK would demand it.

The new leader would deliver Brexit against the EU as a policy disagreement, not as a protest vote. The population could actually back Brexit. Unlike May, the new leader could survive an election and deliver Brexit too.

My resignation approaches

The day of my new career path draws near. I’ve given you plenty of notice in the past. Even requested your help to find a suitable boat.

On 1 November, upon my arrival in the UK, I’m going to found the Dunkirk Buyers Club. In other words, I’m going to become a smuggler. Here’s why.

Another wacky aspect of May’s Chequers plan is to implement a trade war purgatory. The Independent explains how it works:

The idea is to allow Britain to implement its own trade policy, but still collect the EU’s tariffs. They call it the facilitated customs arrangement.

If those goods stayed in the UK, and the UK had agreed a trade deal to lower the tariff on that item, then traders would be able to claim refunds from HMRC on the difference between the EU and UK tariff.”

Because the EU wants its own trade policies to apply, and the UK wants its own trade policies to apply, May has decided it’s a good idea to have both…

This is a classic case of “worst of both worlds”. A uniquely political “solution”. A game theory scenario that explains the sub-optimal nature of a Nash Equilibrium beautifully. The FT writes that an EU official called it “the fudge of the century”.

Any Brexiters who wanted to leave the EU because of EU red tape must be absolutely flummoxed.

But just as the Chequers plan provides Brexiters with an excellent opportunity to implement a very British Brexit, this facilitated customs arrangement presents British boaties with an opportunity to profit.

The EU is deeply worried about the smuggling to come. The Irish Times reported on an analysis of how divergent trade and tax policies would finance dissident republican groups:

“It is the golden law of smuggling,” said Prof Neumann. “If you have two jurisdictions and you have a desirable product that is hard to get hold of on one side of the Border and easier to get hold of on the other side of the Border, somebody will turn up and turn that into a profit.”

My Irish-born sister’s godmother still has my suitcase in her attic in Limerick, the former republican stronghold of Ireland. It’s a humble beginning, but the Dunkirk Buyers Club will be in business soon.

Until next time,

Nick Hubble
Capital & Conflict

Category: Brexit

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