Committed Brexiters have arrived at the conclusion that the deal Prime Minister Theresa May has negotiated is not just bad; it’s worse than remaining in the European Union. That’s axiomatic. But what’s their plan? It’s not to cancel Brexit. And it’s not to hold a new public vote.

Their preference appears to be for what they call a “managed” no-deal Brexit. The pitch is that this isn’t the catastrophic crash-out business fears, but a brisk exit to World Trade Organization rules, with key risks mitigated through mini-agreements.

You can see the political appeal. Brexiters could claim the referendum result was being honored in spirit, not just in name. Britain could immediately start negotiating trade deals with other countries. There would be no lengthy transition and no “blind Brexit.”

If only. A managed no-deal introduces big problems that WTO membership can’t address, and EU crisis negotiations are unlikely to. It suffers from the very same flaw as May’s deal before parliament: being dependent on the EU’s goodwill.

It’s true that under the WTO’s most favored nation terms, British exports would be subjected to the same tariffs as the EU’s other trading partners. The auto and dairy industries would be subjected to higher EU tariffs, but most exports would face only low tariff rates.

That’s not much comfort, though, because the common tariff rate wouldn’t be the main barrier. The friction introduced by EU regulations, quotas and other non-tariff barriers would be the major economic drag.

Regulatory divergence will come at a price — and even if the UK managed to strike some trade deals with other countries, they would be unlikely to make up for lost business from the EU for a long time.

WTO rules have nothing to say about pilot certification or the licensing of truck drivers, or how data is transferred and held, notes the Institute for Government’s Alex Stojanovic. The suggestion that WTO rules could protect UK food and agriculture trade from EU regulatory barriers reads far too much into the regulations’ vague requirement for consultations.

That’s where the “managed” part of the no-deal plan comes in. The argument is that the EU would feel pressured by the chaos of such an exit to minimize the damage. The EU would be asked to extend Article 50’s two-year negotiation period, which ends March 29, so mitigation measures can be agreed. That’s a high-stakes game with an even more uncertain outcome than anything May has agreed to so far.

The EU isn’t reckless; it will allow derivatives trades, flights and some commercial traffic to proceed. But the European Commission has made clear in its no-deal planning notices that any contingency measures shouldn’t replicate the benefits of EU membership and mustn’t be allowed to extend beyond the end of 2019. More importantly, the EU has made clear that such measures would be unilateral, taken in its own interest, and could be revoked at any time.

Then there’s the Irish backstop. The EU has predicated any discussion of the future trade relationship on a legally binding assurance from the UK that the Irish border will be kept free from barriers of any kind. This is what Brexiters find unacceptable about May’s deal. It could lock the UK into the EU customs union. There has been much heated debate lately about whether customs checks would be required and where, but it’s clear that a managed no-deal wouldn’t address the border issue at all to the satisfaction of the EU.

Under a no-deal scenario, the UK will become a third country the day after it exits. How effectively the costs can be mitigated depends a great deal on the EU’s willingness to oblige. “Is that managed no-deal or panicked no-deal?” asks David Henig, director of the UK Trade Policy Project and a former government trade official. “We will very quickly have to go back to the EU to say, ‘Help.’”

Fabian Picardo, the first minister of Gibraltar, is even blunter. He likens No-Deal Brexiters to Thelma and Louise, characters from the 1991 film who end their lawbreaking road-trip adventure by driving over a cliff.

Parliament may not like the deal that Theresa May presented to them. But it’s hard to see how this alternative would get a warmer reception.


Therese Raphael
Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. -- Ed.

(Bloomberg)