Brexit: Deal or No Deal (European Union Committee Report)

Lord Kerr of Kinlochard Excerpts

Tuesday 16th January 2018 Lords Chamber

[Lord Kerr of Kinlochard (CB)]

I think it is a very good report, and it is clear that the noble Lord, Lord Whitty, would make a superb FCO Permanent Secretary. Since the report came out, the story has moved on a little. It is now clear that no deal would be even more damaging than the report suggests, but it is also clear that the risk of no deal is now rather lower than it suggests. I mean because of the Prime Minister’s agreement in December, approved by the European Council in December. On citizens’ rights there are still a few “t”s to cross and “i”s to dot, but it seems wildly unlikely that a file which should never have been brought into the negotiation at all will now not be successfully closed, whatever else happens in the negotiations. As the report states, it is really time that the Government stopped saying that:

“Nothing is agreed until everything is agreed”.


It is clear that, on citizens’ rights, we have the outlines of an agreement.

We have more than that on money. The Prime Minister and Presidents Tusk and Juncker have shaken hands on a finance deal. However much some in London may try to present the deal as the price of future market access, that is not how it was computed. With a little more to come on pensions and if guarantees are called, there is now a mutually agreed computation of the costs to which we were already committed, and to which we are now doubly committed.

I have to tell the noble Lord, Lord Hamilton, that I see no chance that any UK Government would disown the deal and refuse to pay—no chance whatsoever. If we did, there would be serious bond market and credit-rating consequences: ask Argentina, ask Venezuela. There would be legal consequences, and I cannot see how we could win in court or before any arbiter. There would be trade consequences for UK enterprise, because it could hardly expect open market access to the EU if the UK was in default of a financial obligation to the EU. There would be wider trader consequences: in the WTO, we need unanimous approval of our revised tariff schedules and quotas, and I am not sure that the EU would be totally co-operative in that exercise. In short, default would be a disaster. A deal is a deal, and a deal done at prime-ministerial level is a doubly done deal.

At least two files in the negotiation are now in practice closed. Of course, on money, rash suggestions in London that the finance deal was not legally binding but merely “a direction of travel” have led the 27 to insist that the first bit of business this term is to turn the deal into a legally binding text, but it was politically and morally binding the moment the Prime Minister shook hands on it and the European Council approved it. I had thought there was a risk of no deal precisely because I worried that the Prime Minister might listen to her Foreign Secretary and decide that, on money, the right course was to tell the 27 to “go whistle” for it. They would undoubtedly then have refused to move on to discuss anything else and there would have been a very high chance of no deal, but that has gone.

As for what happens now, I think a standstill agreement will be quite easily reached, and quite soon. It will not be an implementation agreement because there is nothing to implement; it will not be a transition agreement because there is nothing to transit to. The eventual deal, if we leave, will be reached only after we have left. The sequence on standstill would be very similar to the one which played out last year on money. The Commission will produce a draft mandate—actually, it already has it in the 29 April text of last year. The 27 member states will toughen it up a bit, as they did on the money. According to today’s Financial Times, that process has already started. We will huff and puff but, in the end, we will basically come to heel. The 27 will tell us that, provided it is for a limited period, a transition agreement—a standstill agreement—can be written on an Article 50 legal base, but the key will be that it should be a very short deal, so it is a part of the withdrawal process rather than a continuing new relationship between a third country and the EU. That is probably the answer to the legal conundrum that the report raised and the noble Lord, Lord Whitty, highlighted. They will say, “Of course you can, if you want to, for a limited period after you’ve left, retain precisely the full market access you now have, provided that you apply the whole acquis, respect ECJ jurisdiction in full and respect the four freedoms, all four of them—and all that despite your having no votes, no MEPs, no judges and no Commissioner. But if that’s what you want, you can have it for a strictly limited period—and it has to be limited, because the lawyers will insist”.

We will huff and puff. Mr Johnson will say, “Ah, but there are no new EU regulations or laws”. Mr Gove will say, “Ah, but no CFP”. Mr Fox will say that he wants to be free to undercut the common commercial policy—but the other side will say that we cannot cherry pick. We will come to heel in the end, probably quite quickly, because it is very important to avoid the cliff edge next year. We will not avoid it, but we will postpone it while the debate moves on to whether we may cherry pick in respect of the future pound arrangement, and Mr Barnier will offer us Canadian terms. At least we will not be able for much longer to talk bafflingly about a bespoke arrangement without explaining what it is or saying what we want.

As it becomes clear in the end that we cannot have our cake and eat it, maybe we will stop and think about whether it all makes sense—whether a standstill period when we have to take all EU rules but have no say in making them, and an eventual partnership arrangement where our principal export services are systematically disadvantaged, is really what we want. I do not think that the question is now “deal or no deal”. That question has been overtaken. On money there is a deal, and this country does not break its word. The question now is whether any future deal can be a good deal, a deal as good as the one that we now have as a full member of the world’s largest single market and free trade area. If it were to emerge that the answer is no, at least we can remember that an Article 50 notification can always be withdrawn.