Leaving the EU: No-deal Alternatives

Virendra Sharma Excerpts

Wednesday 21st February 2018 Westminster Hall

[Several hon. Members rose—]

[Mr Virendra Sharma (in the Chair)]

Order. Before I call hon. Members to contribute, I note that there is a huge interest. Priority will be given to hon. Members who have already requested to speak in writing. The time limit will be four minutes, because I want to accommodate as many people as possible. I call Stephen Kinnock.

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[Stephen Kinnock]

Clearly, the figures are a forecast, which is more of an art than a science, but the fact is that leaving our largest market—where 43% of our exports go—will inevitably have a negative impact on growth. Whatever remedial measures businesses attempt to take, they will always be playing catch-up with the impact of that seismic event. It seems inevitable to me, therefore, that there will be a contraction in the economy.

At the end of last year, the head of HMRC told the Brexit Committee that preparing for Brexit is set to cost £1 billion over the next five years—and that is on the basis of our securing some kind of deal. That tells us that no deal is simply not an option, as the hon. Member for Eddisbury so eloquently set out. It also underscores the importance of the final part of the Brexit negotiations, in which the framework for the future relationship will be set out. If this House wishes to shape that, we must move quickly.

Today’s debate could not be more timely, because we are in a race against time. Later this month, the EU will publish the legal text of December’s joint progress report. In mid-March, the European Parliament plans to publish a resolution to be adopted ahead of the European Council meeting on the future relationship. That will be akin to the 3 October resolution, which made it clear that there would be no regulatory divergence across the Irish border, and that transition could

“only happen on the basis of the existing European Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures”.

That must sound familiar to hon. Members, and it means that we cannot dismiss it as just white noise. The October resolution was effectively the blueprint for the deals that have followed. That will also be the case for the resolution that will be passed in March about the negotiating guidelines for the future relationship.

When it comes to the future relationship, Michel Barnier has been clear: our options are a deal based on the Canada model or one based on the European economic area. Once that basic model has been agreed, there will be some scope during the transition period to add or subtract from it, but to all intents and purposes the choice will be made, and it will be binary—and it is coming very soon. That matters because the Canada model offers little on services, which make up 80% of the UK economy and almost 40% of our exports. As Mr Barnier has said, there is no place for services, because

“There is not a single trade agreement that is open to…services. It doesn’t exist.”

The Canada model also leaves us without a customs partnership, which is incompatible with the desire to have a frictionless border in Ireland.

Our conclusion must be clear: our preferred model—the only conceivable model, in fact—for the future relationship is one based on EEA-EFTA membership. EEA-EFTA offers the best possible terms of exit by providing the maximum possible access to the single market from outside the EU while allowing for differences that preserve our desire for greater control and self-determination. The EEA ends the principle of direct effect, so this House would have to pass all rules relating to the EEA internal market into law. It ends the jurisdiction of the European Court of Justice. Instead, we would move to the governance of the EFTA court, which frequently forges a path different from that of the ECJ, and which would have British judges on its bench if the UK were an EEA-EFTA member.

In EEA-EFTA, we could shape the rules of the single market, of which only 10% are relevant to the EEA. With the right of reservation, we would possess a veto over anything we considered inappropriate. That is not being a vassal state; that is not an empty vessel. The Norwegians have used their veto almost 20 times, most recently in rejecting the third postal directive, for which they suffered absolutely no repercussions.

Articles 112 and 113 of the EEA agreement allow for suspension—

[Mr Virendra Sharma (in the Chair)]

Order. I call Paul Masterton.

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[Suella Fernandes]

I must continue because I do not have much time, and EFTA has been a big issue in this debate. I will give way if I have time after my comments—I hope the hon. Gentleman will have patience with me.

Several hon. Members have raised EFTA membership today as the main alternative. Although we recognise the benefits of ensuring continuity in our relationships with the EFTA states, we have no plans to seek membership of the EFTA agreement for four key reasons.

First, EFTA is a trading bloc of four countries. Membership of EFTA does not in itself deliver any market access to the EU. Norway, Iceland and Liechtenstein effectively participate in the EU single market by virtue of the EEA agreement. That would not deliver more direct control over decisions affecting the UK, nor would it deliver control over migration, which is a key aspect of our leaving the EU.

Switzerland participates in some areas of the single market through a series of bilateral agreements with the EU, but many of those do not cover the areas in which the UK has interests. In any case, the Government have made clear on a number of occasions that we are not pursuing an off-the-shelf arrangement; we are not copying and pasting other agreements. We are seeking a particular bespoke agreement relevant to the UK’s economy. The model I have been discussing does not strike the right balance on democratic control and mutual market access that we want in our future partnership with the EU.

Secondly, our ambition as a global trading nation goes beyond the scope of EFTA’s existing free trade agreements with third countries. EFTA’s FTAs are not suited to the size and type of the economy in Britain. They are not with the larger economies of the world—countries and economies with whom we would wish to be pursuing new economic partnerships. They are not in the sectors where our economy has strengths, which are areas in which we would want to pursue new agreements. Leaving the EU offers the opportunity to negotiate our own free trade agreements and to be a positive and powerful force for free trade in the world.

It is also worth mentioning that membership of EFTA would not be the quick and easy solution that some here have argued. Even if EFTA members were to welcome us back into EFTA, we would not have immediate or automatic access to their 27 FTAs. Our entry into each one would need to be negotiated individually with the third countries involved.

Thirdly, membership of EFTA means accepting free movement between EFTA member countries, as the EFTA convention provides for free movement of EFTA nationals. Liechtenstein has been raised as a derogation, but it is not a comparable example. Liechtenstein is a country with a population that numbers less than that in almost every constituency in the UK, at 37,000. It is very difficult to see how the example of Liechtenstein can be applied to the UK, with its population of 65 million.

Finally, although we want to maintain our deep and historic relationships with the EFTA states, the UK is in many ways different from those countries. The EFTA states have a combined population of 14 million people, compared with our population of 65 million. The EFTA bloc’s combined GDP in 2015 was around £710 billion, in comparison with the UK’s £1.9 trillion. The UK’s participation in EFTA would fundamentally change the nature of that group.

[Mr Virendra Sharma (in the Chair)]

Minister, would you bring your remarks to a close?

[Suella Fernandes]

I note your comments, Mr Sharma. I thank my hon. Friend the Member for Eddisbury for raising this issue for debate today.