The Deceit at the Heart of Chequers

- Wednesday, 3rd October 2018

 

Brexit Central

This article was written for Brexit Central.

 

Imagine a drug company claiming the clinical test of its new drug showed that "only 4% of participants experienced any side-effects". Yet in fact,  of those who actually took the drug, four times that proportion – 16% – suffered side effects. Worse still, of those who took the drug and had the condition the drug was designed to treat, over 40% suffered side effects. The company fabricated the 4% figure by dividing the number experiencing side effects, not just by those who took the drug (including those who did not need it), but also those who took the harmless placebo and, for good measure, a sample who took neither. There would be outrage. The company's boss would probably go to jail.

 

An identical statistical trick was used to sell the Chequers plan to the Cabinet. The Cabinet were told that Olly Robbins' 'cunning plan' for a Facilitated Customs Arrangement would only cause a bureaucratic hassle for 4% of our goods trade – giving the impression that it would not be an obstacle to free trade deals. In fact, it would embroil 16% of our imports from outside the EU and over 40% of goods which would benefit from tariff reductions in free trade deals. So it would make new trade deals virtually impossible.

 

The back history is as follows: Chequers replaced a previous 'cunning plan' that had been rejected by a Cabinet committee. That plan involved levying EU tariffs on 100% of imports entering the UK from outside the EU: importers could then claim a rebate if the UK tariff was lower than the EU's – but only if they tracked every item to prove it remained in the UK. Ministers decided that was excessively bureaucratic and would make free trade deals impossible. No country would remove their tariffs on our goods if we still levied EU tariffs on theirs and required this complex process to get the tariff repaid.

 

The Chequers plan was presented as largely eliminating this problem. It claimed that only 4% "of UK goods trade would be… likely to use the repayment mechanism". That sounded tolerable. Maybe potential free trade partners would accept just 4% of their exports having to reclaim the EU tariff. But in fact at least 16% of their exports to us would face this mechanism.

 

How did the Treasury reduce 16% to 4%? They used much the same deceit as the imaginary drug company. The trickery lay in their phrase "UK goods trade". It emerged that this does not refer just to goods imports from outside the EU, which is what everyone assumed since the scheme only applies to them. Instead, to reduce the quoted figure, the Treasury lumped in UK imports from the EU even though they are outside the scheme. Even more dishonestly, they threw in UK exports to Europe and the world.   

 

A more honest statement would have been "at least 16% of UK goods imports from outside the EU… would be likely to use the repayment mechanism". But then ministers would have asked whether that would scupper trade deals.

 

Moreover, even 16% is a huge understatement for two reasons. First, as a Treasury memo acknowledges, where the EU already has a zero tariff, no tariff differential could arise between the UK and the EU when the UK unilaterally cuts tariffs or does free trade deals with other countries. Of our imports of goods where a tariff differential could occur, the Treasury assumes that the repayment mechanism will come into play only on intermediate and unfinished goods – e.g. components which might be incorporated in cars or other finished goods likely to be exported to the EU. But these constitute over 40% of our imports of goods where UK tariffs could diverge from those of the EU.   

 

Second, as the UK Trade Observatory points out: "The Chequers White Paper assumes away all problems with ensuring that finished goods paying (lower) UK tariffs do not leak to the continent. This is clearly reasonable for some, but we cannot see it applying automatically to all." For example, suppose Britain negotiates free trade with Australia and New Zealand, eliminating the UK tariff on their wine while the EU retains its protective tariff on wine. The EU would insist that we levy their tariff on such goods to prevent Australasian wine entering their market tariff-free across the Channel where, Chequers assumes, there will be no customs checks. So, many finished goods would be subject to the repayment mechanism too. In short, rather than "4% of British trade" being subject to this bureaucratic nightmare it would almost certainly affect over half of all imports of goods where our tariffs diverge from the EU. So Chequers is incompatible with trade deals post Brexit.

 

Trickery of this kind is alien to our civil service culture. Treasury officials clearly felt uneasy about it since they readily spilled the beans to the excellent Timesjournalist – Oliver Wright – who deserves credit for eliciting the truth. Unfortunately, the pro-Remain Times did not give the story the prominence it deserved. And other media ignored it for similar reasons or because it was someone else's scoop.

 

Whoever was ultimately responsible for this statistical duplicity – senior officials or ministers if they knew about it – heads should roll. We cannot tolerate major policy decisions being based on grotesquely misleading figures.

 

But what did the authors of this deceit hope to achieve? The pretence that only 4% of 'trade' would be subject to the repayment mechanism duped ministers and most of the media. But it would never have escaped EU scrutiny. Maybe those behind this deception thought it would work for long enough to persuade the Cabinet to swallow the really contentious part of Chequers – the 'common rule book'. Then when the EU rejected the 'Facilitated Customs Arrangement' as unworkable, officials would suggest remaining in the customs union for the time being – knowing that 'nothing lasts like the provisional'. I can think of no other explanation.

 

If this was the plan, Theresa May – to her credit – was clearly not in on it. She scuppered the prospect of further concessions with the result that the EU rejected Chequers ahead of schedule. Now we can focus on an honest conventional free trade deal.

 

 

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