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Politics & Law Series: Expert Comment

Call My Bluff: When it comes to Brexit, there is no such thing as ‘No Deal’

Andrew Worthley, a Visiting Lecturer in the City Law School argues that in the extremely constricted circumstances in which the UK must leave the EU by March 2019, the threat of a walk away is really nothing more than a poor bluff.
by City Press Office (General enquiries)

By Andrew Worthley

On 29 March 2017, UK envoy Tim Barrow handed President Tusk a letter giving formal notice of Britain’s intention to exit the European Union. This ‘triggering’ of Article 50 of the Treaty on European Union started the 2-year countdown for Britain to negotiate its terms of exit. Or in popular parlance, to ‘strike a deal’ with Europe.

In recent days, Theresa May has chosen to repeat the mantra of the Conservative manifesto that ‘No deal is better than a bad deal’ when it comes to Brexit. This phrase has caused no little consternation among economic and political commentators, despite its apparent popularity with the public. The big question presented by this soundbite however, is whether the promise of ‘no deal’ is even possible.

Possible scenarios

The essential mechanics of Article 50 are found in sub-sections (2)-(3) as follows:

“(2) A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

(3) The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”

Given that the Council has now been informed of the United Kingdom’s intention to withdraw, come 28 March 2019 the nation will be confronted with these three possible scenarios:

  • The UK leaves the EU, a negotiated agreement having been concluded with the Council by a 'super' qualified majority (72% of participating states - excluding the UK) after obtaining the consent of the European Parliament; or
  • No agreement having been reached, the treaties will cease to apply to the UK but with no alternative framework for its future relationship with the EU, meaning the UK will have to trade with the EU under WTO rules alone; or
  • No agreement having been reached, the UK remains in the EU pursuant to all existing treaties, the Council having unanimously decided to extend the 2-year negotiating period with the consent of the UK.

Adopting the phraseology of ‘Deal or No Deal’ (sans Noel Edmonds’ mystery boxes) it remains unclear as to which of these 3 options can fairly be described as ‘no deal’. A negotiated agreement (per Option 1) can fairly be described as a ‘deal’, be that good, bad or ugly. It is unclear how comprehensive such a deal would be though. Article 50 is ambiguous as to whether all the arrangements for the withdrawing State’s future relationship with the EU will be included in the withdrawal ‘deal’, or require the negotiation of a separate parallel agreement.

Option 2 represents a deal of sorts, arguably just a catastrophically bad one. It still results in the UK withdrawing from the EU into WTO rules alone, but with literally no bespoke transitionary or replacement provisions in place regarding trade, travel or tariffs. 

Indeed, the International Trade Committee concluded in its recent parliamentary inquiry that, “It is quite clear that “no deal” is in effect a deal to trade with the EU under WTO rules.” Similarly, the politically unlikely Option 3 could be termed a ‘deal’ in the sense that it would allow the UK to remain in the EU pending the conclusion an extension to the negotiation timeframe.
Put colloquially then, if asked ‘What’s the deal?’, Option 2 would answer “we’re leaving the EU with no agreement in place” and Option 3 would answer “we’re staying in the EU for now until we hash out a better exit arrangement.”

So, to return to the original question, “is no deal even possible” the clear answer is “no”.  

One can only presume that the Conservative manifesto, as supported by May’s mechanical mantra, is misleadingly referring to Option 2 as representing no deal. Given that ‘Brexit means Brexit’ - surely the most redundant cliché of modern political times - it is extremely unlikely that May is endorsing the ‘no deal’ of Option 3 along with its protracted stay in the EU, when the domestic pressure will be to leave as soon as possible.
Lazy analysis

Therefore, with Option 2 so self-evidently representing a worse outcome than Option 1 because “under a ‘WTO rules’ scenario—trade between the UK and EU will fall between 17 and 29 per cent and GDP by between 2.6–3.1 per cent.” At 2016 prices, this would amount to a loss of between £48.6 billion and £58 billion, equivalent to between £741 and £884 per head of population”, why does the May government continue to insist on the opposite?

Newspeak aside, the answer lies in a fundamental misunderstanding of negotiation theory and tactics. Lazy analysis supports the notion that unless one party is willing to ‘walk away’ from a negotiation, they concede strength in the bargaining position. This is known as a ‘walk away’ strategy. However, such a tactic only works in specific and quite limited circumstances, for example in market trading where the alternatives to a negotiated outcome are plentiful and beneficial.

Buying a second-hand car on a fixed budget is a classic example of this; the walk away strategy is powerful because (a) there is always another car available, and (b) there is no need to buy the particular car being haggled over. The vendor is aware of this, and is therefore vulnerable to the threat of a walk away which could endanger any sale at all. However, in a situation of necessity where (a) the car for sale is the only one in the buyer’s vicinity and (b) the buyer needs a car instantly/within a short timeframe, the walk away is of no threat to the vendor.

Effectively, they have the buyer ‘over a barrel’.

The fundamental problem therefore with applying the crude tactic of a walk away to Brexit negotiations is that not only is there no other car for sale, but also that the car must be sold within 2 years. In these extremely constricted circumstances where the UK must leave the EU by March 2019, the threat of a walk away is really nothing more than a bluff and a poor one at that. Contrary to popular belief, bluffing in high stakes negotiations is a massively risky and ill-advised strategy that rarely pays dividends outside of a Hollywood movie. Once a bluff if correctly called, the negotiating party’s credibility is irrevocably damaged and their ability to subsequently take a hard line on other genuine bargaining points is dramatically hindered. When one party’s supposedly ‘final offer’, ‘bottom line’ or ‘non-negotiable’ has been successfully exposed by their opponent, it becomes impossible to represent a position of strength on any such point in the future.

Far from strengthening a case, it rather exposes its fundamental weakness.

Come 9 June 2017 therefore, whoever ends up leading the UK’s Brexit negotiation strategy would do well to remember this, and so ensure that this naïve game of Deal or No Deal doesn’t turn into an even more damaging £58 billion game of Call My Bluff.

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