Text of a speech David Davis MP gave to the Hanns Seidel Foundation in Munich:
Today, I want to speak about relationships. I want to consider the future of the United Kingdom and the European Union, of Britain and Germany, and of Britain and Bavaria. Before I do so, however, I believe it important to provide a proper context for our joint futures. Too often can we focus, myopically, on the immediate political environment. Too often we ignore threats – and opportunities – coming over the global horizon.
Today, the world faces challenges on many fronts; from threats to free trade, to financial stability, to security and to our borders in the form of mass, unchecked migration. All of these issues demand cooperation and joint action, so all of them create an important backdrop for our discussions about Brexit.
The global trading system is in crisis, and not just because of the White House’s protectionist instincts. The mercantilist approach of the Chinese is sending them headlong into a clash with the Trump presidency. Earlier this week, the White House slapped tariffs on $200 billion of Chinese exports. The Chinese have sworn to retaliate in kind. The ensuing trade war may very well spill over into the rest of the world. This is a serious threat to world economic growth.
Above and beyond that, there has been no significant global trade negotiation since the Uruguay Round of 1994.
In 1997, when we signed the Basic Telecoms Agreement, the outlook for further world trade liberalisation looked bright. Action by the WTO in the 1990s had resulted in major reductions for global tariffs.
Following the liberalisation of goods, the financial and energy sectors were theoretically next on the agenda. But, as the backlash against liberalisation and globalisation gathered steam in the 1990s, none of this was realised. There is an old saying; trade negotiations are like riding a bike – you have to keep moving forward or you’ll fall off. Our lack of impetus has shown the weakness in the global trade system. Measures of global industrial output stalled before the financial crisis, and have never recovered. Growth of trade also stalled in 2015, and trade as a percentage of global GDP has dipped.
It is partly due to this that the warning lights are now flashing.
The WTO Director General Roberto Azevedo has noted that we are not only going in the wrong direction, but doing so with increased rapidity. The American administration has made its own challenge to the global order, threatening to withdraw from the WTO’s dispute settlement mechanism – the cornerstone of the international trading system. The lack of faith in our global system allows more and more pernicious activities to develop – like weeds, proliferating in a garden where the gardener has abandoned his post.
This has led economists, such as Christine Lagarde – the Director General of the IMF – to call this a new norm in an attempt to justify weak growth in developed markets.
I do not agree.
We still have the ability to determine our own futures.
In particular, this means an opportunity for the UK. The reemergence of a G7 country on the trade policy stage cannot be understated. It means the UK can act as a champion of free trade. It means one of the largest service export heavyweights can start to help reverse these damaging trends. This means preserving our traditional free market orientation.
But the issue of stalling free trade measures has been compounded by a shifting regulatory system.
And it’s shifting in the wrong direction.
There has been a marked increase in the amount of global regulatory barriers and distortions since the 2008 Financial Crisis. This has inevitably inhibited wealth creation, in turn stagnating economic growth and living standards. In this environment, the world needs a defender of free trade. The United Kingdom must be that defender. We must advocate pro-competitive regulatory policies, reversing the tide of anticompetitive regulation that is sweeping the globe. This is not a call for widespread deregulation.
Let us not be mistaken: a drive for high quality global regulation is entirely consistent with a commitment to free trade and fair competition. As I said in my speech earlier this year in Vienna, we are committed to a race to the top, not to the bottom.
For example, the EU and South Korea use global UN standards on cars. There is no reason that the UK and EU could not come to a similar arrangement – mutually recognising each other’s regulations based on these global standards. This would mean Bavaria could sell its cars to the UK consumers, free of friction at the borders. This is only one example of how mutual recognition and high quality regulation could work.
Today’s threat, though, does not come from the liberalisation of trade, but rather the building of trade barriers around the world.
Compounding this threat are recurrent fears about the world’s financial stability. On average financial crashes only surface every 28 years, but sometimes they can arise more frequently. While the banking sector across the globe is capitalised better than in 2008, there are still major risks. A decade of cheap money has led to risky economic activity. Corporate debt has skyrocketed, and emerging markets look fragile.
Martin Feldstein, the president of the US National Bureau of Economic Research, and once chairman of the White House council of economic advisers, speaking at lake como this week, fears an imminent slump. He believes that it will strike the Eurozone harder than others. His stated fear is that, this time, we will not have the means to deal with any looming crisis in the way that we once did.
I, for one, am not so pessimistic, but I do believe that we have to take joint action to prevent these crises from happening.
Putting economics aside, there are several other threats that we have to act on.
Russia continues to act as if straight from the pages of a Cold War spy novel. Putin relishes in antagonism, be it on the borders of Ukraine, the recesses of cyberspace or on the streets of Salisbury.
War, poverty and social disorder continue to afflict the Middle East and North Africa. These are inextricably linked to the terrorist threat and migration crisis that troubles most of Europe.
In these areas, Britain takes its duties as a global citizen seriously indeed. The UK has taken a more active interventionist stance than most to attempt to improve the situation in these regions.
It is easy to talk about being a good global citizen. Let us put it in figures; if the United Kingdom only spent the European average on defence, international development and overseas diplomatic activity, it would spend £24 billion less than it currently does. Let me say that again: We spend £24 billion more than the EU average on collective security. More than double our contribution to the EU budget.
So it is in everybody’s interest that, post-Brexit, the United Kingdom and the EU stay as close allies and friends.
Which brings me to something that I want to challenge directly.
In the aftermath of our referendum vote, it was understandable that many of our continental friends were dismayed or even angry. However, this irritation with our decision has transformed into an entrenched view that “the United Kingdom cannot be seen to succeed”. Senior politicians here in Germany have said exactly that.
It seems to me that this is the attitude not of an ally, or of a friend, but of an antagonist.
This argument is supported by the doubtful logic that if Britain succeeds then others will be tempted to follow. I say “doubtful logic”, because it is extraordinary for an organisation like the European Union, with all of its successes and triumphs, to believe that the only way it can keep members in the EU is by punishing those that choose to leave. This, to me, seems to show a profound lack of confidence in the project.
But this attitude is wrong for another reason.
There is a fundamental difference between the United Kingdom and many of the other European member states. Joining the European Union came, for some, after a period of dictatorship or defeat. Spain joined after Franco. Greece joined after the Colonels. Most of central and Eastern Europe joined after escaping from the Soviet yoke. For all of them, membership of the European Union was more than simply signing up to a treaty.
It symbolised freedom, democracy, the rule of law, openness and modernity. When the United Kingdom joined it had been lucky enough to enjoy most of these characteristics for a century and a half. For us this was much more of an economic transaction than a political deal. It was an agreement to cooperate in trade rather than a state seeking a safe haven from the ravages of authoritarianism. Therefore, what we do is unlikely to provide a temptation to any other member state.
If you want proof of that, look at public attitudes in countries such as Greece. They have suffered terribly as a result of their government’s mismanagement of their economy and their ill-judged membership of the Eurozone.
Yet they do not want to leave the union, and I would argue never will.
So, rather than trying to penalise the United Kingdom, I would say – to those politicians who fear the contagion of our departure – to think more of the importance of our ongoing relationship as a good friend and ally, and treat us accordingly.
That, I will argue, is in all our interests.
Let us not forget that free trade benefits both sides. It is not something that one side should have to pay the other side for. By the same measure, when either side takes a protectionist measure – which is what either a punishment agenda, or a No Deal would be – it hurts both sides.
Here we are in Bavaria – home to 200,000 jobs in the automotive industry. Bavaria is one of our biggest trading partners, so many of these jobs rely on free and frictionless trade with the UK.
The Institute for Economic Affairs in the UK has estimated that up to a third of German car exports to the UK would be lost in a No Deal scenario. That amounts to almost 30,000 German job losses; 30,000 real people losing their pay packets; 30,000 real families worrying about the future.
German dairy exports would drop by two-thirds; French drinks exports would suffer; Belgian and Dutch cross-channel trade would suffer; and Irish beef and dairy exports to the UK would be badly damaged. I am hugely critical of precise economic forecasts, but what this shows is that the No Deal option would do real harm to many of our friends in Europe.
Nobody wants any of this to happen. But if we are not careful it could happen by accident.
That is why German businesses should be lobbying the German Government to seek a productive outcome for the whole continent.
Naturally, in the event that the UK and EU do not reach a deal, then we would leave on WTO terms. I’ve never pretended this is a walk in the park. I’m sure there would be a bumpy period. Nevertheless, it will allow us to be truly independent. We will be able to influence the WTO directly, agree our own comprehensive trade agreements around the world, and lead by example as a truly Global Britain.
It is true that the UK economy would also be disrupted. But our strong services sector, our floating Pound and a completely unfettered government would see us through. We would set our sights beyond Europe and open our market to products from around the world. The value of that agility and flexibility ought not to be underestimated.
But it is certainly not the best outcome, and categorically not what we should seek. I want a future in which we are friends, allies and good trading partners.
It is no coincidence that this continent of ours has demonstrated a great capacity for constant renewal. This is possible because of the values we share.
Freedom; tolerance; the rule of law; and, above all, a drive for innovation. For it is innovation that is the powerhouse of economic growth. It is the greatest engine we have in the fight to improve our lives and the next generation’s.
It is the young, innovative, disruptive companies that have brought us driverless cars, artificial intelligence and cleaner energy. Exciting new technologies will continue to transform the world and improve human welfare.
The UK and Germany have a shared interest in promoting these endeavours. That is why it is so crucial that the UK leaves the EU on the best possible terms. We don’t want trade conflict or unnecessary grandstanding. We don’t want public spats or the souring of relations. Obstructionism and recalcitrance, on either side, benefits nobody.
What is in both our interests is an innovative new partnership. One that promotes competition, new ideas and exciting opportunities.
Our different systems are perfectly capable of existing side by side in friendly competition.
We need a new economic ecosystem that nurtures the innovative and the enterprising; we need to aid the young companies stepping up to becoming the new Googles and Amazons of this world.
That is the deal we both need. For it is in the interests of Germany and Europe that Britain becomes the best Britain that it can be.
In some areas, Britain will be a world leader – we are already ahead of the pack in artificial intelligence, life sciences and genetics. But being a leading innovator in these areas brings with it a responsibility to lead in the design and implementation of relevant regulations. British involvement in these areas, as a world leader, would help to ensure any regulations are as high a quality as is possible. It would bring about safety and social value, with the minimum amount of burden to industry.
Whilst we desire the freedom to diverge, that does not reflect an intention to deregulate recklessly or irresponsibly. We do not seek a wild west of deregulation. We seek to produce radical innovation; we seek to foster tomorrow’s competitors to Google and Facebook that we should be generating. As I said in Vienna six months ago, the future is in high quality products governed by intelligent regulation. And for that reason, for new industries we must be our own rule makers, not rule takers.
Now let us turn to what the Government has put on the table.
We have been told that the Chequers proposal fulfills what the British people voted for. Well, I am afraid I simply do not buy that.
52% of British voters oppose the proposals. Only 18% approve. It is quite remarkable for a government policy to be that unpopular.
And, for me, the Chequers plan was always a non-starter.
The Government is proposing a “Common Rulebook” for goods. It is “common” only in the sense that the EU would make the rules and the UK would obey them. For a nation that is seeking its independence and endeavouring to chart its own path in the world – how can this possibly be acceptable? For the fifth largest economy in the world, leading the way on innovation, we cannot be governed by a body that we have no control over. It should not even be contemplated. We should be discussing these regulations as friends and collaborators, by all means. But we cannot simply accept them as subordinate rule takers.
No self-respecting democracy could.
The second pillar of Chequers is the “Facilitated Customs Arrangement”. Essentially, this means that the UK would collect tariffs on goods destined for the EU – and vice versa. It is just as clunky and impractical as it sounds.
At Lancaster House and Mansion House, the Prime Minister promised to return control over our law, our money and our borders. These promises were in our Manifesto too. But the Chequers plan crosses all of those red lines.
Moreover, it seems to me the EU is unlikely to accept it. Believe me, as somebody who has been so close to these negotiations I have lived and breathed many of the issues involved. As Germans know as well as anybody, the four freedoms of the single market are sacrosanct and indivisible.
Last night in Salzburg the Prime Minister made it plain that there will be no extension of Article 50 and no extension of the negotiations and no delay on our departure. The next few months will be the moment of decision.
The EU will demand more concessions. EU Council President Donald Tusk yesterday said that further negotiation was necessary beyond Chequers. Concessions on free movement, financial contributions and ECJ jurisdiction. The final deal is likely to look an awful lot like membership.
There is widespread opposition to Chequers as it stands let alone further concessions. It goes beyond the Prime Minister’s red lines, and it is seen as unworkable by the EU. But most importantly, the British people will not accept it.
But if a deal like this is accepted by both sides, resentment among the British people would swiftly return, distrust in politicians would deepen and it would feed the electoral fortunes of European populist parties. Chequers, then, is in no one’s interests.
The EU is often correctly described as having a democratic deficit. But Chequers is devoid of democracy altogether.
A bad deal really is worse than no deal.
So what do we seek?
Well, it’s straightforward – it is exactly what Donald Tusk has already offered us.
I believe that Britain must seek an advanced free trade agreement of equal partners, based on maximal mutual recognition. This would allow each party to diverge as it wishes, and to recognise the other’s standards and regulations. There is only one supposed stumbling block – the Irish border.
This, however, is a false argument. There is already a tax, currency and judicial border between Northern Ireland and the Republic of Ireland. It is today operated in such a way that it is invisible on the ground and that will continue.
It will be necessary to make particular arrangements at the Northern Ireland ports to control goods from the Rest of the World from entering the EU undetected. We already have special arrangements relating to the regulatory control of issues like the Single Electricity market and agri business and in a free trade arrangement there will be no tariffs. So it is perfectly possible to maintain this invisible border by using and developing existing administrative procedures. We can do this with existing technology although up until recently the European Commission dismissed this as “magical thinking” – that has now changed.
Not only does the technology already exist, it has been reported this week that the EU would like to deploy it between Northern Ireland and Great Britain. In essence, Michel Barnier is proposing checks away from the border. This is exactly what we proposed to deal with the North-South border. It is great to see that the EU is engaging with innovative solutions. But the question surely arises – if technology can be used east to west – why not north to south?
The border issue is eminently solvable if the political will is there. I do question, therefore, why it has become so intractable. It seems to me this issue has become the proxy for the negotiations as a whole. Why? Perhaps as a way to keep us tied to the single market and the customs union; perhaps to punish us for leaving; or perhaps it has more to do with internal Irish politics.
In any case, the heads of both the British and Irish customs authorities have told us that a hard border is not necessary. Jean-Claude Juncker, Leo Varadkar and Theresa May have all said that they would never enforce one.
There will be no hard border between the Republic of Ireland and Northern Ireland. It’s that simple.
There are some who say that they fear the UK becoming an aggressive free trade economy on the edge of Europe. My former counterpart Michel Barnier asserted: “How can we allow UK companies to have a significant competitive edge against EU companies?” My message here is also simple: it is not to fear, but instead embrace the opportunity that it will create for German workers, families and businesses large and small.
The idea that the United Kingdom is an aggressively deregulatory country just waiting to scrap rules and regulations is a false mythology. Just look at our record.
On safety at work, our industrial workers are the safest in Europe. The fatality incidence rate, as it is delicately known, is the lowest in Europe. More widely, Britain was one of the first Member States to introduce the right to flexible working hours for parents and carers in 2003. In financial services we go well beyond the minimum European standards by ring-fencing retail banking from more risky investment activity, and we’ve taken the lead in pushing for higher capital ratio requirements. We’ve spearheaded a change in culture in the banking and insurance industries, with new regimes to address mismanagement. There’s nothing in European legislation which goes as far.
We have led the way in implementing measures to reduce multinational tax avoidance, and are one of only three European Union countries to operate a tax disclosure regime. We pushed for — and have always defended — a rigorous state aid system with robust enforcement mechanisms within the European Union. The United Kingdom was the first country in the world to set legally binding targets to reduce our greenhouse gas emissions. That saw us reduce our emissions by 40% since 1990 — faster than any G7 country or European country. And after Brexit, plans are in the pipeline for a new, independent body that would continue to uphold environmental standards.
We will continue our track record of meeting high standards, after we leave the European Union.
We are not seeking to undermine, undercut or subvert the EU. We are seeking to cooperate and compete in a global rules-based system. It is this friendly spirit of competition that has driven innovation and fuelled the living standards of our peoples for decades.
In the long run, the friendly economic competition between neighbours is massively beneficial; beneficial for the German companies whose supply chains will be provided with improved components from British factories; beneficial for the consumers of tomorrow, who will enjoy the fruits of a more competitive global economy; and beneficial for the students and entrepreneurs of all Europe.
I am convinced the best answer for the EU and for the UK is the deal I have described: an advanced Free Trade Agreement with mutual recognition.
The EU has already demonstrated its capacity and willingness to do such deals. The Canada deal was the EU’s most ambitious and extensive trade deal. It is an agreement between two sovereign entities – zero tariffs, but no free movement. Yet no one has described this as ‘cherry-picking’. Rather, it is a sensible, forward-looking deal between equal partners.
We also seek a tariff-free, quota-free deal. But we can do even better. We are starting from a position of absolute alignment across our whole economies. We can include deeper, more complex and more technical areas, including financial services.
I believe Donald Tusk and Michel Barnier have both more than hinted that such a deal is achievable. We need to be bold enough to seize this historic opportunity.
This is why many of us will shortly be presenting an alternative plan which will outline a more ambitious vision.
We would take back control of our laws, our borders and our money, but seek a true free trade partnership with a friend and ally.
And we will pursue many new avenues for European cooperation between the EU and a truly independent Britain. After all – we will still be part of Europe.
I’m confident that with political will and purpose, such a deal can be achieved.
All we are asking for is a deal similar to those agreed with Canada, South Korea and Japan. As Europe’s largest trading partner, and its strongest and most active ally, this is surely not unreasonable.
We are standing on the brink of history and future generations will judge the decisions we make in the coming months. My hope is that all sides will reach out and grasp the historic opportunity for a groundbreaking free trade deal; a deal that delivers security, higher living standards and a secure future to our great nations. And a deal that allows us to cooperate, while forging our own separate paths in the world.
So be in no doubt – if we get this right – the best days of our friendship lie ahead.