An uncertain six months for Britain, Covid-19 and Brexit. Part 1

Jul 13, 2020

Over the next six months Britain may face greater uncertainty about the cohesion of its social and economic fabric than at any time since the threat of German invasion in late 1940.

Within these six months Britain will need to get a firm handle on its internal Covid-19 pandemic after a floundering start or the pandemic may get away. Within that period its future relationship with the EU and its global trading arrangements will have to be settled or those arrangements will be largely non-existent or chaotic for some time thereafter. Has the Boris Johnson Government got an orderly and well measured approach to this latter issue as of now? Are there any surface indications that might be suggestive of that?

One indication was the UK National Audit Office’s revelation that last March when the Covid-19 virus broke out there were 27,500 civil servants working on Brexit issues alone. Doing what exactly? Certainly there have since been substantial changes at top levels of the bureaucracy. Another indication was a decision to recruit an additional 50,000 customs officials to monitor traffic flows at national ports and airports, though what trade tariff schedules they would be trained to administer was and is still unknown. Other measures (e.g. stockpiling and alternate supply chains) have been put in place on an assumption that crashing out after the post-Brexit transitional period was not improbable.

A straw in the wind concerning fisheries (“without an agreement on fisheries there won’t be an agreement” – the EU) is a suggestion for an innovative zoning arrangement that might be reviewed annually having regard to varying fish stock numbers as well as traditional factors.

Meanwhile in these final months of negotiations the parties are keeping their cards close to their chest. We know what the issues are – a ‘level playing field’, agriculture, shared fisheries (as above), and future governance arrangements. The issue of ‘equivalence’ between regulatory standards for financial services has surfaced strongly recently. We cannot be sure as yet about their respective red lines and how many of these will have to be breached if there are to be compromises. The Irish border issues have become one for Boris Johnson to sort out directly with assistance hopefully from the new coalition government in the Irish Republic.

What is concerning is a certain insouciance and the absence of a deep appreciation by the British of the technical complexities they face in establishing legitimate and orderly institutional arrangements for their future trade within the global system – an issue of deep concern to their future trading partners, including Australia. UK business has been saying for some time that a no-deal would be catastrophic and that they have neither the time nor the resources to cope should it happen.

Labour’s new leader, Keir Starmer, believes Brexit per se is settled but questions the handling of its implementation.

As we have pointed out previously the easiest course would be to agree a Free Trade arrangement with the EU that satisfies WTO rules and standards which involved substantially all their trade (GATT Article 24). However such arrangements previously with Canada and other comparable counties took up to and sometimes over ten years to negotiate. But the WTO is pretty easy with ‘interim’ arrangements pending a formal conclusion. In this context there would be scope and opportunity to keep systems moving after January 1, 2021. [See Gary
Sampson’s accompanying article: Rocky Road as the UK and EU prepare to
navigate through the WTO

Otherwise chaos would seem unavoidable. And the consequences for that would lie partly at the feet of the still hard-core group of Brexiteers in the British Parliament whose leverage, in spite of Boris’ 80 seat majority in the House of Commons, is considerable. Their objective essentially is to regain British sovereignty (an oxymoron if ever there was one), and make their own laws without foreign interference, and live under them in a forever state of peace and quiet. Free trade without a trade schedule, including provision for certificates of origin, is one of their fantasies.

For the EU there is some indifference about the outcome of the negotiations though they would prefer a comprehensive but non-punitive agreement that would allow them to operate efficiently with the British in all spheres without too much fuss, with just one rider: that is, that the integrity of the single market ( i.e. the free movement of goods, capital, services and labour) is not compromised. The EU is showing more coherence and solidarity within itself than for some time as a consequence of recently agreed mutuality of debt obligations in conjunction with the EU’s pandemic recovery fund. The EU’s chief negotiator Michel Barnier has stated a willingness to compromise except on the four freedoms. Indeed this has been the EU’s position for some time.

The German Chancellor Angela Merkel recently pronounced that the nation state alone has no future while others have noted that the UK is less capable of going it alone now than at any time since the First World War. So much for Boris’ ‘Global Britain’. Consistent with that ambition is a report that the British have refused to discuss future cooperation on foreign policy, defence and security though those areas are not strictly matters for the trade agreement.

The next several months will see intensive face to face negotiations between delegations, mindful that they need to be concluded by the end of October at the latest if all necessary ratification processes are to be completed before December 31, 2020. It will be impossible this time for a cliff-face cave in. The parties will need to keep at the forefront of their minds the overriding terms of the Political Declaration which both accepted last October, along with the Withdrawal Agreement:

“Given the Union and the UK’s geographic proximity and economic interdependence , the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field … . In so doing , they should rely on appropriate and relevant Union and international standards, and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement”.

Given further that the world trading system is being sorely tested, and that world leadership at the top is totally lacking, it must be hoped that the UK/EU leaders will achieve an outcome that is positive for all and the world trading system in particular.

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