Pearls and Irritations

What explains Boris Johnson’s election and what does it mean for Brexit? Pure fatigue. It should never have gone on this way.

But thanks to Theresa May, the hard line ERG faction of J. Rees-Mogg, and the obstinacy of the Irish Unionist Party, Brexit would have been well advanced by now and goodwill with the EU still retained. Each of the above were losers, due to overreaching and short sightedness. They became consumed in their own issues and eventually lost their leverage. The door is now wide open for Boris whose advisers played a clever and cynical game whereby he was able to avoid facing serious scrutiny by the media or other informed interlocutors.

Getting Brexit done, now by 31 January 2020, is only the start, and leaves just 11 months in which to settle the country’s future trade and economic relations with the EU. That timetable seems extremely unrealistic – a fact that will bear heavily on previous dissenters.

Boris has won the Parliament but not the nation, unless the nation being Britain equates with England. Missing was Scotland (SNP winning 48 Scottish seats out of 59) and Northern Ireland (where nationalists for the most part knocked over Unionists). The minor parties were squeezed between the major protagonists, which will continue to be the case for as long as the first-past-the-post voting system is retained. The cracks in the Union are wider now than ever but its denouement will not be immediate. That will come as the UK’s trading position falls below what it was within the EU and as hoped-for alternatives, including those in a diminished EU relationship and with major third countries – the US, Japan, China, the north and south east Asian nations – fail to produce comparable outcomes, because they can’t, due to institutional constraints and complexities.

The above assumes that the Boris government does not change course or cannot bring itself to do so. Politically with a Parliamentary majority of 80 it could act as a relatively free agent in Party terms, eschew ideology, and recast its approach towards rationality and objectivity, and avoid being locked in. To open the door and get back from scratch to where it might wish to be, it would have to negotiate acceptable concessions within the WTO with a great many countries (see below). The GATT/WTO system requires nothing less and it will take a long time to bring all this together. It cannot expect the US either to be easy on current form. Nor the EU, given recent experience. Japan has recently concluded an FTA with the EU, and China is well advanced in that regard which may leave little scope for the UK to muscle in. These are not areas where matters can be forced. Boris may see the wisdom of extending the transitional period with the EU.

On the other hand the frustrations that may face Britain may also frustrate others and serve to further unsettle the world trading system as it loses its capacity for effectiveness and enforcement, leading members to engage in negative me-too trade practices – on the lines of all for one and none for all. The very circumstances whereby trade conflicts in the 1930s contributed to the political tensions that led to WW2.

Currently the global mood is not to do much about this, while awaiting some sort of resolution of the ’trade war’ between the US and China, and some assurance that it won’t go further. Meantime the UK might be well advised to foreshadow a readiness to maintain harmony if not unity of positions with the EU over regulatory and labour standards, in addition to environmental and climate commitments, as indicative of an on-going willingness to harmonise its trade and tariff levels with those of the EU (basically tariff free and quota free trade). This would make adjustments with other countries so much easier but would gravely disappoint those among the Tories who look forward to Britain carving out new fresh and dynamic trading relations with all the world, leaving the EU behind in its wake.

What are some of the hurdles the UK will encounter as it negotiates its own stall of trade arrangements to replace those with the EU? Whether it crashes out after December 2020 (having failed to settle matters meantime); or retains residual connections with the EU, it will need to negotiate ab initio its position as an independent, free-standing member of the WTO. As explained last September by my colleague, Dr Gary Sampson: “Brexit a Pandora’s Box awaits the UK at the WTO” (https://johnmenadue.com/gary-p-sampson-brexit-a-pandoras-box-awaits-the-uk-at-the-wto/), “the U.K. must have a national tariff schedule (i.e. a legal instrument showing tariffs and other measures applied to imports) rather than its current schedule which is common to all EU members. A ‘new’ U.K. schedule requires the acceptance of all 164 WTO members. No WTO member can unilaterally decide what its rights and obligations are.

How readily WTO members might accept the UK schedules will depend on whether they consider them to be a ‘modified’ or ‘rectified’ version of the EU schedule. As Dr Sampson explains: “In WTO terms, a schedule is modified if the ‘scope of concessions’ (i.e. market openings) is not maintained. In that case, negotiations are required to re-establish a balance of interest where compensatory adjustments may be required for those whose interests have been adversely affected”. The UK may assert that its schedules are rectifications (a faster acceptance process) rather than modifications (which could take years), but this could not be settled before its negotiations with the EU have been concluded.

Dr Sampson observed further: “Nothing is given away free in the WTO and the U.K needs something; the approval of other countries. Some governments have already made it known that they will be looking for improved market access from the UK before approving its schedule, irrespective of whether it is a modification or rectification…..The five most recent WTO accession negotiations took 15 years on average to complete; to modify schedules has taken more than 10 years on average. The devil is certainly in the detail”.

While there is much more to this, it is also worth noting, from an Australian perspective, that some 500 agricultural products are imported into the EU subject to ‘tariff quotas’, duty-free access being subject to a cut-off point after which restrictive tariffs are applied. These are administered by the EU Commission on a ‘first-come, first-served’ basis for the now 27 EU importing countries. The future allocation of these quantitative limits between the EU and UK will determine which imports receive duty free access and the origin of those imports. This will require negotiations of considerable commercial significance and complexity”.

Dr Sampson concludes “There is no precedent for a WTO member leaving an economic union to become a stand alone member of the WTO…..Brexit can lay claim to having opened a real Pandora’s Box.”

Notwithstanding, in the absence of agreements trade will go on, in circumstances currently where the WTO’s adjudicatory processes are being frustrated by the United States. In the short term it might come down to applying Rafferty’s rules or self-enforcement (a legal analogy being self-defence). Of course, the general rules of international trade law would still apply though these might appear just a step away from the jungle (as Donald Trump has been demonstrating).

For Britain itself much will depend on how Boris shapes his government and his Party. Like all freshly elected leaders he has declared that he will govern for all in the hope that he will have a further term after this one. So he must have policies that work and seem to be fair. Is that realistic given that he had expelled the more moderate and most respected elements of the Party before the elections, an act that had all the hallmarks of a return by the Tories to being the ‘nasty party’. But some would question whether Boris is really like that and that the true sensible, liberal, middle of the road Boris will re-emerge as he was before he got seriously into politics. Some of his advisers will resist that and advocate a hard line. But reality again requires that he regains those Tories or quasi-Tories who voted elsewhere this time and that he retains the formerly Labour voters, the losers from globalisation of the north and centre of England, who voted for the Conservatives (it is said, while holding their noses!). The Labour Party, it must be appreciated, won’t be lying low all this time under future leaders as it digs itself out of its worst defeat for some 86 years.

The indications are that after Brexit the two Party system has, as noted, been restored, recognising that under that system minority parties will rarely get a look-in of consequence.

We hope to return to this matter as Britain’s trade objectives and strategies become apparent.

Andrew Farran was previously an Australian diplomat, legal academic, and trade policy adviser who has endeavoured to keep up with Brexit all this time.

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