Britain facing two potential devastations

Oct 14, 2020

Britain is facing two devastations in short order – a further surge in coronavirus cases; and achieving coherence from its imminent departure from the EU. Both will have deleterious effects on future economic growth, though long term from Brexit more so than the virus.

The national system for control of the virus is failing, hospitals are being overwhelmed, and tensions between 10 Downing Street and the cities and boroughs in the north over lockdowns threaten to destabilise Boris Johnson’s government.

This is mentioned not as an item in itself but to provide context in which the government is struggling to avoid the worst diplomatic failure in British history since September 1938 over its exit from the European Union. The question being: will there be a post-Brexit agreement to govern UK/EU relations from 1 January 2021 and, either way, what might be the consequences?

Some months ago, Boris Johnson declared when the toing and froing among the respective negotiators was already intense that agreement on red-line issues must be reached by 15 October (next Thursday), or negotiations must end. That is also the date of the scheduled EU summit of all 27 members in Brussels. What options has Boris got? He could agree to core elements of the EU’s position on the essentiality of ‘a level playing field’ for trade; on key issues of governance (dispute resolution) if there is to be an agreement; and on the interminable issue of fisheries and fish stocks. Having got that far there could be an agreement on FTA lines notwithstanding Britain’s trust destroying left-field intervention with the Inland Market Bill, which upended the Political Protocol over Northern Ireland.

Whether his government might get that far will be determined by Boris himself whose security in the Prime Ministership and grasp of relevant detail, both as regards Brexit and the coronavirus, has come under close scrutiny.

As a leading British Brexit commentator, Professor Chris Grey, has put it (Brexit Blog, 10/10), Boris is at the moment where “all his political lies and personal flaws leave him with no place to hide”. From that position some would assume that he would take the path least likely to cause him further problems and most likely to further his self-interest. This might mean exiting the EU without an agreement, on World Trade Organisation (WTO) m.f.n terms. But should he?

What path then might Boris and his government finally take?

To agree a ‘level playing field’ for a free trade agreement the UK will have to commit on the future of workers’ rights, indirect taxation, social and environmental protections and, in particular, state aid controls on government subsidies to private companies. Boris would have to back away from his extreme claims for restoring national ‘sovereignty’ and the freedom to negotiate free trade agreements with anyone anywhere on his terms. But a level playing field is down payment for retaining zero tariffs and zero quotas in its trade with the EU. Beyond that is the EU’s approach to product standards which is harder than the UK’s, being based on the ‘precautionary principle’ which would make alignment across the board with the EU at this stage incredibly difficult. Perhaps too much for the Ultra Brexiteers to accept as the EU is bound to insist on a safeguard mechanism against competitive disadvantage arising from unilateral non-conforming subsidies or environmental standards. That mechanism might involve joint EU/UK regulatory bodies that would allow either to impose compensatory tariffs or other measures in the event of divergence, depending on the sector. Once again the UK might view this as a further derogation of ‘sovereignty’.

Then there is, as always, the ‘Irish question’ seemingly still in abeyance if not settled long ago in the Good Friday Agreement and confirmed recently in the binding Political Declaration. If the aforementioned Inland Market Bill is enacted and enforced the EU would be bound to establish a land barrier between Northern Ireland and the Republic of Ireland (the latter being a member of the EU) to safeguard the integrity of its common market. What then may be the consequences of this for continued peace amongst the Irish when the prospects now for stability, even union, have never been as good.

In any case the very fact that a British Government had deliberately intended to breach international law with eyes wide open goes to the heart of trust, or the lack thereof, which would be a concern for any nation now contemplating an agreement with Britain, trade or otherwise. While the British government might assert that this was just a negotiating ploy and may yet pull back from it, the damage for now, both to the government and the Tory Party, has been done.

In spite of that the EU intends to remain in the game in the hope that border delays, administrative costs and trade barriers that would otherwise become acute can be avoided from 1 January, and that dealings with Britain can be conducted and concluded thereafter sensibly. At some late stage, if the negotiations need a nudge, the parties may resort to the ‘tunnel’ process whereby the lead negotiators are locked down to reach agreement in a setting that does not allow for the leakage of information that could obstruct progress or compromise an outcome. With or without an agreement, there will be a need for a modus operandi to mitigate massive disruption and economic damage for both sides after December. Supply chains work both ways. But not as satisfactorily on WTO terms alone.

Meanwhile markets are remaining calm and the UK’s currency has been stable. For how much longer? Over 60% of UK manufacturers and traders have stated that they are not prepared for the post-Brexit era and despite the politics of it still believe that the end date will be extended. That is not on the cards. The last date for agreement will be the end of October or at a hard stretch the end of November. Either way this does not leave sufficient time for trade and traffic to run smoothly whatever the outcome. Urgent action is underway to avoid queues of some 7,000 or more trucks each day at major ports, and their parking prior to departure. Another 20 or so ports are undergoing expanded infrastructure to cope with crowding. But the biggest headache will be meeting documentary requirements for each vehicle and its contents going either way; and training thousands of personnel to administer unfamiliar border control arrangements. Without an agreement the EU is unlikely to be sympathetic to UK problems in this regard. Only 10% of its trade is with the UK whereas the figure is around 40% for British trade with the EU.

Much of this hassle could be avoided if the parties were to bring themselves in the remaining time to settle for even a minimal free trade agreement (FTA) that would allow them to treat each other bilaterally on more favourable terms than would otherwise be allowed by the WTO; and negotiate thereafter on that basis with third countries. That way the unity of the United Kingdom itself might also be preserved.

Another key area concerns critical data exchanges for law enforcement, security, and intelligence gathering generally. Without an agreement the UK will lose its access to the European-wide data system. A serious matter.

As for fisheries, in British waters – an emotionally charged matter around the coasts of Britain and the Continent. The EU seeks to retain its present share of fish stocks while Britain wants to regain 70% overall of its waters; and to negotiate annually with the EU on future access. The EU notes that over 40% of the British catch is exported to the EU which would not be allowed without a new agreement. France has threatened to break the negotiations in their entirety if the UK doesn’t play ball. It is likely that some modus vivendi will be reached without wrecking the talks.

It remains to be seen whether Boris Johnson will preside over the foreshadowed diplomatic disaster or whether a viable re-set on mutual terms with the EU awaits.

Note: a no-deal exit could come about by accident – a stumble over deadlines or a misunderstanding of a misdirected draft!

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