Brexit – a crash landing in prospect

Sep 14, 2020

Brexit is done but its end-shape is not. The final stages of the post-Brexit negotiations are shrouded in mistrust, misrepresentations, and most recently an intended breach of international law. The real intentions of the negotiators, both sides, remain clouded.

It should be recalled that in the light of the UK/EU Withdrawal Agreement and Political Declaration (ratified January 2020) the UK stated that its objective for the negotiations was to establish a relationship with the EU that respects its sovereignty and which has a free trade agreement at its core. The EU for its part stated that it sought a broad framework of common state-aid principles to be incorporated in an agreement even if the UK drops the European standards for the legislatively less rigorous US model on subsidies. These were the keys for and the basis of their future trading and economic relationship around which other necessary elements would be derived. Regarding state-aid and subsidies there could be room for compromise whereby a provision such as the US one referred to above could provide a bridge and moral backing to the UK were it to progress its objective as an independent state for a bilateral trade agreement with the US. But that is for the future. Meanwhile agreement across the board with the EU must be reached by mid-October to allow time for the legal instruments to be prepared and ratified before the transitional arrangement expires on 31 December 2020.

After that if there is no agreement the UK and the EU will trade on WTO most-favoured-nation terms (mfn) and be subject to their respective tariffs accordingly. In recent times the EU has accounted for 43% of UK exports, and 51% of UK imports. Its supply chains are critical. Essential ad hoc agreements are being put in place to facilitate the movement of persons, goods and services across their borders. But these fall well short of existing systems. Britain has been making practical preparations (for ports, holding bays, processing systems, etc.) on a scale that assumes failure in the negotiations. The British Chambers of Commerce have reported that UK firms are underprepared for new trading rules in any event.

Then there is Ireland. If you didn’t believe Britain was opting for no-deal, the appearance of the Internal Market Bill in recent days should be conclusive. The Conservative backbench hated the provisions in the Protocol to the Withdrawal Agreement intended to protect the Good Friday Agreement of more than 20: years ago by avoiding a ‘hard’ land border between the North and the Republic of Ireland in the south. The Protocol, a binding agreement in international law, provides in Article 4, that its provisions take legal precedence over anything in UK domestic law. Under the arrangement Northern Ireland remains in the EU customs area, where EU rules will apply, necessitating a means for tracking and administering goods traded between main UK and the province. There was much wrangling and scepticism about that arrangement, especially over the Irish border being notionally situated in the midst of the Irish Sea.

Tory backbenchers were assured that when the time came the Protocol would be changed to reflect reality as they saw it. However any change requires formal joint action with the EU. The Bill would also amend provisions relating to state-aid within Northern Ireland. Introduced to Parliament by the Northern Ireland Secretary of State it was immediately acknowledged as being contrary to the UK’s legal commitment but, it was said, only in “a very specific, very limited way” and was intended, as a safety net, to address an oversight or misperception by UK negotiators at the time! The head of the UK Legal Department has since resigned over the issue and Westminster has been in uproar over such a blatant move to thwart the Protocol. The EC Commission President has called for an explanation. The move has adversely affected the atmospherics of the post-Brexit negotiations.

Where are the negotiations now, in this the 8th and said to be the penultimate round ? Driven by his obsession with ‘sovereignty’, and with taking back control, Boris Johnson has declared that if substantial agreement is not reached by mid-October the UK will walk out. Faced with the EU’s unyielding position on the need for a ‘level playing field’, and equivalent constraints on state-aid and subsidies, this is highly probable. It is suspected that Johnson wants to leave its denouement until December using the classic gambit of an 11th hour cave-in; but given the complexity of the negotiations this is one time when that tactic cannot work.

He is arguing that the UK should be allowed tariff-free and quota free trade after Brexit, arguing that any condition on that would defeat the whole purpose of Brexit by tying the UK to quasi-EU standards in perpetuity. The EU retorts that having decided to leave the single market the UK cannot expect it to be treated as if it hadn’t. The matter of standards also encompasses environmental issues and workers’ rights, where a commitment to equivalence is essential for fair competition in the market place. Hard-core Brexiteers, especially the Europe Research Group (ERG) and its troop of Spartans, appear not to understand the logic of this and would cry ‘betrayal’ if Boris Johnson accepted an agreement on that basis – which is hardly a concession if you believe that two plus two equals four. For Boris however, who finds himself politically shaky at this time, is placed at an historical intersection where Britain has to resolve for now the ambivalence it has held over Europe these past 60 years, and times before that.

Not the first dilemma Boris has faced. It is known that he was against Brexit when the mayor of London but for it since being in Westminster, on the ground that he could never have been Tory leader and hence Prime Minister if he remained opposed ( Rather than wear high levels of dissent in the governing party he will probably stick now with opting for a no-deal. He will place the blame for this on EU intransigence, on on-going sabotage on the part of British Remainers, on intellectuals, and on the southeast England social class. Deeply complex psychological and cultural factors are in play here. A prominent English commentator on all things Brexit, Professor Chris Grey, has explained why even in rational circles no satisfactory explanation can be found for what may now transpire:

“The … more hard-headed may want to know what the solution to all this is. The answer to that is that, for now at least, there is no answer. How can there be, when a nation is completely re-inventing its place in the world against the wishes of half its population, and with the other half gripped by a political psychology woven of paradoxical and contradictory impulses that have led them to vote for something undefined and that, however defined, is, because of that psychology, offensive to large numbers of those who did so?”

An underlying but strong factor explaining why Britain may go it alone, in spite of the disadvantages, is the markedly changed world environment where it may seek to provide unfettered support for new industrial projects and economic development. This includes issues as to whether the liberal order should or is giving way to state-directed investment and protectionism in stark contrast to Britain’s previous championing of free trade and open markets.

The combined effect of China’s assertive trade and investment policies, the US/China trade war, the onset of the Colvin-19 virus, and the virtual emasculation of the WTO and its GATT appendage has unsettled all. The Chinese trade and investment onslaught has prompted increasing protectionism, the virus pandemic has inflicted a body blow to all Western economies, and the WTO situation will lead and is leading to less observance of GATT rules in relation to the structure and content of so-called free trade agreements (FTAs). Both the UK and the EU are showing a preference for going their own ways in supporting new areas of economic growth – for example, in the case of the UK, in pharmaceuticals, IT and high end engineering.

As neither the UK nor the EU can now envisage ‘substantially all their trade’ being subjected to GATT Article 24 rules it would seem better not to create a farcical FTA in the first place. Nonetheless, as an independent entity the UK would need adjust its trade concessions (tariffs and quotas) not only with the remaining 27 EU members but also with the totality of the WTO. That could take a long, long time and those issues might just get lost in the mists.

Be it so, a number of substantive issues with the EU cannot at this stage be avoided. Politically and emotively is the matter of fishing rights where the UK is virtually asking the EU to vacate its waters, clearly unacceptable to the EU even though fishing accounts for less than 1 per cent of EU gross domestic product and only 0.1 per cent of UK gross domestic product. Fishing directly concerns just six EU members but how it is dealt with affect the attitude of others towards the UK on other issues.

Apart from trade itself and its rules of origin, these other issues include such matters as financial services (separate from the Brexit process); road and air operations, and port access (particularly freight transport); mutual recognition of professional and trade qualifications; criminal justice co-operation and data sharing; civil nuclear co-operation; and governance (the settlement of disputes and enforcement). With regard to the latter the UK has ruled out any role for the European Court of Justice (ECJ), which may leave largely self-enforcement processes for each sector

The final draft agreement, if there is one, is expected to be a 700 page document in English, French and German containing a number of blank spaces, being translated into 24 European languages. What might fill those blank spaces? Additional pressure from where?

At the centre of the defining summit, expected next month, will be the German Chancellor, Angela Merkel, having sanctioned, with great approval, mutualised debt arrangements within the European Central Bank, to fund a post-coronavirus economic recovery for Europe. As remarked by The Economist newspaper in London, she will be sitting on a pile of political capital, gained also from competent handling of the pandemic. Germany, it stated, has the means to change Europe – if it chooses. One might add that Britain has, as before, again chosen to marginalise itself from Europe. As M. Barnier, the chief EU negotiator declared in March: “The British have not understood and do not want to understand that Brexit has consequences for them”. We will see.

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