Brexit: Pawing and Snorting

Coronavirus has so eaten other news that even Richard North’s EU Referendum website’s two most recent pieces are about the Government’s too-obvious lack of preparedness, although North does get some Brexit digs in.

Nevertheless, it’s been too long since this site and its estimable Brexit mavens have had a look, despite the trade talks having formally started on Monday. But again, most elements are so over-familiar that it’s easy to wonder if one is missing a critically important detail. The Financial Times gave a helpful overview of the events planned for this week and the scope of the talks, including that many issues were being hashed out in parallel.

As before, as ever, the UK side is heavily engaged in posturing for domestic consumption. Some commentators also tear their hair over the UK’s continued cakeism, which has only seemed to have changed flavors. The Government is, as when Theresa May was at the helm, insisting on arrangements that the EU has repeatedly said na ga happen. The UK is now demanding the EU must must let the UK have its way because voting for Brexit means they get that. I’m not making that up; this was a key theme of an EU-eyepoking speech by Brexit negotiator David Frost. The UK side acts as if it really cannot wrap its mind around the fact that selling goods to the EU means abiding by their rules. A short and tidied up version from RTE:

Mandates published last week highlighted the EU’s aim of securing a “level-playing field” to prevent Britain undercutting European standards on labour, tax, environment and state subsidies.

Meanwhile, the UK is insisting on setting its own rules in the name of “economic and political independence”.

Politico’s longer-form overview:

The start of negotiations on future relations between the United Kingdom and the European Union has turned into an unsporting mismatch. British Prime Minister Boris Johnson no longer seems to care about objectives his government signed up to just a few months ago, leaving Brussels struggling to hold London to common standards once the Withdrawal Agreement transition period the two sides negotiated expires at the end of this year.

Johnson has turned his back on the commitment to a regulatory level playing field set out in the declaration on future relations, which he signed in October along with the withdrawal treaty and which his Conservative Party endorsed in parliament in January after it won a thumping majority.

The government has also dropped all talk of seeking a “deep and special” relationship, or of “frictionless trade,” and seems to have written off hope of a long-term deal ensuring access for the U.K.’s giant financial services industry. Ministers have made clear that they put the sovereign right to diverge from EU rules above any economic benefit, and they have instructed business and farmers to prepare for friction at the borders.

It could all be a grand bluff. But barring another last-minute Johnson pivot in mid-year as the steep cost of a chaotic no-deal rupture comes into sharper focus, the U.K. appears to be steering toward a far more disruptive break on a much shorter timescale than EU policymakers had contemplated.

Mind you, the UK and EU staked out these positions over a month ago. The EU predictably rejected the UK demands and neither side has budged. The UK insists all it wants is a “Canada” style deal. In fact, CETA, the Canada-EU trade pact, does require a lot of harmonization, plus the UK agreed to what amounts to level playing field provisions with the US in its draft framework.

But in a sign of the EU not being willing to say more than it needs to, Ireland’s then Prime Minister, Leo Varadkar, said the UK couldn’t expect to get Canada provisions because smuggling because the UK was too close to and too enmeshed with the EU. Michel Barnier made more or less the same point, with an uncharacteristic lack of finesse. One might take that to me the EU is tiring of the ritual of explaining its red lines.

As an aside, Richard North’s son Pete North pointed out that “Canada” doesn’t even mean what the UK seems to think it means. Specifically, the two sides left some parts fuzzy. This is a manifestation of a point Sir Ivan Rogers has made repeatedly: all past trade deal presuppose the two parties want to get closer. Among other things, that helps increase the likelihood of good faith dealing. The fact that the UK was an obstreperous member of the EU and is taking an even more high-handed posture means the EU isn’t going to be keen about going fudgy on anything important (Irish border matters being a potential exception because no one had a good idea about what to do). From North the younger:

Were we to secure a CETA style deal, it is likely to be only the scaffolding without much of the brickwork. (CETA) is a living agreement. In more specific terms, as the Ecologic report has it;

CETA is a living agreement. This means that CETA is designed as a dynamic agreement that allows the Parties to respond to changing circumstances and needs. To fulfil these objectives, CETA establishes a new and comprehensive institutional framework for cooperation between Canada and the EU and sets primarily procedural obligations. In many cases, CETA does not set detailed and hard obligations that predetermine a specific outcome. This also applies to regulatory cooperation, where CETA introduces various procedural obligations (e.g. obligation to exchange information and to consult) but no hard obligations on substance. CETA also establishes a new institutional framework for regulatory cooperation which consists of the Joint Committee (JC) and the Regulatory Cooperation Forum (RCF).

Personally I don’t think a direct copy out of the institutional framework, done in a hurry, is a particularly good idea, and in all likelihood, not doable in time. But to make it more than a mixture of trade facilitation instruments and vague aspirations, there would need to be a far longer transition with more detailed talks.

Back to the state of play. Johnson maintains that if they two sides aren’t well along to an agreement by the June EU summit, the UK will go its own way and prepare to deal on a WTO basis. This is the functional equivalent of a crash out. Admittedly, the last time it looked like that was a real possibility, the EU identified a series of key areas in which it would allow the UK a limited continuation of EU privileges (they were time limited as well as in some case being substantively less permissive than current arrangements). In other words, the EU would set up some waivers to cushion the impact for its benefit. Those would presumably help the UK but that’s an unintended consequence.

Boris Johnson also poked a stick in the EU’s eye by maintaining that there would be no checks on British good going to Northern Ireland. While the level playing field language was in the Political Declaration and hence not legally binding, these Irish provisions were in the Withdrawal Agreement, which is a treaty. Barnier forcefully rejected the UK retrading the deal. The EU is also taking a hard line on fishing but Peter Foster, now European Editor of the Telegraph, set to move to the Financial Times, says this border issue is more important:

An industry insider tells me a supermarket has calculated the cost of putting a single 'mixed' container (meat, fish, dairy) goods from GB to NI at £6,000 – or "half total value of consignment". This is a serious #Brexit issue. 1/Threadhttps://t.co/UGQEtQiOcS

— Peter Foster (@pmdfoster) March 3, 2020

Because if you think about it the Northern Irish "frontstop" is the FIRST moment where the #Brexit rubber actually hits the road – until now it's all been transition and obfuscation. This the first attempt at actually doing real stuff. And the UK govt is balking. /3

— Peter Foster (@pmdfoster) March 3, 2020

Understandably, major supermarkets are getting VERY jumpy. One major chain has 300 trucks a WEEK going to NI from Scotland – it needs to know what is going to happen. And it needs to know fast.

But this week HMG cancelled a planned meeting at Defra to discuss /7

— Peter Foster (@pmdfoster) March 3, 2020

For those chains that don't have RoI outlets…Sainsbury's, Asda for example, from what I can see….it is not clear what good options you have. /10

— Peter Foster (@pmdfoster) March 3, 2020

But at the end of the day, they revert to a version of: "The UK signed the deal. It knew what it was signing. It was made very clear. To Frost also."

Even at the time some doubted the wisdom of the deal – whether it was really implementable. /14

— Peter Foster (@pmdfoster) March 3, 2020

Foster says in the this tweetstorm that the EU anticipates that there will enough progress on fish by the summer for both sides to gin up good headlines, but UK failure to budge here would lead to a breakdown.

Rafael Behr at the Guardian has a similar take, stated caustically:

The negotiations that began in Brussels this week will codify legal obligations across multiple issues, and Johnson’s inflated verbiage is not a meaningful currency in that commerce. It can be an impediment to progress when it undermines trust. Continental leaders take note when the prime minister tells manufacturers that they will encounter “no forms, no checks, no barriers of any kind” for the transit of goods between Northern Ireland and mainland Britain. Ministers blithely dismiss the prospect of a customs border in the Irish Sea….

A border in the Irish Sea is not a matter of conjecture. It is described in a treaty that Johnson signed and waved in triumph. But his enthusiasm was for the idea of a deal, not the real thing. He likes deals for their instant retail value in domestic politics, believing that problems in the small print can be blustered away. That is not how the trade negotiations work in Brussels, where the deal is the small print…

If the prime minister believes this stuff – if he prefers pristine sovereignty in a hypothetical economy to defence of the real one – he has little incentive to compromise.

Behr notes that another school of thought hold that Boris with his 80 seat majority can afford to compromise as long as he can keep Brexit out of the spotlight and put a happy face on his retreats. But he also points out tha the Government is overestimating its ability to wrest concessions from the EU.

In the meantime, other analysts are deflating the Government’s claim that it doesn’t really need the EU and that great, glorious new trade deals with the US and other countries will leave them even better off, a notion we debunked from the get-go. For instance:

The economic benefit from a trade deal with the US may be 450 times smaller than the potential loss from a no-deal Brexit – according to the government's own figures.

Put that on a bus.https://t.co/HV7yHSTbaC

— James Melville (@JamesMelville) March 3, 2020

And from the Financial Times yesterday:

…the government continues to emit an overpowering fog of promises about non-European trade deals.

If it were possible to monetise these promises, we would all be rich by now…

“Essentially, the United Kingdom’s departure [from the EU] is nothing positive for the Japanese companies doing business there, so the focus going forward is how much the negative impact is alleviated,” Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, said last month…

Professor Rana Mitter, a leading authority on modern China, said few countries had a comprehensive trade accord with Beijing. Those that do — Australia is an example — usually have products, such as minerals or advanced machinery, that make a deal attractive to the Chinese.

“The UK doesn’t have one obvious sector that China sees as of compelling benefit to its own interests, so a deal is unlikely to be agreed quickly,” said Prof Mitter.

And the UK and US are sparring over Huawei and the UK’s proposed digital services tax, as the US intends to muscle the UK into the US regulatory framework (yes, chlorinated chicken will be in your future!). But on top of that, House Leader Pelosi has cleared her throat and pointed out that Congress will not approve any deal if the UK has damaged the Good Friday Agreement.

Oh, and the UK is undermining its coronavirus response because it doesn’t want to spend trading chips with the EU. From RTE:

The Telegraph reported that Downing Street and the Department of Health and Social Care are involved in a stand-off over whether Britain should retain membership of an EU pandemic warning system used to stem the SARS and bird flu outbreak..

According to the newspaper, No 10 fears continued membership of the Early Warning and Response System (EWRS) could hamper trade negotiations.

As a result, Downing Street is said to have prevented Health Secretary Matt Hancock from travelling to meet counterparts to coordinate a Europe-wide response to the coronavirus outbreak.

The Liberal Democrats have called for the trade talks to be postponed and the deadline to be extended to allow ministers to focus on stopping coronavirus.

Acting leader Ed Davey said: “Then the NHS and local communities can get the funds and the focus they deserve, and the UK can talk to our European neighbours about how we can cooperate against the coronavirus which does not recognise national borders.”

Most commentators look at the lack of overlap in the EU and UK bargaining positions. They recognize that the EU has little room to move since preserving the integrity of the Single Market is paramount, and see Johnson as painted into a corner by his aggressive messaging and the rigidity of the hard Brexit faction. Gideon Rachman of the Financial Times takes the contrary position, that Johnson will wind up making concessions:

It sounds like a big problem. Fortunately, the argument may be more about theory than reality. That is because the Thatcherite purists within Mr Johnson’s Conservative party are losing the ideological battle. They argued for 30 years that Brussels regulation was strangling the British economy and that the UK should break free to opt for a low-tax, small-state model.

But the pro-Brexit voters in the north of England, who delivered the last election for Mr Johnson, have been promised higher public spending and more social protection. The idea of Britain as “Singapore-on-Thames”, always a misleading analogy, is sliding off the agenda.

What remains of the original Brexit agenda is the Johnson government’s determination to restore British sovereignty, removing the EU’s right to legislate directly or indirectly for the UK.

This distinction between theory and practice opens the way for an eventual deal. The British will insist on their right to diverge from EU law but will assure the Europeans that, in practice, they will retain social and environmental standards that are at least as stringent as those of the EU.

This is rather like a child insisting that it will determine its own bedtime but indicating that, in practice, it will go to bed at 8pm as normal.

The EU….will grant Britain tariff and quota-free access to the European single market. But it will also set up a formal process through which the EU reviews British legislation.

If the European Commission or parliament (or some combination) finds that the UK has un-levelled the playing field, the EU will retain the right to impose tariffs on Britain…

The UK will also have to accept that the EU will decide on breaches unilaterally. Having insisted on British sovereignty, they can hardly complain if the EU side also makes sovereign decisions.

This is all very cheery and also would amount to a very soft Brexit. While Johnson, who stands for nothing but Johnson, would theoretically be capable of making a major shift, he’s harped so often on the need for the UK to set its own rules that I don’t see how he can turn his messaging supertanker far enough, fast enough.

In any event, we’ll have to live with posturing till at the earliest late April/early May. Even if the UK blinks, it won’t do so until late in the game.