Written on Sunday December 17, 2017

On Friday (Dec 15), the EU Council agreed that “sufficient progress” had been made to date to allow the exit talks between the EU and the UK to be expanded to include discussions on the “framework” of the future relationship between the UK and the EU.

This BEERG Brexit Briefing argues that, just as the EU dictated terms in phase 1, it will continue to dictate terms as the process continues because both the dynamics of the process and the hard economic realities favour the EU.

Why? Because as the Dubliners of my youth would have put it: “Beggars can’t be choosers”. In EU terms, it is the UK, and not the EU, that is the “demandeur” and demandeurs “can’t always get what they want”.

Remember, the UK decided to leave the EU. It was not asked to leave nor was it expelled. Generally in life you cannot unilaterally decide to leave a job, business organisation or sporting association, and then try to insist on negotiating the terms under which you will leave. Leave means leave. Leave does not mean “lets compromise and meet in the middle”.

One of the greatest football players ever, and probably an even great manager and tactician, Johan Cruyff once said: “You play football with your head, and your legs are there to help you.” So with negotiations. You negotiate with leverage, the words used are secondary.

Seasoned negotiators will tell you that 90% of negotiating work is done away from the table and that by the time you actually get to the table the outcome is generally predetermined. Clever words, inside or outside the negotiating room, change little. Negotiations cannot be reduced to wordsmithing. Formulae designed to hide reality get found out in the end.

There are roughly two types of negotiations: negotiations over interests, and negotiations over rights. Often the two get confused.

Negotiations over interests determine who gets what share of the pie, whatever the pie is. The outcome of such negotiations is determined solely by leverage. For example, a union may go on strike to pressurise the employer. An employer may lock-out its employees in retaliation. The stronger party wins.

Mediation may help in such disputes, an honest broker attempting to bring the two sides together. Rarely can such disputes be determined by the judgement of a third party. Who is ever going to accept that a third party knows your interests better than you do?

Leverage in interest negotiations can best be defined as the ability or power to determine the outcome of the process. The party with the greater ability to do so has the greater leverage. Leverage grows out of size and resources which, roughly translated, means: “Sure, if things break down we could both take a hit or lose benefits, but you’ll take a much bigger hit and/or lose a lot more than me.”

Leverage not only grows out of size and resources. It can be enhanced by preparation, homework, and procedures and processes. For example, in sports, “home advantage” is well recognised as helpful for the home team. Staying with the sporting analogy, analysing how the other teams plays, its strengths and weaknesses, is essential. Coaches spend hours doing so. Call such preparation working up “impact assessments”.

Structure and timing is also critical. Setting out the sequences in which matters are to be discussed, and the time available for discussion, is important. Deadlines work in the interest of the deadline setter.

But ultimately, it is brute strength in negotiations that count. If you are a team from the depths of the lower divisions in Spain, no matter how well prepared, you are unlikely to beat Barcelona in the Camp Nou.

The second type of negotiations happens over rights. These are negotiations over the interpretation of agreements, or contracts, once freely entered into by the parties.

Once an agreement is reached and contracts signed disputes between the buyer and seller can arise. What exactly was agreed? How is a particular clause to be interpreted? Most agreement provide procedures for the settlement of such disputes over rights, normally through reference to mediation, then judgement by the courts. There are established standards, criteria and case law by which a court or tribunal can settle the matter.

When the Brexit negotiations are seen in the above light it becomes clear that Brexit is a negotiation over interests, not rights, and that all the leverage lies with the European Union. Size and strength is what counts. If this was ever in doubt, then the outcome of the A50 discussion should have made this clear.

The UK started with the idea that it was involved in a negotiation of equals, and that both sides had a shared interest in “making Brexit successful”, as Mrs. May’s suggested at a London dinner with Jean-Claude Juncker. It soon became clear that the negotiations were being conducted between parties of very unequal strength and that the EU had no interest in helping the UK make a success of Brexit as it believed it had no rational interest in doing so.

There was only ever going to be one outcome, the outcome the EU determined.
It has been arguing that the UK has leverage in the money it owes to the EU and also has leverage in walking out without a deal. The “they need us more than we need them” argument.

The money owed by the UK under commitments entered into as a member of the EU is significant, but not such as to badly damage the EU if the UK fails to pay up. At least half of what the UK pays annually into the EU budget would be recouped by tariffs on UK goods exported to the EU and if tariffs are also imposed on services then the shortfall would be even smaller.

80% of all tariffs goes to the EU as “own resources”. Of course, there would be counter tariffs on EU good going to the UK but that it not the issue. The issue is the leverage that some in the UK think UK payments to the EU gives the UK because of its impact on the EU budget. It is much smaller in a “no deal” scenario than they think.

For the UK to refuse to pay what the EU believes it owes was never really an option. Nor is it a future option. The “leverage of leaving without paying” can only ever works once, if at all. You live in a neighbourhood with just one restaurant, a very good restaurant at that. Come the end of a meal you tell the manager that you are leaving without paying. Short of physically restraining you there is not much he can immediately do. Legal proceedings may follow, but they can take a long time.

But your “leverage of leaving” disappears if you want to eat in the restaurant again. What restaurant is going to welcome back a guest who refuses to pay their bills? Yes, there are other restaurants. But they are a distance away and it may take you a long time to make a reservation.

If you want to continue to eat in your local restaurant you have no choice but to pay your bill at the end of the evening. And it is the restaurant that determines the bill from the prices on the menu. You don’t get to say: “I see the fish is listed at €15, but I’m only prepared to pay €5”. You must pay for what you signed up for. When you ordered you knew and accepted what you were going to have to pay.

With sufficient progress registered in phase 1, the EU has now agreed that talks can move on.

Reading the UK press you would be mistaken for believing that agreement has now been reached to move to “trade talk” between the EU and the UK. This is simple not the case. All that has been agreed is that sufficient progress has been made to date for the EU to agree to expand the scope of the A50 discussion. To recall the key language in A50:

A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

What the EU Council has agreed is that sufficient progress has been made to date on the issues of outstanding financial commitments, citizens’ rights and issues relating to Ireland to allow the talks to be expanded to include the “framework” for the UK’s future relationship with the EU.

To be clear. The A50 agreement has not yet been finalised and A50 does not provide for substantive trade talks. Such talks can only happen when the A50 agreement has been concluded and implemented. That is, after the UK has left the EU. All that can be done in the meantime is to discuss the direction of travel.

The UK would have liked, and would still like, substantive trade talks to have taken place in parallel with the A50 discussions so it could have a constructed a “money for trade” package. Realising that is what the UK wanted the EU refused and insisted on sequencing: pay your bills first then we talk trade. No using yesterday’s money to buy tomorrow’s benefits. The leverage of sequencing, of process and procedure.

In the ongoing discussion the EU will not allow the UK to reopen or revisit what has already been agreed. As EU negotiator, Michael Barnier said:

“Even if the European Council does recognise sufficient progress … we will have a final agreement only if the political commitments taken by Theresa May on behalf of the British government last Friday are respected. We will be vigilant… We will not accept any backtracking from the UK on commitments in the Joint Report. All our points of agreement are now closed.”

The EU will now move to capturing what has been agreed to date in a legally binding text. It will also start talking to the UK about the “framework” of the future relationship with the EU that the UK wants after exit. But these talks will not begin until March 2018 to allow the UK time to decide what it wants.

Unbelievably, 18 months after the Brexit referendum vote and 9 months after the serving of the A50 notice, the UK cabinet has not yet had this discussion. It is as if you gave the management committee of the jointly owned housing block where you live notice of your intention to move out and then never bothered as a family to discuss where you wanted to go live after you had left.

Actually, never mind the cabinet, is the future destination of the UK not something that Parliament should decide? Should not Parliament set the parameters for any proposed agreement with the EU? Would that not be taking back control? Why limit yourself to debating a “done deal” when future options have already been closed down?

Having given notice to leave, and then, belatedly, realising you are not quite ready to go, you ask to stay on temporarily. Call it a “transition” or “implementation phase”. In such a situation you are in no position to set the rules under which you will stay. What’s your leverage? “If you don’t agree to what I demand I am leaving?” During such a phase you will have to abide by all the rules and make appropriate payments. You do not get to pick and choose and you don’t get a say in making the rules. Why should you? You have officially left. Now you are staying on as a guest.

As to the future, irrespective of anything UK government ministers may say, there will be no substantive trade talks before March 2019, the date the UK’s leaves the EU. UK prime minister, Theresa May, has said that she wants a “deep and special relationship” between the UK and the EU.

But the UK already has a “deep and special relationship” with the EU. It is called membership and no other relationship is going to be as “deep and special” as that.

As no relationship can ever be better than membership, the question is how much less of a “deep and special” relationship does the UK actually want? What will it give up and at what cost?

In any event, it will be the EU that decides on the nature of the relationship it is prepared to offer the UK, not the other way around. The UK may threaten to tear up the A50 deal if it does not get the trade deal it wants. But then there would be no transition and no future trade deal of any sort. That may appeal to some politicians in the UK, but probably not to most.

David Davis, the UK Secretary of State for Brexit, has said he wants a “Canada+++” agreement, meaning an agreement based on the mostly free trade goods agreement recently signed between the EU and Canada, with the “+++” referring to an expanded deal to include services. But what incentive is there for the EU to offer it a tariff-free deal on services?

When you think about it, the incentive is for the EU to make the import of UK services into the EU difficult and costly, so as to allow the creation and growth of EU service industries to replace UK-based ones. The City of London may think that what it offers is irreplaceable. But nothing in this world is indispensable.

The EU will offer the UK a deal that the EU believes is in its own, rational economic self-interest. The EU does not need to take back control. It already has control. The UK cannot force the EU to do anything it does not want to do, nor offer any deal it does not want to offer.

To use words of the Irish poet W.B. Yeats we have previously used in this Briefing, for hard Brexiteers the realisation of all of the above will “come dropping slow”. Only then will they realise that “you can’t always get what you want”.