Brexit, Irish border, Michel Barnier, Negotiating, Theresa May

#Brexit: The UK Government’s BATNA Dilemma

Koji Tsuruoaka, Japan's ambassador to Britain, speaks outside 10 Downing Street after a meeting between Britain's Prime Minister Theresa May and senior members of Japanese companies, in LondonIt seems to us that a great deal of press and other comments about the supposed disunity within the UK cabinet about Brexit frames it slightly wrong. The cabinet is not split over what it wants from the Brexit discussions. It knows exactly what it wants.

The problem arises over what to do when it doesn’t get what it wants. and it already knows that you can’t always get what you want. The real problem is that the cabinet, in the language of professional negotiators, cannot agree on its BATNA, its Best Alternative to a Negotiated Agreement.

The acronym BATNA was coined by the US academics, Fisher and Ury, and became common currency among negotiators after they published their classic on negotiations, Getting to Yes, in 1981. The concept is simple. Before you meet the other party in a negotiation you need to work out in detail what your objectives are and, as important if not more so, what are you options if the deal you want is not available. In a word, what are your alternatives?

Knowing your BATNA is critical to a successful negotiation. It means that you can begin discussions safe in the knowledge that the discussions may not be the only game in town. If the terms on offer are not acceptable, you know beforehand what you can do. You are not locked in. Not only does having alternatives increase you leverage, it is also psychologically important. It allows you to make it clear to the other party that your are not a prisoner of the talks, you are not in a corner, you have choices.

Experienced negotiators on the other side will also have worked out what your BATNA may be and, depending on how much they value a potential deal with you, will shape their own positions accordingly.

What the UK government wants out of the Brexit negotiations is clear. They want an agreement with the EU that gives them all of the benefits of the customs union and the single market, but with none of the obligations.

Theresa May set out this aspiration in both her Lancaster House and Florence speeches. This is what she means by a “deep and special partnership”. David Davis repeated it some weeks back in a speech in Sunderland.

Single market and customs union membership in all but name solves a host of problems for the government. No hard border in Ireland. No lorry queues at Dover (or Calais). No data pileups on the digital superhighway. No exit by Japanese manufactures who came to the UK on the promise of tariff-free, frictionless, time-effective access to the EU market.

By way of an aside, the words used by the Japanese ambassador (photo) to the UK this week, after talks with Theresa May, were way beyond blunt, astonishing coming from the representative of a country where politeness and saving face are all important.

Standing outside No. 10, he said: “…if there is no profitability of continuing operation in the UK – not Japanese only – no company can continue operations. So it’s as simple as that. This is all high stakes that I think all of us need to keep in mind”.

This is as close to hasta la vista, baby, as you get.

But the politics of Brexit, as framed by the current UK government and now baked into expectations, demands that the UK has control over immigration from the EU, stops paying into the EU budget, leaves the jurisdiction of the European Court, and is free to negotiate its own trade deals with other, non-EU countries.

The EU is not going to offer the UK this deal: all the benefits with none of the obligations. UK politicians have argued that such a deal would be in the mutual economic benefits of both sides and that in not being prepared to offer it the EU is putting politics ahead of economics.

What they actual mean is that the EU is putting its politics ahead of the UK’s politics, that the EU is putting the politics and integrity of the internal market and “ever closer union” on its part ahead of the UK politics of “taking back control”. Unfortunately for UK politicians, when the other party is six to seven times bigger than you, it can generally afford to put its interests first.

Now, if the EU were to offer the UK the “deep and special partnership” that Mrs. May wants, the UK government would take it in a heartbeat. But the EU will not offer the UK that deal. This has been made absolutely clear by the EU Commission, by the negotiating team led by Michael Barnier and by key national political leaders such as Merkel from Germany and Macron from France. To that you can add Martin Schulz, former Socialist president of the European Parliament and German’s new incoming Foreign Minister.

UK diplomats like to use a phrase “rolling the pitch”. You roll a cricket pitch before a game to ensure that that the game goes smoothly, that when the ball hits the pitch it behaves as the bowler intended and as the batsman anticipates. In negotiations it can be translated as “no surprises”, that when a proposal is put on the table it has a fair chance of being the basis of discussion, that it will not be rejected out of hand.

May and Davis’s speeches can be seen as attempts at “pitch rolling”, signals to the other side as to where the UK wants to go in the negotiations, but framed in such a way that if the reaction is hostile and negative then the UK can think twice before setting out on that road. The worst thing any negotiator can do is offer terms to the other side that they know in advance will be rejected, especially when you still have not worked out your BATNA.

This, it seems to us, is where we are today. The UK has signalled very strongly to the EU the deal it wants. The EU has said that there are no circumstances under which such a deal will be on offer. The dilemma this creates for the UK is this: if you don’t ask, you don’t get.

But if you know beforehand that what you are about to ask for you won’t get, better not to ask. As the sign in the shop says: “Don’t ask for credit as a refusal can often offend”.

There is a further dilemma for the cabinet. It knows, even if it won’t admit it, that nothing is economically better for the UK than the relationship it has today with the EU, full membership. Even its ideal deal would leave it worse off as government analysis made available this week shows. So, if any alternative you are considering leaves you worse off than where you are today, and if your preferred alternative which minimises the damage is not on offer from the other side, what actually do you ask for? And how do you justify that to the electorate?

As Jeremy Warner comments in the staunch pro-Brexit, Telegraph:

Part of the argument for Brexit, however, is that we will quite literally be better off out than in, economically as well as metaphorically. This has always been mere assertion. It is completely unknowable; so much depends on how commerce and public policy respond to the challenges.

Reminiscent of the union leader who enthuses his members with a promise of a 20% pay increase, more holidays and seats on the board so that they can “take back control” only to realise that what he is faced with is a pay cut, job losses and factories closures if he pushes ahead. How does he walk back from what he promised and still keep his members on board? The status quo may be the best of all possible worlds but, in the strangled language we often come across in labour relations “he has burnt the bridge to that particular boat and it won’t fly.”

If the UK government does table an unachievable endgame proposal then, to use Bevan’s phrase “you don’t have to gaze into a crystal ball when you can read an open book.” We saw what is likely to happen this week.

The UK asked for a transition arrangement. The EU offered such an arrangements on its terms. After all, it has no obligation to do so. It was, as we have repeatedly said, the UK that decided to leave.

The EU’s offer is simple. If you want a transition then you have to follow all EU rules during the transition, such as free movement as exists today and accept any new laws that may come into force during that time. But, because you will have left on March 29th, 2019, you will have no involvement in the EU’s governance structures after that date.

The UK is now arguing that these terms are unfair. It wants to put limitations on free movement and it wants the right to veto laws it doesn’t like. All of which brought the EU’s chief negotiator to say at a press conference in Brussels last Friday:

“If these disagreements persist, the transition is not a given.” (See the full text of Barnier’s remarks here).

Decoded: your choice to leave: your decision as to whether accept the terms or not. You asked for credit. We didn’t refuse. Now you are arguing with us over the credit terms. It is your refusal that offends.

So, back to where we started, with the BATNA dilemma. All members of the UK cabinet know that the UK will be worse off when it leaves. They also know that the EU will not offer it the “deep and special partnership” it wants. That leaves two alternatives. Cut your losses or go for broke. A hard-nosed, limit the damage, calculation against a blind leap of faith. Not much of a choice. No wonder they can’t agree.

A footnote: We have written before that deals agreed across the table can fall apart when it comes to writing them down. It begins to look like that that is exactly what will happen with the Article 50, phase one agreement done before Christmas over the issue of a border in Ireland. The UK government thought it had kicked the can down the road.

It had, but now finds that the road is a cul-de-sac and the end wall is immediately ahead. No deal on Ireland means no Article 50 withdrawal agreement. No Article 50 agreement, no transition arrangement. Brexit may crash into that end wall sooner rather than later. If that happens, the BATNA dilemma may become an irrelevance.