This blog was written on Feb 25th, 2018:
“The fact that the UK cabinet can spend entire days debating its preferred Brexit choices while completely ignoring what is actually negotiable with the EU never ceases to amaze” wrote John Peet, lead for the Economist on Brexit, in a Twitter post.
The post came after the UK “war cabinet” spent a day at the prime minister’s country house in Chequers trying to work out the “end state” of the Brexit process. Trying to find an answer to the question: Just what commercial and trading relationship does the UK wants with the EU in the future?
In the words of Donald Tusk, president of the EU Council, the answer they arrived at was “pure illusion”.
While we won’t know for certain what the cabinet decided until the Prime Minister, Mrs. May, makes a major speech next Friday setting out their plan, leaks suggest that the cabinet has decided that not only does it want to have its cake and eat it, it now also wants to own a half-share in the bakery as well.
In effect, the UK government is moving from “cakeism” to “half-bakeism”.
“Half-bakeism” is to “cakeism” what Marxist-Leninism is to Marxism: a roadmap as to how to seize power in the name of the original doctrine.
Cakeism is the belief, on the part of many Brexiteers, that the UK can have all the benefits of the EU’s integrated, internal market – the single market + the customs union – without actually being a member of either and having to shoulder the obligations that membership brings.
The UK health secretary, Jeremy Hunt, said in a BBC interview on Friday that the UK government wants to agree a “frictionless trade by agreement between two sovereign bodies, the United Kingdom and the European Union”,
The words “two sovereign bodies” is the giveaway as to what “half-bakeism” is about.
After Brexit, the UK government wants the UK to be regarded as the equal to the EU, even if the EU will be some six to seven times economically bigger.
This thinking also comes through in UK demands that the UK have a de-facto veto over EU laws during the transition period that it hopes will come into force after it leaves on March 29, 2019. The UK wants to have powers outside the EU over EU laws that it does not now have as a member. It wants a “mini-me” union between the “sovereign UK” and the “sovereign EU”. No doubt such “joint sovereignty” would roll over into future permanent arrangements.
The leadership of the Labour Party, no strangers they to Marxism-Leninism, also appear to have bought into “half-bakeism”. According to Labour’s shadow foreign secretary, Emily Thornberry, “Labour has to leave the current customs union on Brexit but negotiate a new agreement “pretty much like the current customs union”. UK would then jointly negotiate with EU future free trade deals with third parties.”
The UK and the EU as equal partners jointly negotiating trade deals with the rest of the world and, no doubt, jointly agreeing the internal rules that would govern this new customs union. Red cakeism with a cherry on top (to differential it from blue cakism, which has no cherry).
Needless to say, the “war cabinet” doesn’t refer to its latest policy formulation as “half-bakeism”. It is “ambitious managed divergence”, otherwise known as the “three baskets” approach.
Former Deputy Prime Minister, Nick Clegg, a fierce critic of Brexit, neatly describes the “three baskets” in the Financial Times as:
• First, one that represents all those industries, such as aerospace and automotive, that ministers believe might wish to preserve full alignment with EU rules.
• Second, a basket in which ministers will seek an agreement with the bloc on shared goals, possibly affecting consumer rights, animal welfare and environmental protection, but where those goals will be reached by different means.
• And finally, one that covers those sectors that the government wants to distance sharply from EU regulation, such as fisheries or agriculture.
A significant part of the services sector, such as the financial sector, would fall into basket 2, “managed mutual recognition,” where the two sides would agree on a common set of goals but set their own rules, which could diverge over time.
As Jeremy Hunt put it in the BBC interview mentioned above:
“… central common understanding (among ministers) is that there will be areas and sectors of industry where we agree to align our regulations with European regulations, such as the automotive industry. But it will be on a voluntary basis, we will as a sovereign power have the right to choose to diverge, and what we won’t be doing is accepting changes in rules because the EU unilaterally chooses to make those changes”.
But slides drawn up by the European Commission’s negotiators and shown to the European Council (EUCo), released just hours before the Chequers meeting, say such an approach is unacceptable.
“UK views on regulatory issues in the future relationship including ‘three basket approach’ are not compatible with the principles in the EUCO guidelines,” the slides say.
The Commission says the proposal breaks four of the red lines set by the EU 27-member states: preserving the autonomy of EU decision-making; preserving the role of the European Court of Justice; and preserving the integrity of the single market; as well as potentially upsetting third countries.
Michel Barnier, the European Commission’s chief negotiator, has repeatedly said that the UK cannot “cherry pick” which aspects of the EU it wants to retain and “ambitious managed divergence” is just another piece of jargon to describe “cherry picking”. Old brandy from picked cherries in a new bottle.
Milton Friedman once said:
“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”
Therein lies the problem for the UK.
The EU simply does not see that it benefits the EU to agree to a UK cherry picking… sorry… ambitious managed divergence… approach and therefore, will not be offering the UK a deal along these lines.
Unless you have significant leverage to force them to do so, one party to an exchange cannot make the other party offer a deal it does not want to offer. And the UK has no such leverage. As we have discussed in previous Briefings, it also has not worked out what to do when it doesn’t get the deal it is asking for. See The BATNA Dilemma
The reason the EU sees no benefit in the UK’s approach is that an integrated, internal market is just that, a market that is internally cohesive with no artificial barriers between different sectors of the economy. In any event, how do you differentiate between different sectors in today’s knowledge-based, big data driven economy?
The HP laptop on which I am typing this briefing is a piece of hardware I brought in the UK and had shipped to France, where I live. But the hardware is the least of it. The MS Office application I run on the laptop is somewhere in the Microsoft Cloud and the data I access through Firefox is held, who knows where? Hardware and software, basket 1 or basket 2?
And a car these days is as much a computer system as it is a way of getting from A to B. The data that a car can generate about its users can be captured and used for targeted marketing use.
“The overall revenue pool from car data monetization at a global scale might add up to $450 billion to $750 billion by 2030,” concluded a group of McKinsey & Co. researchers, in a report titled “Monetizing car data: New service business opportunities to create new customer benefits”, published in 2016.
In other words, how do you slice and dice an integrated modern economy? You don’t because you can’t. Cherry picking, three baskets, ambitious managed divergence, are not only politically unacceptable but economically illiterate.
Not going to happen. The three baskets is a basket case.
No half-bakeism. You are in the integrated, internal market or you are out. And it will take a long, long time for the UK to leave in an orderly fashion. You don’t undo forty years of deep integration in two years. Especially when you have done precious little preparation beforehand.
Now, much of the deepness of this integration passes people by in the daily lives because so much of it is simply taken for granted, as if this is the way things always were, and always will be.
I live not far from the Eurotunnel, on the French side. Every day I pass UK cars on the E40, on the way to destinations throughout Europe. At this time of year, many have skis on their roof racks as they head towards the pistes of France, Switzerland or, maybe, Austria. At other times of the year they are heading to the beaches of the South of France or the Spanish Costas. Sometimes you can see a dog looking out through the back window of the car in front.
Surely, none of this will change after Brexit? But keep in mind that Brexit hasn’t happened so, as UK Prime Minister, Theresa May, might say, “Nothing has changed, nothing has changed”. Yet.
But consider. First, John and Jane and their two children and Rover the dog can take the Chunnel from Dover to Calais because they don’t need a visa to come to the continental mainland and travel freely across it. No need to go on-line to register to visit, as you need to do to go to the US or Australia. Will there be visa regimes in place after Brexit? Whatever about short term travel, what about long-term stays? Retirement to Spain?
Secondly, John and Jane can drive across the continent because their UK driving licences are recognised in every other EU country. That won’t be the case after Brexit. Some form of licence recognition regime will be put in place, no doubt. But at what cost and inconvenience? (Will the cars themselves also need to be certified to EU safety standards?)
Thirdly, Rover gets to come along because of the EU’s Pet Passport scheme which allows pets to travel with their families, subject to certain health measures haven been taken beforehand. A deal on this will also have to be renegotiated between the EU and the UK. For the dog loving British, “free movement for Fido” will be of more importance than the free movement of people.
One family, one dog, one car on a road in France with three issues, maybe four, that need to be renegotiated and regulated after Brexit. Assurance by Brexit politicians that things will stay “as they always were” are worthless because all of these things have to be negotiated and agreed with the EU, some of them maybe even with individual member states, such as the right to retire for a non-EU national to that country. To repeat the Friedman quote: “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” There is nothing for nothing.
Brexit is not just about business. It is also very much about daily life. Unfortunately, that won’t become clear until it is too late and the UK has left the EU and the sunny uplands promised by the Brexiters turn out to be a cold, damp and lonely place.
Denis McShane said during the week that “ambitious managed divergence” would be better described as “managed ambitious divergence”: MAD.
Usefully sums it up.