Backstop, Brexit, Northern Ireland, Theresa May

Book 1 on #Brexit Closes – Book 2 will be a lot harder to write.

This Blogpost was written on Sunday Nov 25th, 2018

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Imagine you are in reasonably well-paid, full-time employment with a large company, with a decent benefits package. Your company is doing well… all things considered.

Your union negotiators come back from a meeting with management to announce that they have reached an agreement that you and your colleagues are to lose your full-time employee status and to become self-employed contractors, with no guaranteed hours or weekly pay package.

However, you will be free, as independent contractors, to pick up other work elsewhere, if you can. All of this will kick-in in two to four years’ time, which is the time needed to work out the detailed terms and conditions of the new arrangement. Call it a “transition arrangement” or “implementation period”.

During the “transition” you will continue to pay into various company funds, but your entitlement to benefits from these funds will cease when you move onto the new terms.

Sure, says your negotiators, you may not be as secure or as well off in the future as you are now, but you can be safe in the knowledge that you will have taken back control.

Once the union negotiators had agreed to give up permanent, full-time employment then any deal they can do during the “transition period” will be less attractive, by some considerable distance, compared to the deal the members now have. For the vast majority of people security in the here and now is preferable to “swashbuckling” into an unknown and uncertain future.

Anyone who has ever spent time as a union negotiator will tell you how such a deal would be greeted by the members.

The negotiator who brought back such a deal would immediately be seeking new employment elsewhere, with their chances of finding a new job slim, to say the least. No union negotiator ever willingly negotiated to make his or her members poorer and less secure. Oh, and any such deal would be voted on by the membership, not just the shop stewards committee.

It’s not an exact analogy but it is not far from the Brexit package, made up of the Withdrawal Agreement and the Political Declaration, that was concluded this week between the EU and the UK.

No matter how you slice it and dice it the UK is about to spend years negotiating to make itself less well-off than it otherwise would have been. Is this the first known case in history of a country demanding a worse trade deal than it currently has? From the biggest and richest trade bloc in the world?

In the Withdrawal Agreement the EU hit all its key objectives on citizens’ rights, the UK’s financial obligations and the need for an Irish “backstop” to avoid the return of a hard border on the island. The UK got a two-to-four-year transition out of the EU, which will see it subject to all EU rules, including new rules, but with no say in their development.

In the Political Declaration on the future relationship between the UK and the EU, the UK got the freedom to negotiate how far it wants to move away from EU rules and standards. The further it moves, the more barriers to trade in goods and services will be put in place. The more barriers, the more trade will take a hit.

That “hit”, in theory, will be compensated for by all the trade deals the UK will do at some point in the future with non-EU countries. But the vast majority of trade experts, plus the government’s own analysis, show that the benefits from such deals, if any, will be miniscule compared to the EU trade lost.

This is like giving up your guaranteed wage packet in the hope that you can make more money from work elsewhere when you have no idea where that work is going to come from. Live horse, you get grass.

Sure, the Political Declaration is full of language about “ambitious” agreements being negotiated on a whole range of issues. Unfortunately, the world is full of unrealized ambitions. A commitment to negotiate can never imply a commitment to actually reach an agreement. One or other party to a negotiation may not like the terms on offer and decide to walk away. It happens all the time. You’d like to buy the house, but not at that price.

The one concrete achievement the UK can point to is the decision to end freedom of movement for EU citizens into the UK when the transition period ends.

In a letter to the UK electorate, released on Saturday, November 24th, the UK Prime Minister, Theresa May put the ending of free movement up front and centre stage. She wrote:

“We will take back control of our borders, by putting an end to the free movement of people once and for all… Instead of an immigration system based on where a person comes from, we will build one based on the skills and talents a person has to offer.

Of course, the letter fails to mention that this also means ending the right of UK citizens to freely go and work, study, live or retire in Europe. Strange is it not, that the ending of a freedom that your own citizens have enjoyed for the past forty years is seen as a major political win? When you pull up the drawbridge to keep people out you also end up keeping people in.

Speaking to the Politico journalist, Tom McTeague, a UK Tory minister summed it all up:

“Well, it’s lose-lose, isn’t it… But that’s Brexit. The only way this might work is if everyone loses. That’s it isn’t it. We all have to lose for this to happen. That’s the reality. It’s lose lose.”

To put that another way, we know what we are going to do will damage us but we are going to do it anyway. Fabian Zuleeg of the European Policy Center told the Guardian:

“The economic pressure will be enormous… But we now have to negotiate the worst trade deal in history – the only one that’s a reduction on what we have.”

Let’s assume that the UK parliament accepts the deal on offer, a very big assumption that we will come back to. What would then happen?

On March 29th, 2019 at midnight Brussels time the UK will officially cease to be an EU member. It will become a “third country”. However, after midnight nothing changes because of the transition period in which the UK has agreed to continue to apply all EU laws, including new laws and to act as if it were an EU member, accepting all the obligations of membership.

The transition is currently scheduled to end on December 31, 2020, but the parties can agree to extend it for a further two years, to December 2022. However, that would take the transition beyond the next UK general election, due in June 2022, which could create political difficulties in the UK. Then again, 2022 is a long way away and much can happen in the meantime.

During the transition, however long it turns out to be, the EU and the UK will open negotiations on the details of the agreement headlined in the Political Declaration. Keep in mind that during 2019 the EU be holding elections for the European Parliament, to be followed by the selection of a new EU Commission president and the appointment of a new EU Commission.

In such circumstances, it is unlikely that any great progress would be made in the negotiations. The EU will run things in accordance with its own political dynamics, and not to fit in with the UK’s electoral cycle.

During the Article 50 negotiations, which concluded with the signing off of the Withdrawal Agreement and the Political Declaration on November 25th, the EU presented a solid, united front. This despite repeated UK attempts to do an end-run around the EU’s negotiator, Michael Barnier, and to “divide and conquer” the 27 EU member states. Within days of the 2016 referendum result the EU decided on its negotiation procedure and key objectives and refused to move off its agreed approach.

That approach was simple. First a Withdrawal Agreement with the focus on citizens’ rights, the UK’s financial obligations and the Irish border issue. Secondly, when sufficient progress was made on these three issues, discussion on the “future framework” for the relationship between the UK and the EU. Finally, an insistence that talks on the substance of that relationship could only begin when the UK had actually left the EU.

For its part, the UK had wanted an omnibus negotiation, with everything on the table at the same time, so that the UK could leave the EU on March 29th, 2019, with future trading arrangements already agreed and in place.

As is clear by now, it was the EU and not the UK that dictated the agenda. The UK did itself no favours by not being able to decide what Brexit actually meant. It is hard to negotiate when you don’t know what you actually want. Repeating that “Brexit means Brexit” only gets you so far.

One important point to keep in mind. The Article 50 Withdrawal Agreement was subject to qualified majority voting (QMV) on the EU side.

This means that no one country could veto the deal. However, as was seen over the past few days with the last-minute dispute over Gibraltar, (see here for details) the EU rarely pushes matters to a vote, especially if a member state expresses grave concern over an issue. But the threat of QMV gives the EU soft leverage in talks with the member state in question.

During the next phase of the Brexit process, whatever agreements are negotiated will be subject to unanimity on the side of the EU. Every country has a veto. In fact, in some countries, such as Belgium, regional parliaments also have a veto, as was seen when Wallonia temporarily blocked the EU-Canada trade agreement.

Don’t be surprised if a great many EU countries have issues they want to put on the table. Spain will want to follow through on Gibraltar. France, Spain, Portugal, Belgium, the Netherlands and Demark will be demanding access to British waters for their boats in return for EU market access for British fish and seafood. Greece might demand the return of the Elgin Marbles. Poland is certainly going to be concerned about the rights of Polish citizens in the UK. Ireland might even demand Liverpool.

Reports in the Telegraph suggest that future UK immigration policy after Brexit will see “low-skilled migrants” issued with 11-month visas “with restricted entitlements and rights” while they are living in the UK.

Young EU citizens aged between 18 and 30 will be able to live and work in the UK for two years, with a strict cap on numbers. The cap on highly skilled workers such as doctors and nurses will be abolished entirely so the UK can attract the “brightest and the best”.

Once the next round of talks get under way, expect many EU countries to table demands for “exceptions” to these proposed immigration rules. Ending “freedom of movement for once and all” may not turn out to be any such thing. Nothing will be agreed until everything is agreed.

In effect, after March 2019, the UK will be negotiating not just with the EU Commission on behalf of the EU as a whole, but with all 27-member states on their own particular concerns, with each state holding a veto. As Spain showed in recent days with Gibraltar, they will not be afraid to use these vetoes. Does the UK have the diplomatic bandwidth, never mind the political leadership, to manage such complexity?

The one thing we can expect in politics is the unexpected. Who knows what can happen that changes all calculations? Trade deals that were on offer get taken off the table. New problems appear that change priorities.

All we can say for certain is that years of uncertainty beckon and that uncertainty will make business planning extremely problematic. Would you invest billions in a new car plant or major manufacturing facility in the UK today if the basis of that decision was free access to the EU single market? The question answers itself.

Before we even get to the next round of negotiations after March 29th, 2019, the Withdrawal Agreement has to get through the House of Commons. As of today, Sunday, November 25, that looks unlikely, certainly at the first time of asking. All of the opposition parties say they will vote against it, for various reasons.

The Northern Irish Democratic Unionist Party (DUP), on which the May government is dependent for its majority in the Commons, has also declared against the deal, as have large numbers of Conservative backbenchers.

The concern of the DUP and the Conservative backbenchers is the “Irish backstop”, which guarantees no hard or visible border on the island (details of this can be found in last week’s Briefing here). They see the backstop as locking the UK into a customs union with the EU which the UK can only leave with EU agreement, while potentially decoupling Northern Ireland from Great Britain.

What happens if the Commons votes down the Withdrawal Agreement? No one can say for certain but, unless the Commons votes otherwise then the UK will leave the EU on March 29th without agreed withdrawal terms and EU law will immediately cease to apply.

The Commons has already voted laws to that effect. Should this happen, there will be no transition. Emergency measures to avoid chaos would need to be put in place by both the EU and the UK. It would be a very messy and bad-tempered divorce.

Would the EU agree to reopen the Withdrawal Agreement if the Commons votes it down? Probably not, because any UK ask in such circumstances would amount to requesting the EU to breach its own red lines and internal order to facilitate a country that was leaving the EU.

The next few weeks will be critical and there are no guarantees that wiser counsels will prevail.

The UK is in a bad political place, with no easy answers on offer, no magic bullet available, no get out of jail card to be played.

There are no good Brexit deals available. All there is now is damage limitation.

When we first started writing these Briefings back in June 2017 we advised businesses to hope for the best but to prepare for the worst.

Hoping for the best has long disappeared.

All that is left is preparing for the worst.

Brexit: Book 1 closes with the signing of the Withdrawal Agreement. Book 2 will be a lot harder to write.

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