Backstop, Brexit, British Government, Conservative Party, Data Protection, Negotiating

There’s no #EP2019 #Brexit domino effect. UK is on its own

This Blogpost was written on Tuesday May 28th, 2019

Election night at the European Parliament in Brussels

Tuesday, May 28, 2019. Two days after the European Parliament elections and the political landscape becomes a little clearer.

There has been no “right-wing/populist” surge of the sort that many commentators were predicting some months back. True, the hold on the parliament that has been exercised by the centre-right EPP and centre-left S&D, working together, has been broken. That’s no bad thing. But it has been broken by the very pro-EU Liberals and Greens and not by the extreme right of France’s le Pen and Italy’s Salvini.

Even in the UK, “hard-core” remain parties such as the Liberal Democrats and Greens polled 40% against 35% for the Brexit Party and the now defunct UKIP. With the Tories and Labour on a combined 23%, the numbers suggest that there is now a narrow majority in the UK in favour of remaining in the EU.

Inside the European Parliament it is the parties based on civilised and democratic values, who between them hold around 70% of the seats, that will determine the future of the EU and have a critical say in deciding who will be the next president of the European Commission and other top jobs in Brussels.

Yes, Nigel Farage from the UK’s Brexit Party will be there, for the moment at least. But what’s he going to do? Shout about the UK wanting to leave the EU? Farage is a one-trick pony and when the pony has done its trick there’s not much left for the pony to do.

Farage is now pledging to field a full slate of candidates in the next general election. In both the 2016 referendum and in last week’s election he got away with saying little more than “Brexit means Brexit”, to borrow a phrase from Theresa May. A general election will require a manifesto and a complete suite of policies. When Farage spells out the sort of Britain he wants after Brexit, how much of his vote will melt away?

Some Brexiteers had been hoping that a “populist” European Parliament might have generated pressure on the European Council and the European Commission to cut the UK a different Withdrawal Agreement than the one now on offer. That’s not going to happen. One standout fact from the elections is the almost non-existent support in any country for calls to follow the UK out of the EU and into the wilderness. Brexit has not created a domino effect. The UK is on its own.

Ireland certainly won’t be following the UK out. The Irexit candidate in Dublin got less than 1% of the vote.

It is also worth noting that Northern Ireland has returned two “Remain” MEPs, one from Sinn Fein, the second from Alliance, along with one “Leave” DUP MEP. If they did not already know it, MPs at Westminster should now know that when it comes to Brexit the DUP does not speak for all of Northern Ireland. In fact, they speak only for a minority. The “backstop” is designed to protect the economic position of Northern Ireland and to safeguard the Good Friday Agreement. Why would the EU heed calls from Brexiteers to drop it when it is clear that it is what the people of Northern Ireland want?

Which brings us to the process, now underway, to select a new Conservative leader to take over from the hapless Theresa May. Already, we are seeing candidates for the job such as Boris Johnson and Dominic Raab saying that they plan, if elected, to go to Brussels and demand to renegotiate the Withdrawal Agreement and if the EU does not fold, they will take the UK out of the EU with no-deal no later than October 31st next.

Here is Raab in the Mail on Sunday:

We should keep the arm of friendship extended to our European neighbours. Over the long-term, both sides will want to build a new partnership.

But we must also calmly demonstrate unflinching resolve to leave when the extension to negotiations ends in October – at the latest.

I would prefer that we leave with a deal. There is still time to negotiate changes to the so-called backstop of EU laws, over which currently we would have no say. That is a reasonable, limited request and would work in all sides’ interests.

It is the only solution MPs have approved. But we will not be taken seriously in Brussels unless we are clear that we will walk away on World Trade Organisation (WTO) terms, if the EU doesn’t budge.

Now, there is no chance of the EU “folding”. It is simply not going to happen. So, could we be heading for a no-deal Brexit and what would that mean?

First, a little history and context.

In 1951, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany signed the Treaty of Paris establishing the European Coal and Steel Community (ECSC). The ECSC was first proposed by French foreign minister Robert Schuman a year earlier as a way to prevent another war between France and Germany. He said he wanted to make war between the two countries “not only unthinkable but materially impossible”. It was never just about business or economics. It is, and always was, a political and peace project.

From the ECSC in the early 1950s to today’s European Union, countries across the continent, from Ireland in the west to Poland in the east, from Finland in the north to Greece in the south, have worked together to build an economic, political, social and cultural ecosystem in pursuit of the common good. That ecosystem allows the 28 member states to maintain their own unique identities and national sovereignties while, at the same time, being part of something bigger that adds value to those unique identities and sovereignties.

The European ecosystem touches every part of our lives, in some way or other. The customs union and single market provide a framework to facilitate and enhance frictionless, borderless, trade between us all. Cross border health insurance, pet passports, borderless travel, mutual recognition of car insurance and driving licences, among other things, make everyday life easier and less complicated. Not forgetting our data protection rights, increasingly important in an ever connected and online world.

And everything in between, covering farm, food and factory safety, agreements on medical standards, air travel, justice and home affairs. The members of the EU have adopted thousands of common policies, often the result of long and tedious negotiations. Common policies in pursuit of the common European good. Everyone around the table has a say.

Externally, the EU has hundreds of agreements with other countries, using the collective leverage of 28 to secure more favourable terms than any one country could secure on its own. Size delivers strength. These deals govern much of our business relationships with the rest of the world.

If any country, the UK included, wants to leave the EU ecosystem it is entirely free to do so. Leaving such an ecosystem will incur costs, considerable costs.

But talk of the UK leaving the EU with “no deal” is difficult to take seriously, suggesting as it does that the UK can, somehow or other, exist without having any commercial or other agreements with the EU. Around 50% of all UK goods and services exports go to the EU. For that to continue to happen there needs to be rules and rules do not miraculously appear. They have to be negotiated. There has to be a deal.

The Brexiteer answer is that the UK can leave the EU on World Trade Organisation (WTO) terms and that Article 24 of the General Agreement on Tariffs and Trade (GATT), which forms the basis of WTO rules, would allow the UK to continue to trade with the EU for up to ten years on current terms.

Leading Brexiteer, Jacob Rees-Mogg, has argued:

“If you are in a negotiation for a free trade agreement, you can maintain your existing standards for ten years under WTO rules. So we have ten years from the point at which we leave the European Union to negotiate a free trade agreement with the EU which would mean we can carry on with our zero tariffs.” – On BBC’s The Daily Politics Show 10 May 2018

Article 24 allows that countries that want to create free-trade areas or a customs union, but haven’t yet concluded the final deal, to put in place an interim arrangement. During this interim arrangement, Article 24 says that tariffs and regulations can “not on the whole be higher or more restrictive” than before the interim agreement (there are currently no tariffs on trade between the UK and EU). These countries can only put such an interim agreement in place if they have a “plan and a schedule” to form the free-trade area or customs union within “a reasonable length of time”.

Further on in Article 24 it says that a reasonable length of time “should exceed 10 years only in exceptional cases”. (See https://fullfact.org/europe/article-24/)

Now, I am not a trade expert, just an old-fashioned labour negotiator. Sadly, a dying breed. But, as a negotiator, it seems to me that there are a number of things wrong with the “let’s just leave on WTO terms” argument.

The first is that Article 24 cannot be unilaterally invoked by one party. There has to be an understanding between the two parties that they will negotiate a trade agreement before Article 24 can come into play. If the UK has just walked out of the EU and away from the Withdrawal Agreement which covers its outstanding financial obligation, citizens rights and the Irish border why would the EU agree to then open negotiations for a trade agreement?

Imagine you had just written to your bank manager telling her that you were no longer going to meet your mortgage obligations or pay off your credit card. However, you would like to open discussions on taking out a new loan. What do you think the response would be? “Come on in, how much do you want?”. Probably not. The bank would demand that you honour your commitments or face the consequences.

This is what will happen with a “no-deal” Brexit. The UK will need the EU’s agreement to any sort of trading relationship it wants to put in place. There is no way the UK can force the EU to do anything the EU does not wish to do. If the UK thinks the EU is in breach of WTO rules it can make a complaint through the appropriate WTO procedures. Such complaints can take years to resolve. In the meantime, there is trade chaos. Sure, the EU will also take a hit. But compared to the 50% of UK exports that go to the EU only 7% of EU exports go to the UK.

Before the EU will agree to any negotiations with a “no-deal” UK it will insist that the UK meet its financial obligations, respects the rights of citizens and agrees to the backstop. In dealing with these demands the UK will now be outside the EU and in a very much weaker bargaining position.

Secondly, there are many areas regulated by existing EU common policies which the WTO doesn’t cover. Data protection, for example. If the UK walks out of the EU on a no-deal basis then it immediately becomes a “third country” to which it would be illegal to send data that comes within the scope of the GDPR.

Companies could try to negotiate around this through such instruments as binding corporate rules while the UK sought an “adequacy decision” from the EU. Such decisions can take many years to secure and can be easily withdrawn. There is also the possibility that the European Court could strike down binding corporate rules as being inadequate to meet the requirements of the GDPR at any time. In the meantime, the flow of data, very much the lifeblood of every modern economy, dries up.

The facts of history, geography and business patterns mean that the UK cannot cut itself adrift of the European mainland. It needs to deal with the EU and deals require negotiations… years of negotiations.

There can never be such a thing as a “no-deal” Brexit, unless the UK is planning to become the North Korea of Europe, an autocratic state, behind closed walls. Personally, I’m not convinced that pushing such a policy is the road to electoral success.

Yet, for the next few months we are going to see Tory leadership candidate after candidate competing to outbid one another as the one who can outstare the EU and get a “cake and eat it” Brexit deal. They’ll need matchsticks to pop up their eyelids. Even then, they’ll just come back from Brussels boggle-eyed.

All the time, because of the indecision and uncertainty, businesses will just continue to move away.

 

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