Article 50, Backstop, Boris Johnson, Brexit, Data transfers

Brexit: To Go On Forever?

This blogpost was written late on August 17th 2019
truck queues
Queues of lorries near the Port of Dover via the BBC website

During the past week, while the political manoeuvring to block a no-deal Brexit grabbed all the headlines, probably the most significant development was one that would have fallen below most people’s radar, politicians included.

It was this Tweet from the French Embassy setting out the sanitary and phytosanitary controls that plant and animal product exporters from the UK could expect at French borders when the UK becomes a “third country”, out of the EU. Words to set the heart racing: “sanitary and phytosanitary controls”, are defined by the EU as “measures to protect humans, animals, and plants from diseases, pests, or contaminants.”

Such controls mean the end to “frictionless” trade and will lead to delays at borders. How extensive will the delays be? Who can say? All it takes to start a queue is one or two overly eager customs officers determined to make sure a trucker’s paperwork is in order. A very long queue.

Remember the chaos some months ago when French customs went on a “Brexit warning” strike? Chaos back up to the Belgian border, some 50K from Calais.

Why is the French Tweet important? Because Brexiteers, Johnson included, who are pushing for a “no-deal” Brexit have repeatedly said that the French/EU would never do this. The morning after Brexit, they claim, things would be the same as the night before. The EU is bluffing because “they need us more than we need them”.

In their pamphlet, Avoiding the Trap – How to Move on from the Withdrawal Agreement, the leading Brexiteers Martin Howe, Richard Aikens and T. D. Grant set out this argument as follows.

“…the rules which the EU applies to imports from the UK are not under the UK’s control in the same way as the rules governing imports from the EU27 into the UK. This has led to suggestions that the EU27 will simply refuse to recognise any UK goods as conforming with their required product standards despite the fact that unless and until the UK chooses to change its rules and standards, goods made in the UK will, in fact, continue to comply with EU rules.”

In other words, as long as we stay the same as you, you can’t do anything. They go on to argue that there are two constraints on the EU: World Trade Organisation’s (WTO) Technical Barriers to Trade (TBT), and Sanitary and Phytosanitary (SPS), Agreements.

These require WTO members to recognise that goods and agricultural products from other WTO members are compliant with the standards which they impose on domestic goods, unless there is an objective reason for refusing them entry or for not recognising something, e.g. testing certificates issued in another state.”

Howe et al contend that where the UK continues to follow EU rules on standards after exit, “no such objective reason will exist, unless and until the UK decides to change those rules in particular sectors.”

This, they conclude, would mean that the “EU would therefore be on to a hiding to nothing in the WTO disputes procedure if it were arbitrarily to restrict imports of goods from the UK after Brexit.”

To put this another way. Brexiteers like Howe believe that the WTO will order the EU to give the UK what it wants, frictionless trade, until such time as a full Free Trade Agreement is negotiated.

Brexiteers want the UK to leave the EU so it can regain sovereign control over its borders, laws and money. Is it not somewhat ironic that they are now demanding that another transnational body, the WTO, “orders” the EU the give the UK what it wants?

What Howe demands is not going to happen for several reasons.

First, just because he and his colleagues think this is what WTO rules require does not mean that this is the case. Their interpretation will be robustly contested by the EU. The matter may end up in the WTO disputes procedure. That could take many, many years. In the meantime, the EU will take such measures as it thinks necessary to safeguard the integrity of the single market, as the French tweet shows. Controls will be applied at Calais. Brexiteers may huff and puff that this is nothing more than “punishment” for the UK leaving the EU but that’s about all they can do.

Secondly, the WTO has poor enforcement mechanisms. Countries routinely ignore rulings when they go against them. The “WTO Godfather” has no Luca Brasi to send around and ask for your brains or your signature on the contract.

Thirdly, the EU will probably go further and argue that WTO rules have nothing to do with the negotiations between it and a country that wants to leave the EU. Its stance is, and will continue to be, simple and straightforward: if you want to leave then go ahead and leave and afterwards we will see where we stand. Just meet your obligations on the way out, as set out in the Withdrawal Agreement.

Seasoned negotiators are familiar with the difference between a conflict of interests and a conflict of rights. Conflicts of interests, to put it simply, are conflicts over who gets what share of the pie. Such conflicts are resolved through the application of power and leverage. In the hard, real world in which we live, it is generally the stronger and better resourced party that sets the terms of the deal. Conflicts of interest are rarely, if ever, decided by “judges”.

The decision by the UK to leave the EU so it can diverge from EU laws creates a conflict of interest. It gives rise to a negative-sum negotiation. Brexit will leave both sides worse off. The negotiations between the EU and the UK will determine who carries the greater share of the costs. The EU is not going to hand that decision over to the WTO.

A conflict of rights arises when parties allege that their rights under an existing agreement are being infringed. Such conflicts can be referred to a court or tribunal for settlement by reference to the text of the agreement. By invoking the WTO, what Howe and Johnson who is following the Howe roadmap, are trying to do is allege that WTO rules govern the UK’s exit from the EU. There is no need for a withdrawal agreement as one already exists in the shape of WTO rules. Howe is trying to turn a conflict of interest between the EU and the UK, in which the UK is clearly the weaker party, into a conflict of rights by alleging that the EU is in breach of an existing agreement.

As the Americans would say, it is a “Hail Mary punt”. WTO rules were never written to deal with a situation where a country wanted to leave a deeply integrated trading bloc. They were written to encourage the elimination of barriers not to facilitate their creation.

For all the political manoeuvring, the UK still faces the same three fundamental choices when it comes to Brexit as it always has. First, it can cancel Brexit by revoking the Article 50 notice to the EU. Second, it can leave the EU on the basis of the Withdrawal Agreement and then, during a transition period, enter into talks on a long-term relationship. Or, three, it can leave on a “no-deal” basis.

If Article 50 were to be revoked then the “status quo” prevails and the UK remains a member of the EU on current terms and conditions. The political fallout of “revoke and remain” in the UK are for consideration on another day.

“No-deal Brexit” and “Withdrawal Agreement Brexit” in the end amount to the same thing: the UK quits the EU’s customs union and single market, as well as the rest of the EU’s political and legal infrastructure.

No matter how you look at it, the UK exiting the EU’s customs union and single market will deliver a severe shock to the UK’s economy. The EU accounts for around 50% of the UK’s exports and irrespective of what deals are done with the US or anyone else that size of market share is not going to be replaced anytime soon. Not that it will all fall away. But it will be more time consuming and costly to export from the UK to the EU. That will have a long-term depressing effect on both exports and future investment.

The only difference between a “No-deal Brexit” and a “Withdrawal Agreement Brexit” is that the latter gives the UK time to adjust and to begin negotiations on its long-term relationship with the EU. A no-deal Brexit is like a heart attack. The patient may not die but if they live they may well be a different person afterwards and may never be their old self again.

Proponents of both a No-deal Brexit and a WA Brexit talk about getting Brexit “over the line”. This wording seems to me to betray a somewhat naïve assumption that if Brexit can just be got “over the line” then it will all be over and politics and everyday life can return to “normal”.

Brexit will never be over because the UK simply cannot detach itself from the European mainland which is, and always will be, its biggest market. Geography is the cruellest and most unforgiving master.  

Nor can the UK simply ignore what has happened over the past sixty years. Since the early 1950s European economies have, in fits and starts, become deeply integrated. Because of the EU single market, businesses no longer think in country terms but work with just-in-time manufacturing supply chains, cross-border data streams and distributed management structures.

I consult with companies where, for example, the chief executive is based in London, the HR Director in Brussels, the labour relations director in Grenoble, not to mention other members of the team in Prague, Budapest and elsewhere. Discussions and decision making are done by conference calls and video meetings. They may only physically meet once a month, if even then.

You can’t unpack such complexity with belief, braggadocio and bulldog spirit.

Take, for example, the issue of data transfers, probably more important for businesses today than “sanitary and phytosanitary controls” at borders. Data is the life-blood of modern business.

Employee and other personal data is transferred daily, if not hourly, across dispersed, decision making matrixes, kept secure by the requirements of the GDPR. Pull the UK out of the GDPR and where does that leave UK-based personnel in these data streams and management structures? Outside, looking in.

A Howe-like argument would be that the UK has incorporated the GDPR into its domestic legislation and, therefore, has the same data protection standards as the EU.

True, but what happens if, the day after the Brexit, the European Court were to hand down a judgement that the EU/US privacy shield was deficient or that binding corporate rules were inadequate? Such a judgement would put data transfers to the US at high risk. Would the UK government ignore such judgements? How can the EU be sure that data transferred to the UK will not be passed on to other countries?

It is not just a question of UK data rules staying in line with EU rules until the UK decides to diverge. EU rules themselves will change, irrespective of what will happen in the UK. Will the UK stay “dynamically aligned”? If not, what happens next?

But would the UK get a data protection “adequacy decision” from the EU in the first place? Such a decision allows for the transfer of data from the EU to a “third country. This is not a given because of the Investigative Powers Act, AKA “The Snoopers’ Charter”. We have written about this before https://beergbrexit.blog/2018/05/31/barnier-data-critical-brexit/

What is true of data protection rules is true of rules across the board covering both goods and services.

Once Brexit happens then the UK is out. It is a “third country”. There is no EU alumni club with special privileges for former members. When the UK becomes a third country the EU will put controls in place to protect its borders, law and money. How can Brexiteers quarrel with that? Isn’t that what they want for the UK?

Leave aside the time it will take to negotiate the details of the future relationship between the EU and the UK. That alone will take years. Thereafter, every time there is rule change in either the UK or the EU there will need to be another negotiation of how the change impacts the deal. Every group with an interest in the proposed rule change will want to have its say. The substance of the UK’s future relationship will be a never-ending negotiation, at all times politically highly charged. The same will be true of the UK’s trade negotiations with the US and others.

Which political party can form a stable government in the UK with whom the EU can negotiate? Will Scotland stand idly-by?

The idea that somehow or other, Brexit would “settle” things is very much wide of the mark.

No matter what shape Brexit finally takes, businesses need to prepare for a long period of uncertainty.

2 thoughts on “Brexit: To Go On Forever?

  1. As a dual citizen of the UK and the US, I think you meant ‘Hail Mary pass’ or ‘Hail Mary play’ or more idiomatically simply a ‘Hail Mary’. A punt is a play to turn the ball over to the other side with best possible field position for the punting team. A Hail Mary is a low-probability attempt to score, usually when time is running out, usually with a very long forward pass.

    Like

  2. Thanks for another good post.

    I wonder About the legal aspect, too, though.

    You mentioned the Problem of alignment when rules Change; but isn’t the current EU Argument that after no-deal crashout Brexit, there is no certified (by EU) Control authority in GB, and therefore, regardless if GB doesn’t activly Change rules the next day, EU still must Control at borders because they can’t depend on Standards being met, regardless of GB laws?

    Like

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