Backstop, Boris Johnson, Brexit, Brussels, Trade Deals

#Brexit and the Wider World (Part 3 of 3)

This Blogpost was written on Sunday Sept 22nd, 2019

Liz-Truss-in-Sydney

Simon Nixon, in a recent column in the Times, draws attention to a passage about the European Union in David Cameron’s memoirs. In trying to persuade Boris Johnson to back Remain, the former Prime Minister writes that “Boris had become fixated on whether we could pass legislation that said UK law was ultimately supreme over EU law”.

Cameron sent Sir Oliver Letwin on a “nightmare round of shuttle diplomacy” between Mr Johnson and the government’s lawyers to see if a way could be found to address his concerns by domestic legislation.

“But those lawyers were determined to defend the purity of European law and kept watering down the wording … Our officials were determined to play by the rules.”

As Nixon notes:

What makes this extract extraordinary is that it confirms that six years after he became Prime Minister and just weeks before he gambled Britain’s membership of the EU in a referendum, he didn’t understand how it works. Indeed, it appears he still hasn’t grasped that the supremacy of EU law in the areas over which the EU has competence is not a bug but the essential feature without which it couldn’t work.

Without common rules, “consistently enforced by a common court, the customs union and single market … would not exist”, Nixon adds.

Observing and writing about Brexit over the past three years I have come to the conclusion that the vast majority of UK politicians have very little idea of how the EU works and what Brexit will really mean for the UK economy. Even when they are told what it means, they don’t want to know. Brexit has become a holy grail, to be pursued no matter what the cost.

Again, to quote a Simon Nixon tweet:

One thing I learned during 10 years spent roaming around Europe reporting on a decade of crises for the WSJ is that Britain has the most insular, parochial and ill-informed political class of any member state. That’s the true British exceptionalism. Deeply troubling.

David Allen Green, the Brexit commentator, writes that Defoe, the 18th-century author of Robinson Crusoe, once said that there were a hundred thousand stout country-fellows in his time ready to fight to the death against popery, without knowing whether popery was a man or a horse. Green comments that the “same is now true about Brexit.”

This week, for example, the Financial Times reports on a “chastening encounter over lunch between Mr Johnson, Michel Barnier and Jean-Claude Juncker, which one official described as a “penny dropping” moment for the Prime Minister over what it really means to replace the Irish backstop.”

“The exchange, according to one EU official, was part of an abrupt “learning curve” for Mr Johnson in his first face-to-face meeting with Mr Barnier and Mr Juncker since he took office. Another official describes the Prime Minister gradually “slumping” in his chair as the reality of the UK’s negotiating position and the limited time left to strike an agreement dawned on him. “He wasn’t used to hearing it”, added the official.”

If UK politicians are ignorant about how the EU works then this is also true, I suspect, about the wider world. As we have written over the past two weeks, for Brexit to “work” – and as readers will know I don’t believe it can – then the UK needs three things to align:

  • Political consensus to develop in the UK around the meaning of Brexit,
  • An appropriate relationship with the EU to be negotiated, and
  • Trade politics in the rest of the world to fall favourably in its favour.

To even the most casual observer it is obvious that there is no internal political consensus in the UK about Brexit. Far from it. It is doubtful if the UK has ever been so politically fragmented. Such is the extent of division that whether the UK can even hold together is now an open question.

And, as we wrote last week, the UK has conducted its discussions with the EU in such a cack-handed way that we are just weeks away from it leaving with no agreement on exit terms, still less with any roadmap for future relations between it and the bloc. This cack-handed approach continues even today, as Tony Connolly writes.

Some in the UK seem to believe that there is a magic formula which will see the UK escape forever the gravitational pull of the EU if they can just get Brexit “over the line”. The UK, they insist, can survive alone, an offshore island off the European mainland, free from malign continental influences.

Life just doesn’t work that way, especially when you are reliant on the EU for around 50% of your imports and exports. In the future, if the UK wants to export to the EU, whether goods or services, it will be forced to follow EU rules, like it or not. And it will spend year after year negotiating and renegotiating such rules, from a position of considerable weakness.

If it wasn’t for this perverse belief that, somehow or other, the UK can exist isolated from the EU, how else do you explain the speech by Brexit Secretary, Steven Barclay, in Madrid? In his comments to a press and business gathering, he threatened Ireland with food and medical shortages and Spain with devastating impacts on its food exports, fishing industry and its tourism industry if the UK wasn’t given the Brexit deal it wanted.

Barclay forgets or, more likely, probably doesn’t really appreciate, that after the UK leaves it will need to negotiate with the EU on future trade and commercial relations and in such negotiations Spain and Ireland will have vetoes. What goes around comes around. Spain may also cut up rough about Gibraltar. The days when the UK could settle such disputes by sending around a couple of gunboats have long gone.

But Barclay’s Madrid speech was even more foolish when you consider how threatening Ireland will go down with the many friends of Ireland in the US Congress. Brexiteers were delighted when Donald Trump was elected US President. Trump has always made clear his disdain for the EU, seeing it as a trade and commercial counterforce to the US. Brexiteers are convinced that President Trump will fast-track a trade deal with the UK once it is out of the EU.

On a recent visit to the UK the then US National Security Advisor, John Bolton, said that Britain and the US could sign interim, partial free trade deals, one sector at a time, which would go through a fast track legislative process, to help the UK cope economically if there is a no-deal Brexit on 31 October. Bolton said the sectoral deals, focusing on industries such as car manufacturing, could be negotiated quickly and insisted they would receive overwhelming bipartisan support in Congress.

“The ultimate end result is a comprehensive trade agreement covering all trading goods and services,” he said after meeting Boris Johnson and senior British officials on Monday. “But to get to that you could do it sector by sector, and you can do it in a modular fashion. In other words, you can carve out some areas where it might be possible to reach a bilateral agreement very quickly, very straightforwardly.”

Music to Brexiteer ears. A few weeks later Bolton was gone, another “apprentice” fired by Trump.

More importantly, however, Bolton’s remarks at the time were quickly knocked-back by Nancy Pelosi, the Speaker of the House of Representatives, where the Democrats hold a majority.

“Whatever form it takes, Brexit cannot be allowed to imperil the Good Friday Agreement, including the seamless border between the Irish Republic and Northern Ireland, especially now, as the first generation born into the hope of Good Friday 21 years ago comes into adulthood. We cannot go back.”

Congressman Brendan Boyle, the Democratic co-chairman of the Friends of Ireland caucus, told the Guardian:

“The nonsensical utterings of John Bolton should not be taken seriously. He has no role in trade agreements. Zero. I strongly support Speaker Pelosi’s statement today making crystal clear, once again, that protecting the Good Friday agreement is paramount… As the Speaker said: if Brexit undermines the Good Friday accord, there will be no chance of a US-UK trade agreement passing the Congress.”

A US/UK trade agreement is not in the gift of the US President. Administration officials may negotiate such a deal but its ratification is dependent on votes in Congress. The recently renegotiated NAFTA deal, now renamed USMCA (US/Mexico/Canada Agreement), a signature initiative of President Trump, still awaits ratification. As the National Law Review reports:

If you are wondering where things stand with the USMCA and ratification, you can read about it here.  In short, in the United States, Congress is attempting to reach a deal particularly on the provisions that have to do with labor and the environment.

It is worth noting the concerns among Democrats with the labour and environmental language in USMCA, which underscores the attention such provisions now command in trade agreements. Just a week or so ago, David Frost, Johnson’s chief Brexit negotiator, told the EU that the UK government no longer felt bound by Theresa May’s commitment to a “level playing field” on such standards in a future trade deal with the EU and wanted maximum freedom to diverge.

As trade experts such as David Henig have pointed out, no “level playing field” means no trade agreement. You can bet the US Democrats will also be insistent on labour standards in any US/UK deal. But then, who knows how next year’s US election cycle will play out? Were a Democratic President to be elected post-Brexit US/UK trade relations could take a very different course than under a re-elected President Trump. But as long as the Democrats hold the House of Representatives any UK/UK trade deal is at risk if the UK is seen as undermining the Good Friday Agreement.

The lack of real knowledge of the wider world on the part of Brexiteers also shows itself in their misunderstanding of the potential role that the World Trade Organisation (WTO) treaties could play in a no-deal Brexit. They are convinced that Article XXIV of the Treaty would allow the UK to continue trading with the EU on existing terms for up to ten years, while a long-term deal was being negotiated. Again, trade experts have said that XXIV guarantees no such thing. In any event, existing WTO agreements mostly cover goods, not services, and the UK is increasingly dependent on the export of services to keep its economy growing.

For its part, the EU disputes the Brexiteer interpretation of WTO rules. And any dispute over interpretation would take years to resolve. In the meantime, the EU will do what it thinks right and enforce its rules against the UK.

In any event, by the time any EU/UK dispute got there, WTO dispute settlement procedures could be in lockdown given the hostility of President Trump to the organisation, which he sees as biased against the US. In his sights are what he perceives as the trade unfairness of the EU, but especially China, in their dealings with the US. Today, a US/China trade war is ramping up. Trump is increasingly making it clear: you can trade with the US or with China, but not both.

As the OECD noted this week intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage. It cut almost all economic forecasts it made just four months ago, as protectionist policies take an “increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9% this year.”

“Our fear is that we are entering an era where growth is stuck at a very low level,” OECD Chief Economist Laurence Boone said. “Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn’t become the new normal.”

Manufacturing has borne the brunt of the economic crisis brought about by the trade war between the U.S. and China. The services sector has proved unusually resilient to the malaise so far, but the OECD warned that “persistent weakness” in industry will weigh on the labour market, household incomes and spending. Additional risks stem from a sharper slowdown in China and a no-deal Brexit that could push the U.K. into a recession and would considerably reduce growth in Europe, according to the report.

To reframe this: the Johnson government is intent on delivering a rock-hard Brexit which would see the UK diverge as much as possible from the EU. It wants to do this so that it can negotiate trade deals elsewhere just at the moment when the world is turning sour on such deals and the global political environment grows more unstable by the day. Announcing the opening of trade talks with Australia, as the UK did this week, is nothing compared to the damage diverging from the EU will do.

As the academic and journalist Will Hutton puts it:

Britain will face a collapsing World Trade Organization and a disintegrating global financial and trade order – but outside the safe harbour of the EU.

So, to make Brexit “work” there needs to be consensus in the UK about the meaning of Brexit. There is none. The UK needs an expansive future trade deal with the EU. As of today, it can’t even negotiate exit terms. It needs a benign global environment. The global environment has never been in such a tailspin.

What can possibly go wrong?

One thought on “#Brexit and the Wider World (Part 3 of 3)

  1. Hi Tom, just wanted to drop you a line to say how much I enjoy and benefit from your blog. It’s good to see some sense about Brexit in the English-language press. (Actually, one of the silver linings of Brexit for me has ben to discover how very good the Irish press is!)  As an English commercial lawyer and College of Europe ancienne I’ve been studying, practising and living under EU law for many years.After 20 years of practise in the UK, I spent the last 15 years of my practising career (I retired early a few years ago) in the Netherlands, where I still live. My Dutch husband and I have divided our 37 years of marriage about equally between the UK and NL, our three children are all bi-national but very European, and have decided to settle here in NL.  So Brexit is very close to my heart personally and professionally, and your blog from today was absolutely spot on. (As so many of your other blog pieces have been!) it is really lamentable to see the utter lack of understanding and basic information about the EU. that pervades the whole UK establishment. It is also deeply alarming, as this utter failure to grasp reality means that the UK is heading at full tilt for a future it genuinely does not understand. A random example, which you quoted, is Art. XXIV of the WTO: it is debatable whether two commercial entities like the UK and the EU could use this to continue current trading terms during long years of negotiating a currently nebulous future relationship; but the idea that it could be used by the UK to require an unwilling EU to continue current trading terms, is preposterous.  Anyway, I know you must spend a lot of time and effort writing such thoughtful and well-informed blogs, and I wanted to say thank you, as you must spend a lot of time and energy preparing them, and they are really very valuable, and much appreciated.  Best wishes, Kathy Love (Kathy den Breems)

    Like

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