Backstop, Brexit, British Government, Customs Union, Data Protection, Single Market

No matter what, years of Brexit uncertainty beckons

This blogpost was written on Sunday Oct 20th, 2019

boris

Whatever happens in the days and weeks immediately ahead, one thing can be said for certain: the UK faces years, if not decades, of uncertainty as it struggles to negotiate, and then constantly renegotiate, the nature and substance of its relationship with the European Union.

Despite what Brexiteers like to claim, the UK cannot deny the pull of history and geography.

The “history” is, in the first place, that European economies have been slowly integrating over the past fifty-plus years and that integration is not going to stop, or go into reverse, anytime soon. The “history” is, in the second place, that Northern Ireland is not a “normal” part of the UK and because of its unique relationship with Ireland, the country with which it shares the island of Ireland, it will always need to be treated differently from the rest of Great Britain.

The “geography” is that the European Union is, and will remain, the UK’s single biggest market for both goods and services for many years to come. Which means, given that the EU will be some six times bigger than the UK, that if the UK wants to trade with the EU it will be largely on EU terms. But this undermines a great deal of the rationale for Brexit, that it allows the UK to “take back control” of its own laws enabling it to diverge from EU standards.

But the more the UK diverges from EU standards the more the EU will put barriers in its way. The EU will insist on a “level playing field” when it comes to product, environmental and labour standards, for example. This will leave the UK faced with a constant choice: follow EU rules or lose trade. These choices will become the stuff of very bitter politics.

So, where are we today, Sunday, October 20, 2019?

During the past week the EU and the UK Prime Minister, Boris Johnson, reached a deal on the terms of a legally-binding “Withdrawal Agreement”. It needs to be kept in mind that the Withdrawal Agreement simply sets out the terms under which the UK will leave the EU.

It has nothing to say about the nature of the future relationship between the UK and the bloc, though there is also what is described as a non-binding Political Declaration, published at the same time as the Withdrawal Agreement.

Leave to one side the issue of Ireland and it becomes clear that Johnson’s agreement is very little different from the agreement negotiated by Theresa May.

It accepts the financial settlement May had reached with the EU for payment by the UK of close on £40bn to cover obligations incurred by the UK while still a member. Brexiteers had loudly demanded that the money be used to “buy” a favourable, future trade deal. That hasn’t happened.

Like May’s deal, there are guarantees on the rights of EU citizens living in the UK and on UK citizens living across the EU.

Johnson’s deal also picks up May’s transition arrangement, which runs from the date the Withdrawal Agreement comes into force until the end on 2020, with the possibility of extending it by mutual agreement until the end of 2022. During the transition nothing changes, the UK continues to behave as if it were a member of the EU, obeying all EU laws in force and any new ones that come into force.

However, during the transition, the UK will have no involvement in EU decision-making. No EU Commissioner and no Members of the European Parliament (MEPs).

Johnson and the EU have, however, agreed to move the articles on a “level playing field” on environment and employment laws from the Withdrawal Agreement to the Political Declaration. This means that the UK is not locked-into these EU laws for the future.

But, as noted above, if the UK wants to continue to trade with the EU at anywhere near current levels, then just how free it will be to diverge from EU standards is open to question. “Escaping” the level playing field obligations may turn out not to be much of a victory in reality.

The biggest difference between Johnson’s agreement and May’s one concerns Ireland and Northern Ireland. From the get-go, the EU had made it clear that it would not accept any deal that saw the return of a hard border on the island of Ireland; the only place where the UK will have a land border with the EU. All the other borders between the EU and the UK are at seaports and airports.

However, the insistence by the UK that Brexit involved leaving the EU’s single market and customs union guaranteed the return of border posts in Ireland. To get around this, the EU proposed an “Irish backstop” whereby Northern Ireland would stay in the single market and the customs union after the transition period “unless and until” alternative arrangements could be found.

Theresa May realised that limiting the backstop to Northern Ireland would mean a border in the Irish sea between Northern Ireland and Great Britain something both she and Northern Ireland’s Democratic Unionist Party (DUP), considered an affront to the constitutional position of Northern Ireland in the UK.

May’s solution was to ask the EU to extend the backstop concept to take in the whole of the UK. This meant that at the end of the transition period if technology-based “alternative arrangements” had not been perfected and road-tested, the whole of the UK would stay in the EU’s customs union and would also stay closely aligned on EU, single-market product standards. The EU was uneasy with May’s proposal but agreed to it, nonetheless. The UK-wide backstop would stay in place until ways of creating an infrastructure-free land border could be found.

Brexiteers believed that the UK-wide backstop was a cunning EU plan to keep the UK locked in the customs union, thereby preventing it from doing trade deals with non-EU countries such as the US or Australia. Johnson put “binning the backstop” at the heart of his leadership challenge to May. When he became Prime Minister he told the EU that he would not even resume negotiations unless it committed in advance to drop the backstop completely. He would rather leave the EU with no-deal that with a backstop-deal.

Unfortunately for Johnson, the EU did not move off its backstop position and within a week he was on a plane to Berlin and Paris for “talks”. To further complicate matters, the House of Commons adopted legislation which limited Johnson’s no-deal options by instructing him to ask for a Brexit delay unless a deal was in place by October 19.

To get a deal Johnson agreed with the EU that the UK-wide backstop, which the EU never liked anyway, would go. So also would the Northern Ireland backstop but it would be replaced by a “frontstop” which would take effect at the end of the transition period.

This “frontstop” provides that Northern Ireland will, in reality, remain in the EU’s single market and customs union for all goods, with a customs wall between Northern Ireland and GB. The island of Ireland, Northern Ireland and Ireland, will, more or less, be one economic unit within the EU.

Not surprisingly, the DUP are extremely angry about this. But it has been clear for quite some time that UK Brexiteers cared more about Brexit than they did about NI’s position within the UK and if it came to a choice between NI and Brexit there would only be one winner. (See here for some of the political and constitution complexities involved in the frontstop).

Last Saturday, October 19, Johnson brought his Withdrawal Agreement to the House of Commons. But before he could call a vote on it the Commons passed an amendment (the Letwin Amendment) demanding that all legislation necessary for the UK to leave the EU with a deal be published and adopted before the Withdrawal Agreement could be voted on. This move was made to avoid a parliamentary ambush by Brexiteer ultras which could see the UK crash out of the EU with no deal, with all the economic damage that would cause.

Nevertheless, at the time of writing, it does seem likely that Johnson may find the votes in the Commons to get his deal passed, but there can be no guarantee of that. Should his deal be voted down then the UK will be in a deep, black, political hole with no obvious way out.

But let’s assume that Johnson can scrap enough votes to get his deal through. What happens then? As and from the date on which the Withdrawal Agreement came into force the UK would formally leave the EU. It would then enter into a transition arrangement which would run, as we saw above, until December 31, 2020, with the possibility of extending it for two years until 2022.

During the transition, the UK and the EU are supposed to negotiate comprehensive arrangements covering their future relationship. Most informed commentators think there is absolutely no chance of this happening. To understand why they believe this read of the Political Declaration which can be downloaded here.

Just look at some of the issues that have to be negotiated:

  • Data protection and data flows
  • A Free Trade Agreement
  • Customs arrangements on goods and tariffs
  • The UK’s relationship to EU Union agencies such as the European Medicines Agency (EMA), the European Chemicals Agency (ECHA), and the European Aviation Safety Agency (EASA).
  • EU market access for goods and services, including financial services
  • Intellectual property
  • The movement of persons between the EU and the UK, including business and holiday travel
  • Transport – road, rail, maritime and air

The list goes on. Quite simply, you cannot negotiate replacement arrangements for close on 50 years of deep integration in a little over a year. It is just not going to happen. If Johnson’s deal goes through then the UK is again going to be faced with very tough choices by the middle of 2020. Does it extend the transition to 2022 or leave at the end of 2020 with no deal? Johnson’s deal is not “Brexit accomplished” it is “Brexit postponed”.

So, while the House of Commons may vote for Johnson’s Withdrawal Agreement it will have no idea on what future arrangements will look like. It’s like deciding to leave your existing house without having any idea where you are going to live in the future. Years of uncertainty beckon.

To date, there has been no real discussion in the UK about what Brexit will mean for internal UK regulatory arrangements. Will it, as many Tories would like, try to model itself on Singapore, used as shorthand for a low-tax, light-regulation economy? Or will a Labour vision of “socialism in one country” win out?

Will the UK want to stay close to the EU or move as far away as possible? Given the realities of history and geography just how much real freedom of manoeuvre will the UK actually have? What happens if there is a change of government and the incoming government wants a different relationship with the EU than the outgoing one?

In any event, just how open would the EU be to a constantly changing UK agenda – close to the EU one day, as far away as possible the next? Just how much time and effort will the EU be prepared to invest if the UK keeps changing its mind about what it wants?

For the past 50 years, the UK has been a stable environment for business, especially after the Labour Party of Tony Blair accepted the bulk of Thatcher’s economic reforms. The UK offered global businesses a safe harbour within the EU. All of that is now gone, irrespective of what happens next. The UK has torn up existing relationships with the EU without having any clear idea of what goes in its place. Just what new barriers to trade in goods and services will Brexit bring about?

One thing is certain. The EU will not agree to the UK as a non-member having all or any of the benefits of the EU’s customs union and internal market. Frictionless trade, on which just-in-time supply chains depend will become an impossibility.

Brexit has its price and the price may be a lot steeper than Brexiteers are willing to admit.

 

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