This blogpost was written on Saturday March 7th.
The first week of negotiations on the terms of the future relationship between the EU and the UK after the end of 2020 transition year opened this week in Brussels. The previous week both sides published their negotiating mandates. The EU mandate can be found here. The UK´s here.
Leave to one side the technicalities of tariffs, quotas, rules of origin and so on, the small stuff of trade negotiations. “Zoom out” and see the big picture. And the big picture is this: the UK is leaving the EU. The UK decided to leave. It was its decision and its decision alone. It was not pushed out or asked to leave.
All the consequences of Brexit flow from the UK´s decision.
The UK is walking away from the deal it now has, as an EU member, of frictionless trade in goods, liberalised access for the services sector, and full integration into intra-EU data flows covering individuals, businesses, and justice and security matters. The UK government has now accepted that any future deal will be worse than this, will generate border delays and frictions, will curb services access and disrupt data flows.
Business will take a hit, in some cases a very big hit (see below). But, as is it right, the current UK government has privileged sovereignty and law-making autonomy over economic and commercial considerations.
To replace what it now has the UK says it wants nothing more than very basic “Canada-style” trade agreement, of zero quotas, zero tariffs and zero fees. However, when you read its negotiating mandate it becomes clear that it wants a lot more than that, even if it continues to deny that it does. We want what Canada has, but also this from New Zealand, a slice from Japan, and here are clauses from deals with Mexico and Chile that we quite like.
The word “precedent” must appear around 40 times in the document to bolster the UK’s claim that it is being reasonable and not asking for things other countries don´t already have. If the EU won’t cut it a deal along these lines the UK says it will walk away without a deal.
I am very much reminded of an old-fashioned trade union claim for a new collective agreement. “We want the same pay rates as A, the same working time as B, holidays like C and here are a few things that no one else has but we would like. And if we don’t get what we want it’s out brothers, out.”
In response to the UK´s “asks”, the EU´s approach can be stated fairly simply. We have what we have. We have the customs union and the single market and all the accompanying processes and institution. We also have a whole range of other internal agreements covering everything from road to air transport, social security coordination and energy.
If a non-member wants access to these markets and these agreements, and such access will never be as good as membership of the EU, well, then, here are our terms and conditions. This is the price we are asking. Oh, and by the way, we will not change any of our internal policies or arrangements to suit a non-member.
While some might think that the price the EU is asking is high, that is its right. It is putting its interests first. Tough and uncompromising, but that is the nature of international negotiations.
The UK´s position, on the other hand, seems to me to be based on a number of fictions.
The first fiction is that the UK has now left the EU completely and is a “sovereign, independent country”. The UK has certainly left the EU politically. It no longer has an EU Commissioner nor members of the European Parliament. UK officials no longer attend the hundreds of meeting that take place every day across the EU institutions.
But the UK has not left the EU economically and this, for most businesses and ordinary people, is what really matters. During the transition year, 2020, the UK continues as if it were a full member of the EU with no disruption to everyday business, travel, tourism and all the other activities that are taken so much for granted.
The UK government continues to claim that “Brexit has been done” when, in reality, it hasn’t. As the EU negotiator, Michael Barnier, has said, British people and British businesses are going to find that January 1, 2021, will be very different from January 2, 2020. If the UK slipped quietly out the political backdoor of the EU on January 31, then on January 1 next it will walk out the economic front door into a howling gale.
The second fiction is that the UK can be compared to Canada, Japan and Australia and should be treated by the EU when it comes to future trade arrangements in the same way as the EU has treated these countries. Except, of course, that the UK is not comparable to Canada, Australia and Japan.
In the first place, these countries have not been members of the EU for the past forty years with their economies deeply intertwined and interdependent with those of the other member states of the EU. For what that means in practice and what unplugging the UK from the EU economically will mean see this. You just cannot pretend that the past forty years never happened. The UK is not Bobby Ewing and Brexit is not the Dallas shower scene.
Secondly, the last time I looked Dover was just 33K from Calais, connected by the Eurotunnel and the busiest shipping lanes in the world. 16,000 trucks a day pass between the two ports. Again, the last time I looked Japan, Australia and Canada were thousands of kilometres away from the EU and not a single truck passed between them.
Nor do Japanese, Canadian and Australian businesspeople pop across to the European mainland for a lunchtime meeting as do thousands of British businesspeople every day.
You just can’t deny the realities of geography.
Implicitly, the UK accepts the validity of this when it asks that its trucking industry continues to have grand cabotage rights after January 1 next. “While there is no direct EU precedent for this (the EU’s FTAs are with countries where significant cross-border road transport is impractical for geographical reasons)”, notes the UK mandate.
A truck leaves London to deliver to Paris. At Paris it picks up a new load for delivery to Amsterdam. From Amsterdam it then travels to Brussels, unloads and reloads and heads back to the UK. This is grand cabotage, loading, unloading, reloading and delivering across countries within the EU.
The EU has made clear that after January 1 next a truck can leave the UK and head to an EU destination, but it can only reload at that destination and head back to the UK. No more intra-EU business can be done. No “mini-free movement” for British truckers.
The third fiction is that the mantra “it is our deal or no deal and we are happy to walk away with no deal”. As Stephen Bush has pointed out in the New Statesman:
The theory is sound – you get the best results in any negotiation if you are willing and able to walk away from a deal. That’s why at the start of any negotiation, whether as an individual, a trades union, a company, nation-state, or a bloc, you should always know what your Batna (best alternative to a negotiated agreement) is.
The problem is that those words “and able” are very important too. Preparing for no deal is a lot like preparing for life after Brexit as a genuine third country, outside the European customs union and the single market – it requires new and bigger infrastructure for customs checks. If you don’t have that infrastructure you don’t, in practice, have a best alternative to a negotiated agreement: you have stymied yourself from the get-go.
As of today, the UK does not have the infrastructure and shows no sign of building it, or of being able to build it in time at any rate. By infrastructure we don’t just mean building and border checkpoints. We also mean the regulatory infrastructure that ensures standards and safety.
Take two examples. Some weeks ago the UK cabinet minister, Michael Gove, said it would be necessary to recruit an extra 50,000 customs agents because the government’s policy of looking for a “Canada agreement” would mean new paperwork and new procedures that would have to be complied with. So much for Brexit being a bonfire of redtape.
Initially, on hearing Gove´s remarks, people assumed that he was talking about additional Border Force and customs personnel. But no, he was referring to the customs personnel that businesses would have to employ to do the new paperwork. Do the math. 50,000 extra hires at, say, £40,000 each, inclusive of social charges. Every year from here on in.
But 50,000 new hires may be an underestimation. According to Pauline Bastidon, Head of European Policy at the FTA, the logistics industry group:
We checked this with members of our customs WG yesterday – over 20 companies… from large logistics companies to smaller haulage firms & big retailers and manufacturers. They reckon that this number underestimates the needs, if anything.
So, industry need to recruit, at a minimum, 50,000 customs agents by the end of 2020. Not that there are 50,000 experienced and fully trained customs agents sitting around out there just waiting to be recruited. And even if there was, the new processes, procedures and government computer systems needed are not in place.
To put it bluntly. Businesses need to hire 50,000 plus people, all of whom will have to be trained from ground zero, to work with processes and IT systems that do not yet exist. And all of this has to be done and in place by January 1 next. I think Stephen Bush might just be right.
As I was writing this a Financial Times alert popped-up on my screen. It reports that the UK´s transport secretary, Grant Shapps, told the trade publications Aviation Daily and ATW in Washington: “We will leave EASA [European Union Aviation Safety regime]. Over a period of time we’ll be wanting to develop our own [aircraft] certifications.”.
In response, Paul Everitt, chief executive of ADS, the aerospace industry trade body, released a statement which said:
“We have been clear that continued participation in EASA [European Union Aviation Safety regime] is the best option to maintain the competitiveness of our £36bn aerospace industry… UK influence in EASA … helps make our industry attractive to the investment it needs to be home to the development of a new generation of advanced aircraft technology.
The FT notes that companies across the UK aerospace sector “will be dismayed by the transport secretary’s comments. Rolls-Royce and Airbus, two of the UK’s biggest aerospace exporters, have repeatedly emphasised the need for continued membership of EASA to help keep down costs.”
The FT further notes:
The industry has estimated that it would take a decade and cost between £30m and £40m a year to create a UK safety authority with all the expertise of EASA, against a current contribution to the European agency of £1m to £4m annually.
Between the time the UK leaves EASA and the years before the new system is up and running, what happens? In the world of Brexit, sovereignty is all, no matter what price has to be paid.
So, how did the first week of negotiations go? David Frost, the prime ministers appointed Brexit negotiator, led a team of around 100 UK officials, complete with their newly minted UK flag lanyards, to meet the EU counterparts. The talks, which took place over a number of days, underscored the fact that achieving any sort of agreement will be extremely difficult.
Speaking after the discussions finished the EU´s Barnier said that there were “many divergences and they are very serious divergences”. They included:
- A “level playing field” on issues such as labour and environmental law, and state aid to industry. Barnier said the UK insists it is committed to high standards but doesn’t want to put those promises into an enforceable agreement. “Whilst we agree on persevering high standards my question is why not commit to them formally? It’s a question of trust.”
- On law enforcement Barnier says that the UK as told him ‘they don’t wish to commit formally to applying the ECHR (European Convention on Human Rights) nor do they wish ECJ to play its full role in interpreting EU law’. He comments: “If the UK’s doesn’t move it will have an immediate and concrete effect on level of cooperation.” The EU’s suspicion is that there are voices within the UK government calling for the UK to end its commitment to the ECHR, even though the government denies that it has any such intention.
- On governance, Barnier said the EU was offering one, overarching agreement, while the UK is looking for ‘a suite of agreements, a series of sectoral arrangements on a case by case basis where they think it’s necessary’.
- On fishing Barnier said UK is asking to negotiate separate reciprocal access on a yearly basis like Norway. He says: ‘What we can do with Norway on 5 species simply isn’t possible for 100 species. Economic agreement will have to include a balanced solution for fisheries.’
For its part, a UK government statement simply said that the talks would be difficult.
No doubt, there may have been some progress on small things. But there is not much point talking about the colour of the kitchen fittings if you can’t get to first base on the type of house you want to build.
I see little evidence that the basis for any agreement between the EU and the UK currently exists.
The parties meet again in the week later this month for another round of talks.