Boris Johnson, Brexit, Customs Union, Negotiating, Single Market, Trade Deals

UK is the EU’s “sovereign equal” just as Malta is the “sovereign equal” of the USA


In a BBC interview last Friday, the UK Prime Minister, Boris Johnson MP, said:

“They’ve done a deal with Canada – long way away – of a kind that we want, why shouldn’t they do it with us, we’re so near, we’ve been members for 45 years.”

Think about those comments. Then think about them again.

When Johnson said, “we’re so near” I am not sure if that means that the UK and the EU are “so near” geographically, or whether a deal is “so near”. But then, with Johnson you are never sure what he means, or whether he knows what he means himself. He is the Dali of British politics, a gushing stream of consciousness. Without Dali’s talent.

What Johnson appears to be saying is that he, the UK, wants the same deal with the EU as a country a long way away from the EU, and that has never been a member of the EU. And he wants that deal because he, the UK, is “so near” the EU and has been a member for “45 years”. The comments, like much of what Johnson says, defy logic.

As I write, I have no idea whether or not there will be a “deal” between the EU and the UK. I have long thought that it is unlikely that there will be such a deal, and if there is a deal is will be so meagre that there might as well not be a deal. As Denis MacShane has pointed out, even with a deal so much will change, and none of it for the better, both for businesses and for British people wanting to travel, or live, in Europe.

The reason I have always been sceptical about a deal being concluded has nothing to do with the personalities involved, Barnier and Frost, Johnson/Cummings and von der Leyen, Merkel, Macron, or the rest. Of course, personalities play a part in all negotiations and a skilled negotiator can make a difference. But even the best of negotiators cannot change the fundamentals, what the French call “les rapport des forces”, the power and the leverage.

As in war, so in trade negotiations. As the British historian, David Cannadine, has written about the Napoleonic wars:

“As so often in protracted and geographically extended wars between great powers, it was not just a matter of tactics and strategy and generalship, important those these were and are, but of the relative distribution of resource between the combatants. And once the British, Austrians, Prussians and Russians had finally (and belatedly) agreed to unite in a concerted campaign against the French usurper … their overwhelming superiority in men and money and material compared to what the French nation in arms could muster and mobilize, meant that Napoleon must sooner or later be beaten, notwithstanding his undoubted military brilliance.”

Just as he is no Dali, Johnson is no Napoleon and this time it is the UK that is on its own against the “continental alliance” that is the EU, something that British diplomacy has tried for centuries to avoid, but Brexiteers welcome as a sign of renewed British sovereignty. Isolation as a strategy is never wise.

The UK may say that it is the “sovereign equal” of the EU, but then Malta is the sovereign equal of the US. Theoretical sovereignty buys you very little in power politics negotiations.

In any negotiation, the stronger party will always dictate terms. That is just the way the world is. Fair? No. But who gets to decide what is fair?

So, the balance of forces, “les rapport des forces”, lies with the EU and that is something the UK finds difficult to accept, especially when, in Michael Gove’s words, it believed that after the Brexit referendum, it would “hold all the cards”. It didn’t, but there are those in the UK who still cannot accept this truth and who will find any deal the UK might do with the EU a betrayal of “true Brexit”. “If only we had been stronger, tougher, more resolute, the EU would have crumbled”, they will argue.

Actually, many Brexiteers would like the EU to crumble, completely. Many of their hopes and dreams were premised on this actually happening as a result of Brexit. But the dominos did not fall. Brexit is a one-off. Last week’s freedom of movement vote in Switzerland has left the UK alone in Europe in denying its people the right to freely go and live, study, work, and love in its own continental homeland. Yes, of course, they can still go, but the paperwork will be crippling and there will be stiff hurdles to be jumped.

Any deal that Johnson does with the EU will run into immediate opposition. Bargaining and cutting a deal is not just about the negotiations across the table with the other party. It is also about internal bargaining, what Walton and McKersie describe as “intra-organisational bargaining”. As any seasoned negotiator will tell you, sometime intra-organisational bargaining can be way harder than dealing with the other party.

The story goes that a newly elected young Tory MP, eagerly taking up a place on the benches and pointing to the benches opposite, said to Churchill, “So that’s the enemy”. Churchill supposedly replied, “No son, that’s the opposition”, and then pointed to the benches behind and said, “That is the enemy”.  The same story is told about other politicians, but no matter who said it, the truth of it holds.

Johnson has plenty of Brexit “enemies”. Not just the ERG Brexit ultras within the Conservative Party, but also the Faragists to his right, already threatening to shout down any deal he does. He will constantly be looking over his shoulder.

The same dynamics apply on the EU side. Does anyone seriously believe that French president, Emmanuel Macron, two years before the next election, will wave through a deal that badly disadvantages French fishing fleets and communities? Not if he wants votes in Brittany, Normandy, Pas-de-Calais and along the Atlantic coast.

It would not be the first time a French president said “non” to a deal with the British, much to the chagrin of other EU members. Remember that tall guy, De Gaulle? It would do Macron no electoral harm to cast himself in De Gaulle’s image as an unbending defender of French interests.

As I wrote these words an alert popped up telling me that the UK environment secretary, George Eustace, has said that the UK is ready for a “cod war” with EU trawlers, recalling the Icelandic cod wars of the 1970s.

Asked directly if Britain was ready to defend its waters in the event of No Deal, Mr Eustice said: ‘Yes, we are. And in fact, the main lesson of the Cod War was it’s much easier to protect your waters against access from overseas vessels than it is to try to defend a notion of an historic access that’s no longer available to us.’

Good luck with that, is all I can say as French and other trawlers deny British ships their “historic access” to Calais, Dunkerque, Ostend, Zeebrugge and Rotterdam. It’s always a mistake for generals to fight the next war based on lessons from the last war.

But there is a second, and more fundamental reason why I lean towards a no-deal outcome. And that relates to the dynamics of the Brexit process, the drive to diverge, to be different.

As the experienced trade negotiator, David Henig, has noted: “FTAs are commitments to closer partnerships, that both sides are prepared to do more together.” But the reason the UK has left the EU is that it wants to do “less together” with the EU, to diverge from EU rules and standards, to go its own way, to call it over, to borrow the Lindsay Buckingham lyrics from Fleetwood Mac.

But where the UK wants to go, how and when it wants to diverge, it won’t or can’t say. And that creates a problem, especially around the “level playing field” issues.

Let me explain. I came across this Tweet from a leading Brexiteer a week or so ago:

The UK isn’t asking for any special treatment here, just to be treated like any other sovereign, independent nation state that the EU has trade agreements with.

Now, of course, the UK is not like “any other sovereign, nation state” because the other sovereign nation states with which the EU has trade agreements have never been members of the EU and do not sit 50 kilometres off the EU coast, as Boris Johnson himself says.

But leave that aside and take it that all the UK now wants to do is to negotiate a trade agreement with the EU. What is the problem?

Assume the EU and Country X decide to negotiate a trade agreement. In any trade negotiation the two sides are interested in protecting their own industries and services as much as they can and in increasing opportunities for those goods and services in the market of the other party.

At the time the negotiations open, both the EU and X already have all of their domestic policies and regulatory institutions in place covering the issues that will be on the table during the negotiations. That means that before the negotiations begin the teams representing the two sides can compare and contrast those policies and identify where common ground might be found and where they will run into difficulties.

Take a simple example: cheese. For the significance of cheese in trade negotiations see this excellent article by Simon Nixon in the Times. To quote from the article:

Cheese is always an issue in any trade negotiations with the EU for reasons that much of the rest of the world struggles to understand. Many of the finest European cheeses are produced according to strict rules designed to protect the quality and heritage of a product. Comte cheese, for example, can be produced only in the Jura region of France from the milk of Montbeliarde cattle, whose numbers per hectare are strictly controlled. Without the protections afforded by the geographical indication system, much of this heritage risks being swept away.

Many countries make their own mass-produced, knock-off versions of famous European cheeses. Greek feta, for example, can only be made using sheep’s milk, yet much of what is labelled as feta in the US is made with cow’s milk. Spanish manchego similarly must be made using sheep’s milk, but Mexico’s ersatz version also uses cow’s milk. Faced with a flood of imported imitators, Europe’s food producers would have to lower their standards or go out of business.

So, from the get-go, both parties know where they respectively stand on the issue of cheese labelling. Now, if the EU and X can find a way of managing the issue of cheese labelling it could be to the benefit of both. But if they can’t then the status quo in relation to cheese labelling in both the EU and X remains in place.

What the EU and X are trying to do in their trade negotiations is to converge across a range of issues, to try and get closer together to drive up trade between them. If they succeed, well and good. If they do not succeed, then things will simply continue as before.

The situation between the EU and the UK is completely different from that of the EU and Country X for two reasons.

As of today, the EU and the UK are fully aligned when it comes to trade rules because of the UK’s forty-five plus membership of the EU. However, the stated purpose of Brexit is for the UK to be able to diverge from those rules in the future. Once the UK does this it creates barriers to trade where none now exit. For example, as Peter Foster notes in the Financial Times

Logistics experts said the functionality of IT systems was crucial to ensuring that the 10,000 trucks that cross the Channel on a daily basis can flow freely when customs controls are reimposed on January 1 next year. The new regime will require an estimated 215m additional customs declarations per year.

215 million additional customs declarations are a new barrier to trade no matter how you look at it. The article quotes Robert Windsor, executive director at Bifa, the international freight forwarders’ association, as saying:

“It is patently clear that, on the political front at least, there is a complete lack of appreciation of the enormity of, in effect, constructing a new supply chain after 50 years of completely free trade with the EU.”

Of course, the UK is free to diverge from EU standards and to recreate borders as much as it wishes. The UK is free to pursue any policies it wants when it finally and completely leaves the EU. The EU has fully accepted that this is what Brexit means and has planned accordingly.

Further, the EU is fully prepared to negotiate a trade agreement with the UK. The problem in doing so is that – unlike the example of Country X and cheese – the EU has no sight or knowledge of future UK government policies in key areas because none currently exist.

The critical policy vacuum in this regard is “state aid”. State aid refers to all of those government policies, subsidies, tax treatment, investment and so on which can be regarded as favouring one company or sector over others and which may confer unfair advantage against domestic of foreign competitors. Today, the UK, during the transition period, is still bound by the EU’s state aid regime. As and from January 1 next, it is free to do as it will in this regard. But the UK government, to date, has not published any detailed proposals on how it plans to handle the issue. What is has published is anodyne.

How, therefore, is the EU to know what distance there will be between itself and the UK over this critical issue? At the outset of the negotiations the EU put a maximalist position on the table. The UK should continue to adhere to existing EU state aid rules and “dynamically align” with them in the future, that is, keep in step with them as they evolve. It has since walked back from that and is now asking that the UK regime should be such as to ensure a “level playing field” between the two. Not unreasonably, it has asked the UK for details of its future state aid regime so it can decide whether or not there will be a level playing field.

The EU may well be able to guess at the UK’s future intentions with regards to state aid. But even an intelligent guess is not the same as seeing details on paper. For the moment, to use a favourite word of Michael Gove and Dominic Cummins, second in command in the government and Johnson’s key advisor respectively, you cannot negotiate with a “policy blob”. You cannot construct a trade deal when you have no sight of the policy position of the other party on the issue in question.

On state aid, the EU is asking the UK to set out what it plans to do so the EU can assess what that will mean for its own internal market and tailor any offer it makes to the UK accordingly. Why would the EU offer the UK unconditional tariff free and quota free access if the UK intends to subsidise industries to compete within the EU market? In any negotiation, you need to know what you are dealing with.

Why will the UK not spell out where it intends to go on state aid? I suspect that the answer is that what the UK plans to do is so far from where the EU is that once the details are published it would torpedo any deal.

A further problem is that in the Withdrawal Agreement the UK may already have, to a significant extent, committed itself to observing EU state aid rules because of the Northern Ireland protocol. See this from Anton Spisak of the Tony Blair Institute on just how complex the matter is.

In a call on Saturday, Boris Johnson and Ursula Von der Leyen agreed to a further month of talks. But talks alone won’t solve fundamental differences. If there is to be an agreement one or other side has to give way. It is difficult to see that happening. The dynamic on the British side is to move away from the EU, not to get closer. That dynamic makes finding common ground difficult. You find common ground as you move towards one another. Not away from one another.

And we haven’t even mentioned the UK’s Internal Market Bill, with its stated intention to unilaterally alter aspects of the Withdrawal Agreement it signed within the past year with the EU, deliberately breaking international law in the process.

Another month of talks isn’t going to do it.

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