Article 50, Brexit, British Government, Irish border, Northern Ireland, Theresa May

That #Brexit Winding Road may be a Cul-de-Sac

This post was written on Monday Dec 4th, 2017.

may-tusk-junckerThere was a time, before the Internet and social media, when politicians could say very different things to very different audiences and get away with it. Not so today. To coin a phrase, what you say in Brussels is known in Belfast before you finish your sentence.

As I write this, at 18:30 Paris time, reports of what actually happened in Brussels today are still somewhat unclear. But it does appear that all parties thought a deal was done until the UK said no at the last minute. Speaking to Irish radio, the Taoiseach (Irish Prime Minister), Leo Varadkar said:

“The U.K. had agreed a text on the border that met our concerns … I was then contacted by [Juncker and Tusk] and confirmed Ireland agreement to that text… I am surprised and disappointed that the U.K. Govt is not in a position to agree to what was approved today”

Reports suggest that the Democratic Unionist Party (DUP) said it could not support the agreed text as it appeared to split Northern Ireland economically from the rest of the UK as Northern Ireland would, to all extents and purposes, still be in the EU’s single market and customs union while the rest of the UK would not.

As UK Prime Minister, Theresa May, needs the DUP’s 10 votes in the House of Commons to keep her government in office, the “Ulster says No” stance of the DUP left her unable to tell the EU that the “UK says Yes” to the Article 50 deal that was on the table.

But even if the DUP had not blocked the deal, May’s ability to get what was agreed on citizens’ rights and the financial settlement through the Conservative Party would have been problematic, as we argued in our last post:

That is still our view.

One thing is now clear. If the DUP blocked today’s deal then there are no circumstances in which the Irish government will in any way soften the position it has taken in the talks to date.

The UK prime minister may allow herself to be held hostage by the DUP. For an Irish government to do so would be political suicide. Further, before today the Irish government had the solid support of the other 26 EU member states. The UK’s behaviour today will have will convince them that they were right to be so supportive of the Irish.

Other EU member states will be asking themselves this evening just how reliable is the UK government as a negotiating partner? What, if anything, can the government deliver? How does the process now move forward with any credibility?

Because a key currency in negotiations is credibility.

When I tell you it is a done deal, it is a done deal. My word is my bond. When I break my word my credibility is shot. Why would the other side make me an offer if they can’t be sure I can deliver?

So, what happens now?

The UK government has put itself in a position where it cannot meet the expectations of all those involved in the Brexit process. Cut a deal with the EU on the terms offered by the EU and a significant part of the Conservative/Brexiter/DUP coalition will be outraged. Keep the coalition together and there will be no deal with the EU and the UK will exit the EU without any agreement as to future trading arrangements. Business will be outraged.

Choices have to be made within hours, days at the most. No more hiding behind language that could mean all things to all men… and women.

Brexit is a process built on negativity. Brexit is against things: …Against the European Court …Against the European Commission …Against European laws …Against immigration.

There is no coherent answer to what Brexit is for. A Global Britain, free trading with the world? A “drawbridge economy”, keeping jobs in and people out? Close to the EU without being part of it, or pushing the EU as far away as possible?

Since the UK voted to leave the EU the EU has known clearly and precisely what is wants. To preserve its internal legal order and the integrity of the single market. It has gone into the process with defined objectives.

On the other side, the UK has been trying to satisfy dissipate parts of a coalition which want incompatible things. But there are only so many impossible things you can believe before breakfast.

Since we started writing this briefing we have consistently said that business should hope for the best, plan for the worse. Increasingly, we think that business should just plan for the worse.

Article 50, Brexit, British Government, Brussels, Divorce, Northern Ireland

#Brexit: A Moment of Truth Fast Approaching

Written on Sunday Nov 26th.

Brexit4After we wrote our weekly Brexit Briefing last Friday, the news broke that the European Union (EU) had given the UK until Monday, December 4, to table revised and meaningful proposals on the three Article 50 issues, the rights of citizens, the “Irish question” and meeting financial obligations if it wishes the EU27 to agree at their December summit to move the talks to discussing the future relationship between the two parties. As Politico noted:

European Council President Donald Tusk set an “absolute deadline” of December 4 for the U.K. to submit a revised offer on the Brexit bill and a credible solution for the Irish border, telling U.K. Prime Minister Theresa May on Friday that otherwise it would not be possible to move on to the second phase of talks, a senior EU official said.

The official said May had accepted the timeframe, and that Tusk warned her if London misses the deadline, the European Council would not be able to declare “sufficient progress” at its December summit.

Of the three issues, citizens’ rights seems the easiest to resolve, with reports that the two sides are not that far apart. Bear in mind, however, that the deal on citizens’ rights would only apply to EU citizens already in the UK on an agreed date. What happens with regards the rights of EU citizens to live and work in the UK after Brexit is entirely a matter for the UK. Work permits and visa regimes beckon.

However, at the time of writing, (Sun, Nov 26th), it seems to us that it will be impossible for the UK to present proposals on the other two issues that will be acceptable to the EU. This will mean that the EU27 at their December summit will not agree to allow the talks to move on to discussing with the UK “the framework for its future relationship with the Union.”

Newspapers reports suggest that such a decision would, as a result, have to be deferred to the next meeting of EU leaders in February 2018, to give the UK further time to resolve the Article 50 issues.

But if the UK cannot present acceptable proposals on the Irish issue and the financial settlement by December 4th it is difficult to see how it could do so by February, for reasons we explain in this note. There is a very real prospect of the talks coming to a shuddering end and the UK exiting the EU without a deal in the absence of a radical rethink on the part of the British.

The Irish Question: The UK has said that Brexit mandates that as well as leaving the EU’s political structures it must also leave the EU’s single market and customs union. This inevitably means that there will need to be borders between the EU and the UK. With one exception these borders will be sea borders, between Calais and Dover, for example. That exception will be a border between Ireland and Northern Ireland, the only future land border between the EU, of which Ireland will be a member, and the UK, of which Northern Ireland is a part.

The EU has some 40 land borders with non-EU countries. They are just a fact of life with little emotion attached to them. Not so a potential border between Ireland and Northern Ireland, for reasons we explained in last week’s blog: (link here). As the Irish political sociologist, Kathy Hayward puts it, a border in Ireland

…isn’t ‘a stick to beat’ brexiting GB. It is a wound of deep conflict. It is a join of close contact. It is a thread of careful agreement. There is no mere ‘grandstanding’ or ‘posturing’ here. This is not a game.

If the UK continues with its decision to stay outside the customs union and the single market then it is inevitable that there will be a hard border in Ireland, with all the unpicking of that “wound of deep conflict” that will follow.

That is the consequence of the choice that the UK has made. That consequence is the responsibility of the UK, and the UK alone. There are no magical “technical electronic solutions”, no diplomatic language fudges, available to settle the issue.

Given this, as the Irish journalist, Fintan O’Toole, puts it in the Observer on Sunday, November 26th,

So what is the Irish government supposed to do? What happens with the border is a vital national interest. Ireland is desperate to hear what Britain has in mind. Instead, it has been told not to worry its pretty little head about it, but trust in the reassurances of its betters. It is being placed in the position of a 1950s wife, whose husband is betting the house on a horse race while he tells her, with increasingly irritation, to stop worrying because the nag is sure to romp home.

But there is little the UK can do to adjust its position as the Prime Minister, Theresa May, is the prisoner of the Northern Ireland-based Democratic Unionist Party (DUP), on which her minority government is reliant. At their annual conference on Saturday, November 25th, their leader, Arlene Foster, announced that she had written to all 27 EU governments telling them

“We will not support any arrangements that create barriers to trade between Northern Ireland and the rest of the United Kingdom or any suggestion that Northern Ireland, unlike the rest of the UK, will have to mirror European regulations. I have written to the heads of government of each of the EU 27-member states setting out our views.”

So, no possibility then, as has been suggested, that Northern Ireland might stay in the customs union and single market, even if the rest of the UK exits.

As things stand, it is inevitable that the Irish government will veto the move to phase two of the Brexit talks. This would probably have happened anyway, but given the current political situation in Ireland, where the government faces a no confidence motion over a long-simmering scandal involving the police force, it copper-fastens it. If the government falls as a result of the no confidence motion and there is an election then no political party is going to allow itself to be outbid as being “soft on the Brits”. The shadow of history looms large in Ireland. See here.

Even if the government survives the same logic applies. If the Opposition is prepared to bring the government down over a police scandal then it will certainly do so if the government is seen to yield to British pressure. If Theresa May’s government is captive to the DUP, then the Irish government is captive to the opposition. Neither government is going to break free of these constraints between now and December 4.

The financial settlement: The financial settlement is almost as intractable as the Irish question. Simply put, the EU takes the position that the UK committed, as a member of the EU, to budget and other expenditures of around €40 – €60 billion and that it needs to settle these liabilities now that it is leaving.

When these liabilities are settled the discussion can move on to future relationships. The EU view is that paying money already owed buys no future benefits. It is worth noting that Berlin puts the number owed at between €60 and €90 billion, and insists that no conditions be attached.

The UK accepts that there are financial liabilities and has made an offer of around €20 billion in settlement, far short of what the EU says is required. At a UK cabinet meeting on Monday, November 20, it was agreed that the offer could be increased to around €40 billion.

However, as the London Evening Standard reported:

…it is believed no exact figure has been set, and the extra funding would only be on the table in exchange for fast-tracked talks on post-Brexit trade arrangements, and the framework for a two-year transitional deal after formal withdrawal in March 2019.

This position was confirmed by a report in the Guardian which said:

A source close to those attending the session made clear that this referred to the total package including the future trading relationship as well as the divorce agreement, which focuses on EU citizens’ rights, the Irish border and the financial settlement.

The Guardian report further noted that a spokesperson for the PM had said:

“It remains our position that nothing’s agreed until everything’s agreed in negotiations with the EU”

So, the EU want an unconditional commitment from the UK to settle liabilities of around €50 billion. The UK would appear to be willing to offer around €40 billion, but only as part of a total package that involves talks on the future EU-UK relationship, a transition to that relationship and a deal on what that relationship actually will be.

Two mutually incompatible positions. The payment will either be unconditional or conditional. It cannot be both. Given that the EU will not put the integrity of its internal legal order at risk the UK’s conditional offer is unlikely to be accepted and May cannot come back with an unconditional offer because of opposition to such a move within the Conservative Party.

But then the UK cabinet, and the wider Conservative Party, with little real knowledge of the EU and how is works, has always harboured unreal expectations when it comes to Brexit. As the Observer (26/November) reports the former UK ambassador to the EU, Sir Ivan Rogers, as saying after a lecture last Friday:

…May’s Brexit strategy was “an accident waiting to happen”. Speaking after a speech at Hertford College, Oxford, he said completing the Brexit process was “guaranteed” to take a decade. He said that the prime minister’s unrealistic hopes of securing a bespoke trade deal meant a car crash in the next few months was “quite likely”.

All of which leads us back to the argument we advanced at the start of this paper: “…if the UK cannot present acceptable proposals on the Irish issue and the financial settlement by December 4th it is difficult to see how it could do so by February…”
Fasten your seat belts. The “car crash” predicted by Rogers seems more than “quite likely” and may happen sooner rather than later.

BUT… and it is a very big but… there is no doubt but that there is a majority in the House of Commons which does not wish to see the UK leave the EU without an agreement and, truth be told, would probably prefer to see the UK stay in the customs union and the single market. But that majority is split between the two main parties, Conservatives and Labour, and feels constrained by tribal, political loyalties. With the blinding lights of the oncoming car rapidly coming into view will those loyalties shatter? Could the “silent majority” assert itself?

Could parliament take back control?

Brexit, British Government, Brussels, Irish border, Northern Ireland

Break, for the Border #Brexit

This blogpost was written on Nov 24th, 2017

welcometoniThe week opened with the UK cabinet agreeing that it would offer more money to the EU to settle its financial obligation triggered by its decision to leave but only on condition that the EU would agree to now move to talks about the future relationship and that the money would only be paid over when a trade deal was actually signed. This is an offer that, by Friday, even the ultra-Brexit supporting newspaper, the Telegraph, was admitting would be rejected by the EU.

The week closed with howls of rage from British politicians, often Brexit supporting, when the EU announced that UK cities were to be excluded from consideration from the prized European Capitals of Culture competition for 2023. An example of the EU punishing the UK, Brexiters argued, apparently ignorant of the rules that only cities from EU, EEA or applicant countries can be so nominated. Why would the EU subsidise cultural activities in a city in a country that had left the EU?

When you are thrown out of the culture club all you can say is: “Do you really want to hurt me, Do you really want to make me cry?”

The rage over the cities issue neatly captures a phenomenon that Chris Grey identifies in a blog post that “there is the strange sense from those who argue most vociferously for Brexit that, somehow, Brexit won’t change anything. For example, I’ve seen Brexiters ridicule the idea that leaving the EU could mean needing visas to travel to the EU or that it could mean restrictions on air travel within the EU.” On air travel see this.

A phenomenon also captured in an article by Tony Barber in the Financial Times that “the clamour for special treatment is particularly loud in hard-pressed areas of England that voted heavily to leave the EU in the June 2016 referendum.” For example, the seafood industry in Grimsby, which voted 70 per cent to 30 per cent for Brexit,

…fearing that competitors in French and German ports will gobble up its business, wants special free trade status after Brexit.

What might be described as wanting to have your fishcake and eat it.
But by far the biggest Brexit development of the week was the issue of the potential re-emergence of a border in Ireland moving centre stage in the negotiations and threatening to block them moving to phase two, talks about the future relationship between the UK and the EU after Brexit.

There are three issues on the table in phase one of the Article 50 (A50) discussions: the rights of EU and UK citizens living in the UK and EU respectively; the financial obligations that the UK has signed up for as a member of the EU and which now must be honoured; and issues relating to the island of Ireland.

A major theme in the UK Brexit referendum was that leaving the EU would allow the UK to “take back control” of its borders. As of today, as a member of the EU, the UK has no borders with other EU countries. In fact it has no borders at all as there are no non-EU countries around it. After Brexit, depending on how Brexit is defined, with one exception, all of the UK’s borders with EU countries will be sea borders, the English Channel and the North Sea, for the most part.

The one exception is the island of Ireland, with its long, tortured and bitter history with the UK. History in Ireland is not the stuff of the past. History is modern day politics. Orange marches on the 12th of July, celebrating the victory of King Billy at the battle of the Boyne, still have the potential to trigger confrontation. Northern Ireland has been without a devolved government for close on a year because of a dispute over Irish language legislation.

Ireland became independent of the UK in 1922, close on a 100 years ago. It became a republic in 1949. But six counties, located in the Northeast of the island, because of a Protestant/Unionist majority in those counties, opted to remain with the UK. What the Irish refer to as “partition”. From 1922 onwards, when partition happened, the unionist majority in Northern Ireland systematically discriminated against the Catholic minority, something ignored by UK governments, both Conservative and Labour. It should be remembered that the official title of the Conservatives was the Conservative and Unionist Party.

The border between the two parts of the island was clear and visible, manned by security forces on both sides.

In the 1960s, inspired by the US civil rights movement, Northern Irish Catholics began their own civil rights movement, marking the beginning of the end of the Unionist state. But the violent reaction of the authorities in Northern Ireland to the civil rights movement gave birth to the Provisional IRA, the “Provos”, and years of terrorist violence followed, with atrocities being committed by all sides.

The Good Friday Agreement (GFA) of 1998 began the process of ending violence and returning a degree of normality to Northern Ireland through a governance process that involved representatives of both communities. But the deep divides between the two communities have not healed to this day. Like a sleeping volcano, anger and hurt stand ready to erupt at any time.

The hard border between the two parts of Ireland also began to disappear, helped enormously by the creation of the EU’s single market, building on the already existing customs union. The disappearance of trade borders because of regulatory harmonisation across the island facilitated the disappearance of security borders. EU membership has boosted the peace process is myriad other ways. See: Irish-ambassador-Daniel-Mulhall-Brexit/

In Ireland where, to borrow some words of Yeats, “peace comes dropping slow”, the decision by the UK government that Brexit means leaving not only the political structures of the EU but also the single market and the customs union puts all that has been achieved at risk. If Northern Ireland, as part of the UK, is outside the single market and the customs union then the return of a physical border is inevitable. The return of a border could awaken the sleeping volcano.

If the UK, post-Brexit, wants to diverge from EU standards, and it does, see here, then border controls is the only way the EU can ensure the integrity of goods imported into the EU through Northern Ireland. But make no mistake. It is the choice made by the UK government to quit the single market and the customs union that results in the border.
Ireland has made it clear that it will veto moving to phase two of the Brexit process is the UK does not offer written, bankable, guarantees that there will be no border. The UK responds that this is an issue to be dealt with in phase two when the trade relationship is discussed. But how can it be when the UK has already ruled out the only options that would prevent the need for a border? A bit like an employer saying that they will open pay negotiations with a union but only on the understanding that a pay increase is a priori ruled out.

As Chris Grey points out in his blog, Brexiters appear to suffer from a touch of cognitive dissonance, where the consequences of Brexit are either denied or blamed upon the EU, and not attributed to or accepted as resulting from the vote to leave, as in the Capitals of Culture furore.

Jarring reality can break the hold of cognitive dissonance. Such will be the case with an Irish veto on moving to Brexit talks phase two. The UK was never slow to use its veto during its years of EU membership when it felt potential decisions cuts across its national interests. It can scarcely complain when other countries do the same.

The veto will be used. To quote the Irish foreign minister, Simon Coveney: “We have been preparing effectively for that summit for months now to make sure that Ireland’s voice is heard in the context of our future as a member of the European Union, in the context of ensuring we do not have a border on the island of Ireland again.”

The UK made its Brexit choices. Now it must live with the consequences. If the talks break, it will be for the border.

Footnote: As I write this, the newspapers are awash with talk that the Irish government may fall, triggering fresh elections over who knew what and when as regards a police scandal. An election guarantees an Irish veto as no party is going to campaign as the one who would agree to allow the UK to re-impose a border in Ireland. No doubt the UK Brexit supporting newspapers will complain loudly that “Irish politics” are derailing Brexit, ironically ignorant of the fact that Brexit is little more than the playing out of UK politics.

Article 50, Brexit, British Government, Negotiating, Theresa May

#Brexit, a Dickensian example of: “Please sir, can I have less?”

This article was written on Oct 29, 2017.

Sir-Ivan-Rogers-776583If the absence of economic rationality, as a driving force behind Brexit, was ever in question, comments this week from three very different speakers should put an end to the doubt.

First, the French ambassador to the US, Gerard Araud tweeted:

“Maybe I am too cartesian but leaving the largest free trade area in the world and 53 free trade agreements on behalf of free trade is weird.”

Indeed, much too logic. But that’s the French for you.

Second, Michael Bloomberg, the billionaire founder of Bloomberg and former mayor of New York commented:

Brexit is the “single stupidest thing any country has ever done…it is really hard to understand why a country that was doing so well wanted to ruin it”

Third, and most significantly, speaking to a House of Commons committee, Sir Ivan Rogers, the former UK ambassador to the EU (Photo above with David Cameron), who resigned earlier this year after warning against “ill- founded arguments and muddled thinking” in the UK’s approach to leaving the EU, said:

You cannot know how long a free trade deal discussion will last until you get into it. I have lived through a number of them, including the Canadian one, which we all thought was relatively straightforward, which we kicked off in about 2009, and it still is not in force; and they are one of the more simple partners. You cannot know until you get there. There are things that are simpler with us than with Canada simply because we have been in the organisation. There are things that are more difficult because we are a diverging partner rather than a converging partner.

All trade deals in history are struck between people that are trying to get closer together. This is the first trade deal in history struck between partners who are trying to get further apart. There are some things that are simpler because they know us better and we have been part of their organisation and, by definition, there is a huge degree of regulatory convergence and they know our regulation but we are obviously going to diverge to some extent, and the question that is politically live, including in this House, will be how far we diverge. (Our underlining).

I would take issue with Sir Ivan’s comment that the two sides are trying to get “further apart”. It is just the one side, the UK, that wants to make the break. But apart for that, what he says is right.

Normally, the parties to a trade deal believe the conclusion of the deal will be win-win for all, making them better off than they are now, boosting trade between the parties, enhancing business opportunities rather than limiting them. Getting closer together rather than “trying to get further apart”.

But in deciding to leave the EU, the single market and the customs union the UK will not be better off than it is now. As Sir Ivan said earlier in his remarks to the committee:

… from other capitals often it is read as meaning the Brits would rather like the benefits of three of the freedoms whilst suspending or ending the fourth freedom. The Brits would rather like to have continued, largely unchanged, market access in all the areas that they want, and see no reason why that market access should be diminished…
But if that is what the “Brits” would like, they are not going to get it, Sir Ivan continued:

… The Brits need to understand that there will be a radical difference as a consequence of exiting, in terms of levels of market access in multiple sectors that they care about.

… The British cannot simply expect the world to carry on broadly as is. They cannot suspend free movement of people because that is no longer applicable to them, live outside the jurisdiction of the Court of Justice, but still have everything that they liked about the levels of market access when they were inside the venture.

Given his long experience of the EU, Sir Ivan knows what he is talking about, which is probably a lot more than can be said for many members of the government and many leading Brexiteers.

If Britain cannot expect to have as good terms outside the EU as inside, how does it go about negotiate a lesser deal than the one it has now? The answer, in all probability, is that it can’t. How can the UK government turn around to the motor industry, the pharmaceutical industry, the food industry or the chemical industry and tell them that the agreement it has just negotiated with the EU will put more obstacles in their way when exporting to the EU? More paperwork will be required, more customs checks, longer waiting times at borders will all be part of the new deal.

Read Sir Ivan’s remarks, quoted above, closely. Better still, read the full script of his testimony to the House of Commons committee, which can be found here.

While diplomatically couched, he is saying that if you think the Article 50 negotiations on the financial settlement, citizens’ rights and Ireland are difficult, wait until you actually get to the trade talks. They will be brutal and bloody. Because, as we noted in last week’s blog, what the “Brits” want is to move from a marriage to a “friends with benefits” arrangement and there are no circumstances in which the “jilted” EU will agree to such an arrangement, where the UK gets all the benefits it wants but incurs none of the costs.

Further, Sir Ivan, along with his two fellow panellists, clearly makes the point that the UK government is deluding itself if it thinks that a DCFTA, a “deep and comprehensive free trade agreement” in the Brussels jargon, will be agreed before March 2019, to be followed by a two-year transition period, or “implementation phase” as UK Prime Minister, Theresa May, insists on calling it.

At best there will be an agreement, as part of the Article 50 process, to negotiate a DCFTA during the transition period, by which time the UK will have left the EU. All the transition period does it to buy two more years before Brexit bites.

It is not “hard” Brexit or “soft” Brexit. It is just slow Brexit. Because it will be impossible to negotiate such a DCFTA within the two-year transition. At the end of the two-year transition the UK may still find itself without a trade agreement with the EU.

The UK has gotten itself into an impossible negotiation. The structure and the timetable of the negotiations, which they agreed to, plays against them. The clock ticks remorselessly down. The negotiations open with the UK having all it wants; free and frictionless trade with the rest of the EU. But the price of that trade is the free movement of people, a price the UK no longer wants to pay. If it won’t pay the price, it can’t have trade on frictionless terms. What does it give up as the price of ending free movement?

How do you ask for less in a negotiation?

Those of you of a certain age will well remember the scene from the movie Oliver in which Oliver, approaches the top table in the workhouse and, holding out his bowl, says “I want some more”, to the outrage of Mr. Bumble, who runs the workhouse. Theresa May and David Davis are now both holding out the UK’s bowl to Juncker, Barnier and Tusk and the EU 27 and saying: “We want a lot less than we now have”.

Just how do you negotiate that?

Article 50, Brexit, British Government, Irish border, Negotiating

Breaking up is so very hard to do #brexit

Brexit4Over the past number of years, I have been involved, on the management side, in many European-level labour negotiations. But one particularly comes to mind.

The employees’ representatives on the other side had cancelled an agreement that had been in place for close on 20 years. It wasn’t a perfect agreement, it had drawbacks for both parties, but it worked reasonably well in practice.

Further, it was always possible to negotiate small, but important, changes to the agreement as circumstances evolved, old provisions became outdated and new issues and organisational changes needed to be taken into consideration.

In other words, the other side did not need to cancel the agreement but could, instead, have worked on improving it. But they were advised that negotiating a new agreement would be easy and that it would be a lot better than what they then had. Five years on, a replacement is not yet in place.

During those five years there have been significant changes in the company which further complicated and lengthened the renegotiation process. Because the employees’ representatives were focused on negotiating their new agreement they missed having a voice during the change process. Anticipating the future is difficult and the unexpected happens.

Of course, they complained repeatedly that they were not “informed and consulted” about the changes. However, every time we, the management, pointed out to them that the reason they were not informed and consulted was because they had cancelled the original agreement they reacted in hurt tones. They had been “forced into it”.

Management had been unreasonable. They had no choice. None of it was their fault. And we were the ones to blame for not “making it easy” to negotiate a new agreement.

The employees’ representatives had made a choice, but then refused to accept that the consequences that flowed from a choice that was theirs, and theirs alone. They expected management to pull them out of the hole they had dug themselves into it.

It’s a phenomenon known in other fields too. The German military strategist Helmuth von Moltke summed it up this way: “No battle plan survives contact with the enemy”, in other words: when your plan meets the real world, the real-world wins.

So, this negotiation came to mind as I read reports yesterday (Thurs, Oct 12) of the “breakdown” of negotiations in Brussels between the UK and the EU. Reading the London newspapers, with their English spin on events (English more so than British) it would be all too easy to conclude that the position the UK finds itself in had nothing to do with the UK and was all the fault of the EU. As if the EU had decided to leave the UK, not the other way around.

Negotiations between the two parties are deadlocked because the UK refuses to engage realistically on how the money it owes the EU should be calculated.

Not to mention the other two Article 50 issues, the respective rights of EU citizens living in the UK and UK citizens living in the EU, and the issue of the potential re-imposition of a border between the Republic of Ireland and Northern Ireland, the former an EU member, the latter, as part of the UK, out of the EU when Brexit takes effect.

As we commented in last week’s BEERG Brexit Briefing, the UK is pushing a “double bubble” strategy when it comes to money:

  • It is saying to the EU that it will only put money on the table in the context of discussion on a future trade arrangement.
  • Yes, it knows it owes money as a result of decisions the EU took while it was a member but it will only settle those bills if the EU promises it a commercial arrangement in the future that mimics the single market and the customs union. An arrangement that would mean that the UK was a member of the single market and the customs union in all but name.
  • It has to be that way for the UK because that is the way that UK prime minister framed the referendum decision to leave the EU as also meaning leaving the customs union and the single market as well.
  • Old money that is owed will only be paid in return for new benefits because that is what UK politics demands. Or at least, Conservative party politics demands.

Unsurprisingly, the EU sees it very differently.

The UK alone took the decision to leave the EU. It was not forced out. It was not shown the door. Consequences flow from that decision. One, it has financial obligations arising from its membership that it needs to settle. These obligations are freestanding and cannot be used as bargaining chips in negotiations on future relationships. No “double bubble”, says the EU. If you don’t pay, the EU continues, then there can be no talks on future commercial relationships. How can we negotiate with a party that won’t honour its existing obligations?

Hence the deadlock. No money, no trade talks, says the EU. No trade talks, no money is the UK position. If the negotiations between the EU and the UK crash and burn, and the UK falls out of the EU in March 2019 without an agreement, then the new reality for the EU is the single market and customs union between the 27 remaining member states. The status quo, less one member. Some problems, certainly, but probably manageable

For the UK it is a big, black hole.

For a start, it will have to create dozens of regulatory agencies that are needed in a modern economy, to replicate the work existing EU agencies do for all member states. How long will that take? How many new staff will need to be recruited? It has been estimated that around 5,000 customs agents alone would be required. How long will it take to develop the processes and procedures to facilitate continuing trade with the EU, the UK’s single biggest export market?

Outside of the EU’s open skies agreement, what legal framework will govern aviation? And on, and on, and on across all sectors of the economy. A growing multitude of problems only now beginning to be recognised, and looking increasingly difficult to manage.

On citizens’ rights the UK position appears to be that EU citizens living in the UK can have less rights than they have at the moment if UK citizens living in the EU can have all the free movement rights they currently enjoy. The UK wants its citizens living and working in the EU to be able to move around EU countries as they please, as they can do at the moment. But it wants to limit the rights EU citizens living in the UK currently have, such as the right to have extended family members join them.

As for Ireland, the UK appears unwilling to accept that its decision to leave the customs union and the single market has the consequence of re-imposing a hard border on the island. If there is to be a border again in Ireland, that is the EU’s fault. Nothing to do with the UK.

Breaking old agreements, as our labour relations story demonstrates, is easy. Negotiating replacements is never as easy as promised, takes longer than thought and will never be as good as what was previously in place because bonds of trust have been severed.

Breaking agreements always comes at a cost, costs which generally fall most heavily on the party that initiates the break.

Day by day, the UK is having to learn the truth of these sad realities.

But, to borrow and slightly change, some words from the Irish poet W.B. Yeats, such learning comes “dropping slow”.

Brexit, British Government, David Davis, Michel Barnier

My #Brexit Blog: of gold and gorillas

DD9E17AD-FCA5-4574-98B2-7CA25C82D730It was a week when reality bit, and bit very hard. Brexiteer illusions about a world of easy free trade deals beyond EU membership took a heavy hit when the US slapped a 219% tariff on Bombardier, the Canadian plane maker, over alleged illegal state aid, putting 4,000 jobs in Northern Ireland at risk.

Then, on Friday, the economics editor of SKY TV reported that close on 10% of UK exports was made up of gold which was simply recycled through London. As most of this went to non-EU countries, such as Switzerland, India and China, it had the effect of understating the value of UK manufacturing exports to the EU. The figure is closer to 50%, rather than the 44% quoted by the Brexiteers. The UK does not export as much to the rest of the world as it thinks it does.

Reality also bit when a further round of negotiations between the EU and the UK ended with little or no progress, despite an improvement in the atmosphere between the two sides. Talks on citizens’ rights inched forward, with the UK offering to allow EU citizens with permanent residency in the UK the right to return if they left for a prolonged period of time. In return the UK wants the EU to allow UK citizens who move to the EU to be able to move and settled in different countries, instead of being restrict to the country in which they lawfully reside when Britain leaves the EU.

The UK also offered to enshrine the Withdrawal Agreement into UK law, with lead UK negotiator, David Davis, saying that this would give it “direct effect”. “Direct effect” is a term in EU law which means that an EU citizen has rights under an EU law, enforceable through national and European courts, even if the country in which they are living has failed to transpose the EU law into national law or has transposed it incorrectly.

It is not clear if this is what Davis meant. Probably not. Meanwhile Barnier, the EU’s main negotiator, said that there were still serious issues over the role of the Court of Justice of the European Union (CJEU) in upholding the rights of EU citizens in the UK. The UK is opposed to any such direct role, but has indicated that some sort of indirect role may be a possibility.

Not much progress on the financial issue either. UK Prime Minister, Theresa May, said in her Florence speech that the UK would meet its financial obligations to the EU and that no country would be worse off as a result of the UK’s decision to leave during the current budgetary cycle. But when Davis arrived in Brussels at the start of the week’s negotiations he was again playing the “double bubble” game, trying to use the same money twice. The UK would pay what it owed but only in the context of talks on a trade deal. “We’ll fix our bar bill provided we can continue to play the course”. There will not be many takers in the EU for such a “generous” offer.

And not a word on the Irish border issue, the third of the three Article 50 issues identified by the EU as needing significant progress before the discussions can proceed to deal with the future relationship between the UK and the EU and transition arrangements to get to that relationship.

Let me be very blunt about this. If the UK insists on leaving the EU’s custom union then there is no solution to the Irish border issue. None. The Irish border will be the EU’s only land border with the UK, a third country. The EU is not going to leave that border unprotected for to do so would allow good of whatever origin and whatever quality to be shipped to Northern Ireland, then taken across the border into the Republic of Ireland for onward, custom-free shipping into the EU. That is not going to happen.

The return of a border in Ireland will be the direct result of the UK’s decision to leave the EU’s custom union. Nothing else. There are no magic technological bullets to avoid the need for a hard border. Such “magic bullets” only exist in the imagination of those Brexiteers who want to deny the consequences of their own decisions.

Make no mistake. The “Irish Question” could be a Brexit dealbreaker, because a border is a border is a border, no matter what its shape and form and Irish people in both the Republic and Northern Ireland do not want a border, visible or invisible.
All of which resulted in EU Commission President, Jean-Claude Juncker, saying onFriday morning that a miracle was needed between now and the next summit of EU leaders in October if they were to give the green light to move on in the exit discussions to talks about future relations.

Which brings us to “Gold and Gorillas”.

Ed Conway, the economics editor for SKY news writes in the Times (September 29th):
What is Britain’s biggest physical export? Given that the UK has some of Europe’s most advanced car factories, you might have assumed the answer was motor vehicles. Or perhaps pharmaceuticals, or engines, or crude oil from the North Sea?
No. In July, the latest month for which we have the figures, Britain’s biggest physical export was gold.

How does that happen?

The short answer is that London is the hub for the world’s physical gold market. Sitting underneath the ground in warehouses inside the M25 are vaults containing well over half a million bars of bullion, worth a grand total of about $300 billion: roughly the equivalent of £9,000 for every household in the country.

As noted earlier, most of this gold goes to non-EU countries thereby over emphasising non-UK exports and underestimating exports to the EU. While the latter have been falling they still account for roughly 50% of all the UK’s physical exports. In other words, the export hole to be filled if exports to the EU drop as a result of the UK leaving, is significantly bigger than previously thought.

A Brexit claim goldfingered you might say.

From gold to gorillas. Canada has a free trade agreement with the US: NAFTA. That did not stop the US hitting Bombardier with a potential 219% tariff over planes it sold to Delta, resulting from a complaint by Boeing. The tariffs were slapped on Bombardier, a Canadian company. The 4,000 jobs in Belfast are just collateral damage.

Those favouring the UK’s departure from the EU have claimed, long and loudly, that once outside the EU the UK would be first in the queue to sign a sweetheart trade deal with the US. They appear to believe that global trade negotiations are conducted in accordance with the elegant theories found in economic textbooks. No such thing. They are knockdown, drag-out, bare-knuckle fights. Dominated by the economic self-interest of powerful players. Fairness and justice has got nothing to do with it. Bringing “fairness and justice” to a trade negotiation is akin, as one commentator has noted, to bringing a “chocolate spoon to a knife fight”.

In such a world the big gorillas dominate. The EU, US, China, Japan and India. And when a 160 kilo gorilla goes head to head with a 40 kilo chimp (the UK outside the EU) there can only be one winner. Clue: it is not the chimp.

But the US thinks twice about cutting up rough with the EU because, in trade terms, the EU is as big, if not a bigger gorilla than the US. Further, the EU has teams of highly skilled trade negotiators, unlike the UK, which has next to none.

On March 5, 2002 President George W. Bush hit imported steel into the EU with 8-30% tariffs because of an alleged detrimental surge in steel imports. There was a widespread belief on all sides of the debate, confirmed by top Bush administration officials, that politics played a role in the decision to impose tariffs. Namely, the large and important Rust Belt swing states of Pennsylvania and West Virginia would benefit from the tariffs.

After Bush ignored a World Trade Organisation (WTO) decision against the US on the tariffs the EU threatened to counter with tariffs of its own on products ranging from Florida oranges to cars produced in Michigan, with each tariff calculated to likewise hurt the President in a key marginal state. Bush lifted the tariffs. Wikipedia here)
Inside the EU the UK, as part of a big gorilla, gets treated with respect by the US and the others. Outside, it will be eaten for breakfast.

With 4,000 jobs in Belfast at risk whether the Democratic Unionist Party (DUP) will reconsider its support for the UK government’s decision to quit the customs union and the single market remains to be seen. The DUP’s politics are rooted in tribal identity rather than rational economics.

A final decision on the Bombardier tariffs will be taken early in 2018. If the tariffs are upheld then Brexit dreams of easy free trade deals will be well and truly dead.
Finally, after their conference this week it is now clear what the Labour Party policy on Brexit is. Its policy is not the government’s policy. But as we don’t really know what the government’s policy is, we, therefore, can’t know what the Labour Party’s policy is. Now, is that clear?


Brexit, British Government, Michel Barnier, Negotiating, Theresa May

After #Brexit #FlorenceSpeech: Has Anything Changed?

This piece was written on September 24, 2017

857546_1UK Prime Minister Theresa May’s speech in Florence last Friday was designed to unlock the stalled Brexit negotiations between the European Union (EU) and the UK over an agreement on the departure of the UK from the EU. In her speech May said essentially four things:

1. She repeated that the UK would leave the EU at midnight on March 29th, 2019. On March 30th the UK will no longer be a member of the EU, the Single Market and the Customs Union.

As we have said before, this is a decision that can only be reversed by a vote in the House of Commons and agreed to by the European Union, though as we have also noted the EU would be unlikely to allow the UK to simply cancel its exit notice and return to the status quo ante. New conditions for continued membership would be required.

2. However, for two years, there or thereabouts, after that date the UK wanted a transition arrangement during which it would continue to behave as if it were still a member of the Single Market and the Customs Union, as it readied itself to fully leave the EU. During the transition the UK would continue to abide by all EU laws and procedures, including the principle of free move and it would continue to accept the jurisdiction of the Court of Justice of the European Union (CJEU).

3. The UK would meet its financial obligations to the EU, though she declined to put a figure on the amount involved.

Further, Mrs. May failed to indicate if the money involved simply covered accrued obligations or was also intended to “buy” future access to the EU Single Market.

4. She gave new assurances on the rights of EU citizens living in the UK and on the legal mechanisms through which those rights would be protected, though no direct role for the CJEU was mentioned.

By contrast, Mrs. May failed to say anything of substance about the Irish issue, which revolves around the need to avoid a hard or economic border between the Republic of Ireland and Northern Ireland, something that is impossible to achieve if the UK insists on taking Northern Ireland out of the EU Customs Union.

For the future the UK wants a “bespoke” trade agreement with the EU that would be better than either the European Economic Area (EEA) status of Norway or the trade agreement, CETA, between Canada and the EU, that has just come into force.

Reaction from the EU and EU member states was lukewarm, with a reemphasis on the need for the UK to first finalise negotiations on the three Article 50 (A50) issues that the EU has identified as key to an exit agreement – the rights of EU/UK citizens living in the UK/EU respectively, matters relating to Ireland, and the UK’s financial obligations to the EU.

Now it is no secret that Mrs. May’s Conservative Party is deeply divided over Brexit. The “business friendly wing” wants as long a transition as possible and thereafter, what might be called “Brexit in Name Only”, so as to keep to an absolute minimum any disruption to trade between the UK and the EU. The other wing, the sovereignty wing, isn’t much bother about trade disruptions with the EU as long as the UK has full and unfettered control over its borders, immigration, law making and the freedom to do trade deals with far-flung places.

The Florence speech represented an uneasy truce between the two factions. It didn’t last long. By my calculation from 15:00 on Friday afternoon to late Saturday night when the early editions of the UK’s Sunday papers carried stories that UK Foreign Secretary, Boris Johnson, was letting it be known that he would not agree to any new EU laws adopted during the transition being implemented in the UK and that he wanted the UK to be free to negotiate and sign trade deals with other countries as well. He also opposes paying into the EU for Single Market access at the end of the transition period. In this he was echoing the already stated views of other hard Brexiteers.

Responding to May’s Florence speech, Michael Barnier, the EU’s Brexit negotiator, said:

“Prime Minister May’s statements are a step forward but they must now be translated into a precise negotiating position of the UK government.”

He also reminded the UK that during any transition period that

“…existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures (continue) to apply.”

In light of Johnson’s latest remarks what “precise negotiating position” is David Davis, the UK’s Brexit negotiator, supposed to outline to Barnier on Monday morning when they meet for the next round of negotiations? Who speaks now for the UK: Johnson or Davis? How can the EU do any sort of deal with the UK when senior government members appear to openly contradict the Prime Minister with impunity?

The EU has been consistent in its position since the UK voted for Brexit. An A50 agreement must first be finalised. That agreement must cover, as noted earlier:

• The rights of EU/UK citizens living in the UK/EU respectively.

• Issues relating to Ireland

• A full financial settlement covering accrued UK financial obligations, which have been identified as somewhere between €60 and €100B.

Once sufficient progress is made on these issues the discussion can proceed to scope out the framework for future UK relationship with the Union, i.e., what sort of arrangement does the UK want with the EU when the Brexit process is completed. While the UK has failed to say, to date, what it wants, it seems clear that what it wants is a “common commercial space” agreement with the EU that would mimic the Single Market and the Customs Union i.e., frictionless trade between the two, but with the UK freed from the jurisdiction of the CJEU, able to restrict free movement and free to negotiate trade deals with third countries. No such cake and eat it deal will be on offer from the EU. And even if it were, it would come with a price tag at which the UK would baulk.

From the tenor of Mrs. May speech it seems that the UK sees itself as being on a par with the EU, negotiating a future partnership of equals. This overlooks the fact that the EU27 is 5 times bigger than the UK and in any negotiation the bigger and stronger party generally is the one that sets the terms of the deal. Overestimating your leverage in any negotiation can be fatal, even more so in a divorce negotiation when you are the one that has walked out.

Once the long-term future relationship is identified only then can a transition agreement be discussed. You have to know where you are going before can you build a bridge to get you there, if a bridge is required. At the moment talk of transition by the UK government looks very much like a “bridge over a troubled cabinet” rather than a bridge to a new relationship.

Even if, very, very big ifs, all of the above could be done, only once the UK becomes a “third country” after it leaves the EU in March 2019 can discussion on the substance of a future relationship begin. It is not going to happen beforehand. Which means that the UK Parliament will not be able to vote on the future UK/EU relationship before the UK leaves the EU in 2019 because the details of that relationship simply will not be known. I’m not sure that this has yet dawned on the majority of members of parliament.

But it is unlikely ever to get to that.

Because, as of today, Sunday, September 24, given the divisions in the UK cabinet, I can see little hope that an Article 50 agreement can be concluded between the EU and the UK that will allow the talks to move on to scoping the future relationship between the two. To get to an agreement it would require a major backing down on the part of the UK. The EU has been crystal clear in its position from the start. It is not going to change. Why should it? It is the UK that is leaving the EU. Not the EU that is leaving the UK. The problems that Brexit creates for the UK are of the UK’s making.

We will know a great deal more about the direction of travel after next week’s round of negotiations between the EU and the UK.

A week is a long time in Brexit.

But a caveat. The above “no deal” scenario is premised on the current Conservative government staying in office. Given the divisions with the cabinet and the Conservative Party there can be no guarantee of that.

It is a long way from here to March 2019. Anything can happen.