Brexit: Pawing and Snorting

Coronavirus has so eaten other news that even Richard North’s EU Referendum website’s two most recent pieces are about the Government’s too-obvious lack of preparedness, although North does get some Brexit digs in.

Nevertheless, it’s been too long since this site and its estimable Brexit mavens have had a look, despite the trade talks having formally started on Monday. But again, most elements are so over-familiar that it’s easy to wonder if one is missing a critically important detail. The Financial Times gave a helpful overview of the events planned for this week and the scope of the talks, including that many issues were being hashed out in parallel.

As before, as ever, the UK side is heavily engaged in posturing for domestic consumption. Some commentators also tear their hair over the UK’s continued cakeism, which has only seemed to have changed flavors. The Government is, as when Theresa May was at the helm, insisting on arrangements that the EU has repeatedly said na ga happen. The UK is now demanding the EU must must let the UK have its way because voting for Brexit means they get that. I’m not making that up; this was a key theme of an EU-eyepoking speech by Brexit negotiator David Frost. The UK side acts as if it really cannot wrap its mind around the fact that selling goods to the EU means abiding by their rules. A short and tidied up version from RTE:

Mandates published last week highlighted the EU’s aim of securing a “level-playing field” to prevent Britain undercutting European standards on labour, tax, environment and state subsidies.

Meanwhile, the UK is insisting on setting its own rules in the name of “economic and political independence”.

Politico’s longer-form overview:

The start of negotiations on future relations between the United Kingdom and the European Union has turned into an unsporting mismatch. British Prime Minister Boris Johnson no longer seems to care about objectives his government signed up to just a few months ago, leaving Brussels struggling to hold London to common standards once the Withdrawal Agreement transition period the two sides negotiated expires at the end of this year.

Johnson has turned his back on the commitment to a regulatory level playing field set out in the declaration on future relations, which he signed in October along with the withdrawal treaty and which his Conservative Party endorsed in parliament in January after it won a thumping majority.

The government has also dropped all talk of seeking a “deep and special” relationship, or of “frictionless trade,” and seems to have written off hope of a long-term deal ensuring access for the U.K.’s giant financial services industry. Ministers have made clear that they put the sovereign right to diverge from EU rules above any economic benefit, and they have instructed business and farmers to prepare for friction at the borders.

It could all be a grand bluff. But barring another last-minute Johnson pivot in mid-year as the steep cost of a chaotic no-deal rupture comes into sharper focus, the U.K. appears to be steering toward a far more disruptive break on a much shorter timescale than EU policymakers had contemplated.

Mind you, the UK and EU staked out these positions over a month ago. The EU predictably rejected the UK demands and neither side has budged. The UK insists all it wants is a “Canada” style deal. In fact, CETA, the Canada-EU trade pact, does require a lot of harmonization, plus the UK agreed to what amounts to level playing field provisions with the US in its draft framework.

But in a sign of the EU not being willing to say more than it needs to, Ireland’s then Prime Minister, Leo Varadkar, said the UK couldn’t expect to get Canada provisions because smuggling because the UK was too close to and too enmeshed with the EU. Michel Barnier made more or less the same point, with an uncharacteristic lack of finesse. One might take that to me the EU is tiring of the ritual of explaining its red lines.

As an aside, Richard North’s son Pete North pointed out that “Canada” doesn’t even mean what the UK seems to think it means. Specifically, the two sides left some parts fuzzy. This is a manifestation of a point Sir Ivan Rogers has made repeatedly: all past trade deal presuppose the two parties want to get closer. Among other things, that helps increase the likelihood of good faith dealing. The fact that the UK was an obstreperous member of the EU and is taking an even more high-handed posture means the EU isn’t going to be keen about going fudgy on anything important (Irish border matters being a potential exception because no one had a good idea about what to do). From North the younger:

Were we to secure a CETA style deal, it is likely to be only the scaffolding without much of the brickwork. (CETA) is a living agreement. In more specific terms, as the Ecologic report has it;

CETA is a living agreement. This means that CETA is designed as a dynamic agreement that allows the Parties to respond to changing circumstances and needs. To fulfil these objectives, CETA establishes a new and comprehensive institutional framework for cooperation between Canada and the EU and sets primarily procedural obligations. In many cases, CETA does not set detailed and hard obligations that predetermine a specific outcome. This also applies to regulatory cooperation, where CETA introduces various procedural obligations (e.g. obligation to exchange information and to consult) but no hard obligations on substance. CETA also establishes a new institutional framework for regulatory cooperation which consists of the Joint Committee (JC) and the Regulatory Cooperation Forum (RCF).

Personally I don’t think a direct copy out of the institutional framework, done in a hurry, is a particularly good idea, and in all likelihood, not doable in time. But to make it more than a mixture of trade facilitation instruments and vague aspirations, there would need to be a far longer transition with more detailed talks.

Back to the state of play. Johnson maintains that if they two sides aren’t well along to an agreement by the June EU summit, the UK will go its own way and prepare to deal on a WTO basis. This is the functional equivalent of a crash out. Admittedly, the last time it looked like that was a real possibility, the EU identified a series of key areas in which it would allow the UK a limited continuation of EU privileges (they were time limited as well as in some case being substantively less permissive than current arrangements). In other words, the EU would set up some waivers to cushion the impact for its benefit. Those would presumably help the UK but that’s an unintended consequence.

Boris Johnson also poked a stick in the EU’s eye by maintaining that there would be no checks on British good going to Northern Ireland. While the level playing field language was in the Political Declaration and hence not legally binding, these Irish provisions were in the Withdrawal Agreement, which is a treaty. Barnier forcefully rejected the UK retrading the deal. The EU is also taking a hard line on fishing but Peter Foster, now European Editor of the Telegraph, set to move to the Financial Times, says this border issue is more important:

Foster says in the this tweetstorm that the EU anticipates that there will enough progress on fish by the summer for both sides to gin up good headlines, but UK failure to budge here would lead to a breakdown.

Rafael Behr at the Guardian has a similar take, stated caustically:

The negotiations that began in Brussels this week will codify legal obligations across multiple issues, and Johnson’s inflated verbiage is not a meaningful currency in that commerce. It can be an impediment to progress when it undermines trust. Continental leaders take note when the prime minister tells manufacturers that they will encounter “no forms, no checks, no barriers of any kind” for the transit of goods between Northern Ireland and mainland Britain. Ministers blithely dismiss the prospect of a customs border in the Irish Sea….

A border in the Irish Sea is not a matter of conjecture. It is described in a treaty that Johnson signed and waved in triumph. But his enthusiasm was for the idea of a deal, not the real thing. He likes deals for their instant retail value in domestic politics, believing that problems in the small print can be blustered away. That is not how the trade negotiations work in Brussels, where the deal is the small print…

If the prime minister believes this stuff – if he prefers pristine sovereignty in a hypothetical economy to defence of the real one – he has little incentive to compromise.

Behr notes that another school of thought hold that Boris with his 80 seat majority can afford to compromise as long as he can keep Brexit out of the spotlight and put a happy face on his retreats. But he also points out tha the Government is overestimating its ability to wrest concessions from the EU.

In the meantime, other analysts are deflating the Government’s claim that it doesn’t really need the EU and that great, glorious new trade deals with the US and other countries will leave them even better off, a notion we debunked from the get-go. For instance:

And from the Financial Times yesterday:

…the government continues to emit an overpowering fog of promises about non-European trade deals.

If it were possible to monetise these promises, we would all be rich by now…

“Essentially, the United Kingdom’s departure [from the EU] is nothing positive for the Japanese companies doing business there, so the focus going forward is how much the negative impact is alleviated,” Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, said last month…

Professor Rana Mitter, a leading authority on modern China, said few countries had a comprehensive trade accord with Beijing. Those that do — Australia is an example — usually have products, such as minerals or advanced machinery, that make a deal attractive to the Chinese.

“The UK doesn’t have one obvious sector that China sees as of compelling benefit to its own interests, so a deal is unlikely to be agreed quickly,” said Prof Mitter.

And the UK and US are sparring over Huawei and the UK’s proposed digital services tax, as the US intends to muscle the UK into the US regulatory framework (yes, chlorinated chicken will be in your future!). But on top of that, House Leader Pelosi has cleared her throat and pointed out that Congress will not approve any deal if the UK has damaged the Good Friday Agreement.

Oh, and the UK is undermining its coronavirus response because it doesn’t want to spend trading chips with the EU. From RTE:

The Telegraph reported that Downing Street and the Department of Health and Social Care are involved in a stand-off over whether Britain should retain membership of an EU pandemic warning system used to stem the SARS and bird flu outbreak..

According to the newspaper, No 10 fears continued membership of the Early Warning and Response System (EWRS) could hamper trade negotiations.

As a result, Downing Street is said to have prevented Health Secretary Matt Hancock from travelling to meet counterparts to coordinate a Europe-wide response to the coronavirus outbreak.

The Liberal Democrats have called for the trade talks to be postponed and the deadline to be extended to allow ministers to focus on stopping coronavirus.

Acting leader Ed Davey said: “Then the NHS and local communities can get the funds and the focus they deserve, and the UK can talk to our European neighbours about how we can cooperate against the coronavirus which does not recognise national borders.”

Most commentators look at the lack of overlap in the EU and UK bargaining positions. They recognize that the EU has little room to move since preserving the integrity of the Single Market is paramount, and see Johnson as painted into a corner by his aggressive messaging and the rigidity of the hard Brexit faction. Gideon Rachman of the Financial Times takes the contrary position, that Johnson will wind up making concessions:

It sounds like a big problem. Fortunately, the argument may be more about theory than reality. That is because the Thatcherite purists within Mr Johnson’s Conservative party are losing the ideological battle. They argued for 30 years that Brussels regulation was strangling the British economy and that the UK should break free to opt for a low-tax, small-state model.

But the pro-Brexit voters in the north of England, who delivered the last election for Mr Johnson, have been promised higher public spending and more social protection. The idea of Britain as “Singapore-on-Thames”, always a misleading analogy, is sliding off the agenda.

What remains of the original Brexit agenda is the Johnson government’s determination to restore British sovereignty, removing the EU’s right to legislate directly or indirectly for the UK.

This distinction between theory and practice opens the way for an eventual deal. The British will insist on their right to diverge from EU law but will assure the Europeans that, in practice, they will retain social and environmental standards that are at least as stringent as those of the EU.

This is rather like a child insisting that it will determine its own bedtime but indicating that, in practice, it will go to bed at 8pm as normal.

The EU….will grant Britain tariff and quota-free access to the European single market. But it will also set up a formal process through which the EU reviews British legislation.

If the European Commission or parliament (or some combination) finds that the UK has un-levelled the playing field, the EU will retain the right to impose tariffs on Britain…

The UK will also have to accept that the EU will decide on breaches unilaterally. Having insisted on British sovereignty, they can hardly complain if the EU side also makes sovereign decisions.

This is all very cheery and also would amount to a very soft Brexit. While Johnson, who stands for nothing but Johnson, would theoretically be capable of making a major shift, he’s harped so often on the need for the UK to set its own rules that I don’t see how he can turn his messaging supertanker far enough, fast enough.

In any event, we’ll have to live with posturing till at the earliest late April/early May. Even if the UK blinks, it won’t do so until late in the game.

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25 comments

  1. PlutoniumKun

    The only thing I would add to this is that in Ireland there seems a sort of ‘mood music’ from semi-official government sources that they are already expecting that there will be no deal – farmers and businesses are being told to prepare in a manner they weren’t told during the WA shinanigans. There seems to be a certain resignation to this. This may of course be just the result of pure exhaustion from politicians and officials, but there does seem to be an assumption that Johnson really does believe his rethoric and that the British government is convinced that the damage of no agreement will be manageable.

    Reply
    1. David Campbell

      Peter Foster of The Daily Telegraph has made some shrewd and insightful comments on the EU/UK trade negotiations as per Yves’ post,
      but I don’t understand his comment in an interview last week, that
      ” the EU basically thinks that a No-Deal” will be much much more favouraable for us [UK] than it will be for them [EU] ”
      About 11 minutes into The Telegraphm’s new politics podcast “Red lines and red walls”
      http://www.telegraph.co.uk/politics/2020/02/28/rishi-sunak-told-red-wall-conservative-mps-reverse-eu-directive/

      Reply
      1. Anonymous2

        The Telegraph is a propaganda sheet rather than a newspaper. You really shouldn’t believe a word it says unless you can confirm from an authoritative source (of which there are precious few where Brexit is concerned, given all the lying that goes on).

        Reply
        1. Yves Smith Post author

          Ad hominem and a violation of our written site Policies. And false.

          Ambrose Evans-Pritchard is at the Telegraph and a great commentator.

          And The Times has had vastly more totally fabricated Brexit pieces than the Torygraph. We’ve called quite a few of them out. The Telegraph has broken a lot of important Brexit pieces.

          Reply
      2. KiWeTO

        The EU will also trade with the UK under WTO terms if there is no deal. The “damage” from such a no deal in terms of increased costs would definitely be higher than that suffered by the UK.

        In that sense, favourable because the UK loses less…

        Madness.

        E.o.M.

        Reply
        1. DaveH

          I don’t think that’s quite accurate. It’s more because the preferred end relationship (as stated, anyway) from the UK side is closer to what conditions will be like if we crash out and a deal isn’t agreed. So it’s less of a jolt.

          The UK will have to worry about essentially the same paperwork either way and it’ll just be the level of tariff that will differ. The EU is aiming for a closer level of alignment, so a big jump from that hoped-for end state is going to be more noticeable.

          Obviously the UK Government’s actions to prepare for this don’t quite match their words, but I believe the above is the perceived wisdom.

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  2. Clive

    One of the problems for the EU is that, with the possible exception of phytosanitary checking, which is reasonably-well adhered to by Member States, Single Market customs, VAT and product standards verification is risible.

    It’s not even just EU standards which are not particularly controlled. International agreements such as the Kyoto Protocol are brazenly ignored. Certain business sectors are pretty much despairing and endlessly trying to get the Commission and the Member States to actually Do Something.

    It will be hard for the EU to, in the face of this laissez-faire attitude elsewhere, to gold plate the Irish Protocol’s implementations — or even to get more than token gestures by the U.K. to enforcing it.

    Reply
  3. David

    The simplest way to look at this, I think, is that Johnson is fumbling his way through what he sees as a purely political process, without any long-term strategy other than staying in power and instrumentalising Brexit and its consequences to help him do so. He will sign what needs to be signed, agree what needs to be agreed, and forget what needs to be forgotten soon afterwards. Johnson began as a journalist, don’t forget, and is the inheritor of a political system which, since Blair, has been preoccupied with spin and messaging before everything else. He must judge that when the time comes to back down, and after having extracted all the political mileage he can from resisting the EU, he can spin his way out of the consequences. Who’s to say he’s wrong?
    Needless to say this is insanely dangerous for the country, and can only work at all so long as the issues are technical and trade related, and can somehow be blamed on the EU. But such a strategy would be derailed instantly by a real crisis – over NI say – not to mention current medical problems.
    It’s for this reason that it’s pointless for the EU to seek clarification, because Johnson himself doesn’t know what he’s going to do until just before he does it. You can’t negotiate with someone who basically has no interest in negotiating.

    Reply
  4. John A

    Plus, if there is a crash out at the end of June as many predict, Johnson wont be around anyway, he’s already said he’s going to take paternity leave for the summer baby his latest partner is expecting. I say partner because he is still in divorce proceedings with his ex-wife (wife no. 2). Convenient all round for Boris.

    Reply
    1. Yves Smith Post author

      The crash out won’t be until the end of 2020, but the notion is Johnson bakes that in by June via rejecting the provision in the Withdrawal Agreement that allows for a one time extension of an additional one year or two years by mutual agreement. In practice, the UK needs to ask for and the EU will certainly approve, but the drop dead date is July 1.

      Reply
  5. vlade

    Rachman is deluded if he believes the EU would set up for “unofficial equivalency”.

    The best Johnson might get there would be an agreement by the EU that EU would review the UK laws and IF it deems them equivalent (or better) to the EU laws, no tarrifs etc. would apply. But it will also want any protection if the review finds the UK law NOT in acceptable to the EU, which would include immediate stopping of the imports affected. This would be clunky and unwiedly, because the EU would not only have to read the laws, but see how they are enforced/interpreted in practice in the UK by the regulatory agencies and courts.

    The guilotine clause on these would mean that companies would live in eternal uncertainty whether they could/could not export to the EU tomorrow.

    Somehow, I don’t see that happening. The EU would have to do a lot of work on behalf of the UK – what’s stopping the US, China or anyone else asking for the same treatment? (answer: nothing. In fact, the EU would have to offer them the same, cf most-favoured-nation clause).

    Reply
    1. David

      Agreed. For the EU it’s a cultural thing as a much as a political one. The EU and most of its member states simply don’t do things that way. European systems of administrative law seek precision and clarity, and they greatly discourage the sort of individual initiative that would be necessary here. “Unofficial” in many European languages is almost a pejorative term. It’s the failure of the British political and media class to understand this over the last forty years that has led us to the current mess.

      Reply
      1. Zamfir

        It’s anecdotal, but this is quite the opposite of my experience. I work for a company that often makes contracts under British law. Every time, we get the same warning (surely born from past experience of our legal department): it ‘s not what you are used to, the British legal system is more literal, judges are less likely consider the good-faith meaning of a contract if it is not literally written down, people are less likely to come to agreeable solutions outside of court, the courts do less to encourage such solutions, etc.

        Reply
        1. PlutoniumKun

          In my (often painful) experience it is specifically northern European court systems that are by far the most literal in their approach to laws. Its quite an education to read laws from northern European systems – they are remarkably concise and to the point in comparison to typical Common Law legislation, precisely because they don’t have to pay too much attention to an accumulation of past judgments. They say what they mean and they are intended to be implemented precisely. Most, although obviously not all, ECJ judges are very firmly in the northern European tradition. Their assumption is that the law is the law, but that at a lower level of implementation there should be some wriggle room and pragmatism.

          A law friend of mine has a theory that the reason UK and Irish courts have had such a hard time with Commission law is that they fall half way between the north European tradition (not too many laws, but those laws are applied rigorously and quite literally) and southern European traditions (lots and lots of laws, just nobody much bothers with what they say). So the courts have a tendency to seesaw between ‘ah sure they didn’t really mean it that way’ judgements and those judgements that agonise over the precise location of a comma.

          Another lawyer I talked to once put it more colourfully. His theory was that Irish and British legal advisors have always treated Brussels conferences as a drinking holiday, and so half the time they just never notice that so many Directives and other regulations passed will cause chaos when applied under Common Law.

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    2. @pe

      It would be the Swiss deal. A) The EU has rejected a new Swiss deal with the UK; and B) It generally puts the EU at a disadvantage if it agrees to a Swiss deal, because a dead man’s switch is also a game of chicken — how far can I go before you declare the dead man’s switch active?

      We’ve already seen that with Switzerland’s immigration referendum — and it’s Switzerland, a tiny country of 8 million people, completely landlocked within the EU, much more dependent upon the EU economically, militarily and in general, in every political sense.

      Maybe the EU will agree — but if they do, they’re idiots, unable to negotiate a serious deal. It’s a death knell.

      Reply
  6. Pavel

    Anyone in the EU foolish enough to trust any of Boris’s assurances on anything should arrange to speak with him directly. He’ll be found lying down on a Heathrow runway to prevent airport expansion.

    More seriously, I was discussing this with a finance friend in NY yesterday. He is astonished that the UK may be willing to throw the City of London under the Clapham omnibus and give up on the passporting rights. But I guess Boris isn’t known for being a friend to big business either!

    Reply
  7. Martin

    I think events (remember Macmillan) have intervened to complicate matters. Coronavirus of course – so far no evidence of an EU approach, leaving countries to coordinate internally, and not externally (German ban mask exports for example). But a revivified refugee crisis on the eastern borders also, forcing an EU response or hanging Greece out to dry. Brexit will not be getting full attention. It means that nuance will be lacking (as it evidently already is in Westminster). And if prognostications on this site are correct then the first problem will lead to a crisis for Bojo’s government by the summer, as an overstretched NHS results in higher mortality than in comparable economies. The blob’s chances of paternity leave are vanishingly small.

    Reply
    1. d

      And the UK and EU need to complete negotiations by June just get the agreement approved by the EU. Don’t think the UK knows that really. Course they might and just don’t care

      Reply
  8. Synoia

    The Boris’ definition of paternity leave is interesting:

    It the period when his current squeeze is heavily pregnant, so enabling Boris to look elsewhere for fun.

    Reply
  9. The Pale Scot

    Can anybody clarify this;

    He will use that power to oppress, not just those who want to come to the UK but also, of course, those who wish to leave the UK as well.

    How would that work, Taxing a 3rd of your wealth like the IRS wants to? Or walls? Him and the Creature could swap notes on that

    Thank you in advance for any help

    Edit: this quote is from one of the NC articles linked to

    Reply
    1. DaveH

      Nothing that complicated. Removing the rights of Europeans to work in the UK, and due to reciprocity, removing the rights of people in the UK to work in Europe.

      Reply
  10. RBHoughton

    We have been here before when burgeoning democracy shut UK out of European trade (The Continental System) and we responded with armed smuggling along the Danish, Dutch, French and North European coast. That seems to be the plan today.

    Its in the Freeports our new Chancellor is promoting that tax and trade regulation will be optional. If you can imagine this scenario then what the political pundits and media messiahs in London are saying is suddenly intelligible.

    Reply
  11. The Rev Kev

    The Russians have a word for agreement-incapable to describe people of being unable to keep an agreement but feel the need to cheat and break it to immediate advantages – but not long term. I wonder if they have a word for a group that is unable to come to an agreement in the first place.

    Reply

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