Deal or no deal?

By Malcolm Christie

The United Kingdom’s chaotic exit from the European Union is back in the headlines as the clock ticks down towards the end of the transition period. No wonder first-time Conservative voters in Labour’s former ‘red wall’ seats are scratching their heads. A year ago, Boris Johnson promised a weary public that his withdrawal agreement was an ‘oven-ready deal’ that would ‘get Brexit done’. In the short term the promise worked: voters returned the largest Tory majority in a generation. Yet now, it seems, the oven-ready deal was always half-baked and the withdrawal agreement, which Johnson hailed as a triumph when he signed it in January, has become the main obstacle to a post-Brexit future.

On 9th September, the government introduced a new internal-markets bill to overturn one of the key provisions of the withdrawal treaty, a customs border between Northern Ireland and Great Britain if there is no free trade deal by the end of the year. The provision is a way of avoiding a hard border in Ireland that might disrupt the island’s fragile peace under the Good Friday Agreement. 

It was shocking to hear the Northern Ireland Secretary Brandon Lewis admit to the House of Commons last month that the proposed new legislation would break international law, if only in a ‘specific and limited way’. Yet there is no limit to the potential damage such a breach could do, jeopardising not only future trade deals with Europe and the United States but also the integrity of the United Kingdom itself.

It may be that Johnson sees all this as tactical manoeuvring to push Brussels into making concessions for a trade deal. Or it may be that he will blink first and then seek to portray his climbdown as another negotiating triumph, as he did when agreeing to move the Northern Ireland border into the Irish Sea a year ago. Or it may be, as the UK’s chief negotiator David Frost claims, that we will be fine leaving the European Union with no free trade deal and falling back on less-favourable trade terms under the auspices of the World Trade Organisation.

The issue of the Irish border returned to haunt the Brexit negotiations as soon as the UK announced that it wished to deviate significantly from the EU regulatory regime on everything from fisheries to trade to state aid. Since the beginning of the year there have been regular contacts between the negotiating teams, led respectively by Frost and Michel Barnier, but the talks have been stymied by unbridgeable gaps that were clear from the outset.

The EU side refuses to discuss the broader terms of a trade deal until the UK backs down on fishing rights and the ‘level playing field’, particularly state-aid provisions. The UK side insists that these must not be any stricter than the corresponding sections of the EU’s trade agreement with Canada.

It’s a straightforward matter of sovereignty, according to Frost, but the hold-up doesn’t make a lot of sense. Admittedly the EU’s Common Fisheries Policy, which sets quotas intended to conserve fish stocks, is unpopular with British trawlermen, but the fishing industry only accounts for 0.1% of the UK economy. And, until recently, only left-wing trade unionists and Corbynites were bothered by Europe’s state-aid regime. For Tory eurosceptics, it was the European single market that was one of Margaret Thatcher’s greatest achievements because its rules prohibiting distortive subsidies were a way of rolling back the state at home and abroad. 

Until the end of the transition period, the UK must adhere to EU standards in areas such as environmental protection, workers’ rights, food labelling, food standards and other measures intended to protect citizens’ health. (I cannot think of any of these where our homegrown standards are in fact stricter than those made in Brussels!) However, the EU wishes to avoid having an offshore competitor from 2021 onwards that operates to lower standards and is willing to subsidise its industries in a way the EU would regard as unfair. If such a competitor could export to the EU without tariff barriers, it could sell its products at much cheaper prices and thereby undermine all of the EU’s protections. So Brussels is telling London to choose between mirroring the bloc’s standards or having to face significant tariffs.

Unfortunately this Tory government is allergic to making hard choices. Rather than level with the public about the post-Brexit trade-offs facing the country, the talk is always of having your cake and eating it too. And the more the government falls down on competent delivery of its election promises, the more it is tempted to make things look better than they are. Vote Leave promised to take back control from the Brussels bureaucracy, cutting through red tape. But the reality is that we’re only a dozen weeks away from having a customs border in the Irish Sea and police checkpoints in Kent, while Michael Gove is already building vast lorry parks to avert a 50-mile tailback on the motorway to Dover. Under new rules announced on 15th September, truck drivers will need a Kent Access Permit (KAP) to enter the county from the rest of Britain. Surely this isn’t what anyone voted for in 2016?

The AGS policy is that the UK should seek the closest alignment with EU arrangements in future because we understand the damaging consequences of crashing out of Europe. No deal or a very limited one will mean long delays at ports but also higher prices for imports and less competitive exports. Nor can anyone really predict the future in terms of the disruption to supply chains. There may or may not be shortages of medicines, foodstuffs and other necessities. UK businesses may or may not postpone investment decisions because of the uncertainty. The lack of investment may or may not exacerbate the post-covid recession.

Of course, Boris Johnson’s expletive view of business is well known. His political calculus is more concerned with boosterism than with free trade or international law. His premiership is the Tory equivalent of a Ponzi scheme, in which you can always unleash the next slogan before delivering on the last one.

Malcolm Christie is the Treasurer of the AGS

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