This will finally be the week when we discover whether there will be a deal between the EU and the UK – or will it?
For several months now, there has been talk of a crunch moment or a decisive breakthrough only for the can to get kicked down the road again and again. Of course, the clock is ticking, and time is really short (really!) but that only seems to generate further creative thinking about how to gain yet more time.
As the deadlines have come and gone in recent months, there was a general consensus that mid-November really was the final moment to conclude the talks in time to have the legal text signed and ratified by both sides in order to enter into force on 1st January 2021. Now that we are past that point, suddenly all the speculation is about how ratification could be delayed or fudged leaving still further time for the talks to continue.
What’s Happening Here?
The UK left the European Union on 31st January 2020, on the basis of the Withdrawal Agreement (WA) and the vexed Northern Ireland Protocol. However, the WA foresaw a transition period running up to the end of the year during which nothing really changed. So, while Brexit has happened, the UK trading and regulatory relationship with the EU is so far untouched. The WA agreement also foresaw the possibility to extend the transition period by a further one or two years, an option which the UK government rejected last June, and which is no longer available.
Since February, the two sides have been engaged in intensive negotiations to conclude a new deal, which will govern trade and other aspects of the relationship from 1st January 2021. Initial ideas of a very detailed and comprehensive treaty have gradually eroded (mainly because the UK became increasingly anxious to demonstrate that leaving the EU gives it full autonomy to control its own regulatory space) and it is now clear that the deal, if ever concluded, will be a fairly thin agreement, mainly covering tariffs and dealing with some ancillary issues such as aviation, transport and security cooperation.
Two Steps Forward, One Step Back?
It appears that some progress has been made. It is said that 95% of the legal text (which will run to some 600 pages, without annexes) is more or less agreed. The remaining 5% is of course the most controversial. The three main sticking points are: rules about state subsidies, fisheries and the dispute settlement mechanism to govern the agreement. Diplomats say that points of compromise on all three issues have been visible for some time, but that each side hesitates to move first.
The EU blames its caution on the ambiguity which Prime Minister Johnson constantly displays about whether he really wants a deal at all. Any deal will entail compromises which could leave him vulnerable to criticism for having conceded too much from the more hardline members of the Conservative Party, at a time when he is already under pressure over his handling of the COVID pandemic. In addition, there is going to be considerable disruption of trade on 1st January in any event. Some say that the Prime Minister might prefer to refuse the deal and blame everything on EU intransigence rather than settle and then have to take ownership of everything that might go wrong in January. Whatever the reasoning, it is clear that the final decision about whether to conclude or not must be taken by Prime Minister Johnson, and the signals from No 10 Downing Street blow hot and cold, almost hourly.
For its part, the UK argues that the EU is expecting too much from the UK in return for a relatively modest settlement and that the Europeans are refusing to treat the UK as a fully sovereign country.
And Northern Ireland?
A further complication in all this is an ongoing row about the implementation of the Northern Ireland Protocol, which was designed to avoid the re-introduction of a hard border on the island of Ireland (thereby jeopardising the fragile peace process) by allowing for some checks on trade between Northern Ireland and mainland Britain. The Protocol left many details to be worked out later and there has been slow progress on defining these, leading the UK government to introduce a controversial law which would enable it to break the Protocol. The EU was outraged by this and has said that the offending clauses must be removed or that no agreement of any kind will be possible. So far, the UK government is not showing any flexibility on this point, though many suspect that, in the event of a deal, the clauses might be considered as redundant and dropped.
‘Dreams Don’t Have Deadlines’ *
So, the ‘deal/no deal’ debate rumbles on as the clock ticks and the hard deadline of 1st January 2021 draws ever closer. And that deadline will bring many changes whether there is a deal or not.
At that moment, the UK fully withdraws from the EU ecosystem of the Single Market and the Customs Union bringing to a sudden end the current seamless movement of goods, services and people across borders. Overnight, border checks will be erected requiring a multitude of forms covering customs, VAT, rules of origin, and product and regulatory conformity. Ten of thousands of new customs officials are being recruited. Massive delays for trucks at the frontier are expected. Just in time supply chains will be disrupted. The UK service industry, including the all-important area of financial services, will lose the automatic right to operate within the EU. The automatic recognition of professional qualifications will cease. The list of changes is long and quite dramatic. UK industry claims that the government preparations for these changes are insufficient and that confusion (if not ‘chaos’) may ensue.
In the trade area, the UK will fall out of the 40 or so FTAs which the EU currently has with some 75 countries. The UK has managed to negotiate continuity agreements to cover about half of these FTAs. For the others, trade will fall back on WTO rules.
What a Difference a Deal Makes?
What difference would an EU-UK trade deal make to all of this? The main benefit would be to eliminate tariffs from the equation by agreeing full tariff free/quota free access for goods. It would also facilitate air travel, road transport and allow for some cooperation on security. But it would leave many areas untouched, such as financial services, data transfers, or enforcement of contracts and judgments. Brexit is about the unwinding of the deep interpenetration between the UK and its EU partners painstakingly built up over nearly 50 years (‘taking the British egg out of the EU omelet’, as Pascal Lamy once said). Its reverberations will be felt for many years. Even if a deal is reached this month, it will only be the second (after the WA) of many more to come.
Talks are continuing again this week. The mood in Brussels is downbeat. The sense is that Prime Minister Johnson does not want to take political ownership of the compromises needed to get agreement and may be inclined to gamble on a no deal. This would make the disruption on 1stJanuary even worse and the economic cost of Brexit would be higher but, given that the pandemic and the unavoidable changes coming on 1st January are already causing economic pain, it might make sense in purely domestic UK political terms to bundle it all together and blame it on EU intransigence. He is doubtless writing, and comparing, the two versions of ‘deal or no deal’ to see how they rhyme with mood of the Tory right.
The EU feels better prepared to weather a no deal outcome. Ireland, the Netherlands, Belgium and parts of France would be worst effected, but they would receive financial and others forms of support to help them out. And the feeling is that, after a few weeks, or maybe months, the UK will be forced to come back to the table.
On the other hand, an acrimonious collapse of the talks, accompanied - as it inevitably would be - by loud and bitter mutual recriminations, would poison the atmosphere for many months, making it all the harder to pick up the pieces later. The controversial articles of the Internal Market Bill would presumably remain in law, if not in use, and managing the uneasy place of Northern Ireland as an integral part of the both the Single Market and the UK customs union, would become ever more fraught with complexity. Trade between Ireland and the UK would also be complicated by having to cope with tariffs, as well as the myriad new bureaucratic requirements, which Brexit will inevitably entail.
And in The End?
Whether this week will bring an outcome one way or other is still not clear. The only certainty is that, at one-minute past midnight Central European Time on the 1st of January 2021, the trading and investment relationship between the UK and the EU will be dramatically changed with considerable consequences for economic operators of all kinds. Frictionless trade within the EU Single Market has taken almost a generation to build. To see one country choose voluntarily to dismantle it and replace it with new barriers for 46% of its exports and 52% of imports is an act of economic self-harm which future generations may find hard to understand or to forgive. Prime Minister Johnson’s Godot act will, sooner or later, have a denouement. But Brexit will always be a case of the UK, in Beckett’s words, ‘blaming on his boots the faults of his feet’.
* Credit: LL Cool J