09.02.2020

Here we go again

Red lines, cliff edges, friction, no deal, hard Brexit … Eddie Ford gets a sense of déjà vu.

Finally, it has happened - Britain has left the straightjacket of the European Union and can bestride the world again as a free and independent nation. Or that is how the script goes, according to the Brexiteers and the rightwing press.

In some respects it is quite incredible that we are where we are. As far as the establishment and the sensible bourgeoisie is concerned, David Cameron should not have even called a referendum - let alone stupidly lost it - and parliament should have done its job by stymying Brexit by one means or another, or at the very least enforced a ‘Brino’ upon the government. But everything went hideously wrong. The system malfunctioned.

We are now in a situation where the British government wants to be seen playing hardball over the negotiations with the EU - which apparently will be done and dusted by the beginning of 2021, a claim that has been met with near universal scepticism. Sajid Javid set the tone the other week by bluntly declaring that there will be no alignment between the UK and the EU - which on the face of it is an astonishing thing to say, because as a general rule all trade agreements involve a measure of regulatory alignment or convergence, and the biggest pressure in this particular case is the requirement to maintain a ‘level playing field’ after the end of the transition period (especially on state aid). The EU does not want a race to the bottom.

Therefore the EU is demanding that the UK “dynamically aligns” on state aid and competition regulations to prevent the British government from subsidising elements of the economy and thus gain an undue advantage. The bloc also wants “non-regression” on current environmental, workers’ and social standards and for the European Court of Justice to be the final arbiter in trade and other disputes. As Barnier and other EU officials have made perfectly clear, the absolute precondition for a “zero-tariffs, zero-quota” deal is a “level playing field” - with a further condition being the maintenance of “reciprocal access” to fishing waters, which would be “inextricably” linked to the wider trade deal and must be “stable” (ie, long term). Other vitally important issues for the EU are that the UK complies with the European convention on human rights, which pre-dates the EU, and ensures “adequate” standards on data protection.

Summing everything up, Amélie de Montchalin, France’s minister for European affairs, told journalists in Brussels that “free trade is not the absence of control”. Team 27 will play a very tough game.

Canada

Of course, most of these demands by the EU will be like a red rag to a bull for Boris Johnson - especially when it comes to the ECJ, the bête noire of the Tory right. At the beginning of the week, the British government finally published its negotiating objectives via a written ministerial statement, essentially outlining a bare-bones trade agreement, with a security treaty bunged on the top. On the same day Boris Johnson gave a speech on “unleashing Britain’s potential” that revealed he was going for broke on some sort of ultra-hard Brexit that would have kept Theresa May awake at night. Whether this is mere posturing to please his audience remains to be seen, but he could be serious if the stories in the Telegraph or Financial Times are anything to go by.

In the speech, Johnson reiterated there was “no need” for the UK to follow the rules set down by Brussels on competition policy, subsidies, social protection, the environment, etc, “any more than the EU should be obliged to accept UK rules” - a rather bogus comparison. Instead, he called for a Canada-style free trade deal, or perhaps something “more like Australia’s” - which bemused EU officials, because no deal has yet been agreed with the Canberra government, but the British government appears to have decided that Australia sounds much more attractive than the World Trade Organisation. In either case - Canada or Australia, or anywhere else - Johnson declared that Britain “will prosper mightily”. Thanks for the reassurances, Boris.

Naturally, the prime minister will seek “a pragmatic agreement on security, protecting our citizens without trespassing on the autonomy of our respective legal systems”. The UK was ready, according to Johnson, to agree a deal with the EU on fishing and suggested there could be annual negotiations on this. In the “very unlikely” event that he does not manage to strike a deal with the EU, then trade will have to be based on the existing withdrawal agreement - raising the prospect yet again of the cliff edge and the UK reverting to World Trade Organisation terms. If the British government did seek an Australia-style deal involving tariffs on some goods, various EU sources have said it would be “impossible” to reach an agreement by the end of 2020.

When asked by the BBC’s Laura Kuenssberg whether he accepted that leaving the EU with no comprehensive trade deal could significantly damage the economy, Johnson pooh-poohed the idea as “prophecies of doom” that he has heard many times before - “I don’t believe in them”. In the absence of a comprehensive deal, it seems Downing Street might be prepared to accept as a fallback a sector-by-sector agreement that would allow pacts on vital national interests such as security and aviation, if talks on other issues break down. But that would inevitably mean that negotiations could drag on for years, which neither London nor Brussels would find very palatable - Boris Johnson being adamant that the transition period would not be extended under any circumstances.

Whilst on one the side of the English Channel Canada might be flavour of the month, on the other side it is quite different - you must be kidding. Canada is a very long way away, but the UK shares seas and airspace with the European continent. Under the EU-Canada deal signed in 2016, import tariffs on most goods have been eliminated (‘sensitive’ food items like eggs and chicken are not covered), though there are still customs and VAT checks. This means that public contracts are opened up to each other’s contractors - for example, Canadian companies can pitch to build French railways. It also means Canadian products going to the EU have to comply with EU standards (for example on food and product safety) and vice versa.

However, the flow of services, such as banking, between Canada and the EU is much more restricted - which poses a big potential problem for the UK, as its service industry accounts for more than 80% of British jobs. UK-based banks would not be able to serve clients in the EU without licences from individual countries. Maybe the Canadian model is not so peachy after all. As for trade between Australia and the EU, it is based on a limited ‘partnership framework’ agreed in 2008, covering cooperation in a wide range of economic areas and agreements on things such as mutual recognition of product standards. Negotiations on a fully-fledged free trade agreement began in 2018, with a long way still to go. Notwithstanding all these obstacles, a government insider predicted that “there are only two likely outcomes in negotiation” - a free trade deal like Canada or a looser arrangement like Australia, “and we are happy to pursue both.”

Whatever exactly happens, it looks like we are going to get something that Boris always denied - not frictionless trade, but frictional trade. One consequence of this is that it is almost all over for the British car industry, but that was possibly the case even before Brexit, due to the trade deal between EU and Japan - plus the advent of electric cars and massive consolidation at a global level. Japanese car firms opened up in Britain not just because of supine trade unions, thanks to Margaret Thatcher, but also - more importantly still - as it represented a gateway to Europe. This is no longer case, with a hard Brexit acting as the final nail in the coffin.

Disunited

Interestingly, some Tories - at least in terms of their grand strategy - are positively encouraging the break-up of the EU, flowery phrases about ‘liberty’ and ‘self-determination’ abound, along with waving the flag for places like Catalonia. In a development that would have been unimaginable only a year or two ago, the British government is acting almost like a champion of Catalan separatism. The world turned upside down.

Looking at the EU, something has to give. It is a creaking confederacy that cannot do anything decisive, paralysed by the fact that it consists of 27 members and hidebound by consensual voting. Then again, the UK is looking increasingly disunited. What sort of impact would a hard Brexit and friction have on the Democratic Unionist Party and its electoral base - which will be hammered economically. Then there is Scotland. Last month Holyrood backed by 64 votes to 54 a motion expressing support for “a referendum taking place on a date and in a manner determined by the Scottish parliament, which the Scottish government proposes should take place in 2020”. Having said that, as things stand now, Nicola Sturgeon is determined to stick within the law, as she does not want to end up in exile in Brussels - therefore a second referendum or even UDI is unlikely, as the reality is that the Johnson government will never grant a section-30 order. But this is causing tensions within the Scottish National Party, so you cannot entirely rule out a rank-and-file rebellion or a leadership challenge.

At the moment, Britain might be mischievously throwing its weight behind Catalonia - not to mention Poland and Hungary, hoping to inflame tensions within the bloc. But two can play at that game. Hence Donald Tusk’s remarks about how Brussels would be emotionally “enthusiastic” if Scotland applied to rejoin the EU after Brexit. We also hear that the EU is now going to look more “sympathetically” at Spanish claims to Gibraltar, as the British overseas territory would not be covered by the terms of any deal struck with the UK - Michel Barnier noted that Spain “will have to be involved and give its agreement to a specific agreement on Gibraltar”. Perhaps it is only a matter of time before the European Research Group demands the government sends a gunboat to the peninsular.

eddie.ford@weeklyworker.co.uk