Friday 26 January 2018

The quiet before the Phase Two storm

People could be forgiven for thinking that little has been happening with Brexit recently, and for that matter for feeling relieved that other matters have dominated the news. But whilst it’s true that substantive political negotiations won’t begin again until March, beneath the surface there is a great deal happening which will shape what happens then. In particular, as Ian Dunt has written on, the EU-27 are busily agreeing and framing what will become the Commission’s negotiating mandate for Michel Barnier for the phase 2 talks.

As the leaked text shows, this mandate, as with that for phase one, will be tightly drawn and will set the agenda not just for Barnier but for the talks and for their likely outcome, including the way that any transitional period is configured. There are reasons for this, as there were for what happened in phase one. On the one hand, the very fact of the timeframe of Article 50 and the relative negotiating power of the EU-27 would in any circumstances put the UK in a fairly tight corner because of the ever-present danger of a no deal crash and burn. That will be even more true for phase two, because the issues involved are more complex and the time frame that much tighter. On the other hand, and there is nothing inevitable about this, the British government is still flailing around unable to agree its own position or even, apparently, to understand what a viable position would look like. That creates a vacuum which magnifies the already extensive power of the EU-27 to shape what happens.

In effect, what is happening is that Britain is still engaged in debating the meaning, nature and consequences of Brexit. Indeed in many ways we are only now having the kind of debates we should have had before the Referendum. In the absence of clarity, we are almost back to the days of ‘Brexit means Brexit’ in which it’s necessary to engage in ‘Kremlinology’ to try to work out what, if anything, is going on beneath the surface. As far as can be made out, the current biggest fault line in the government is about whether to seek a customs treaty with the EU, and if so how extensive a one (it is a persistent misnomer that the UK could ‘stay in the customs union’ whilst not being a member of the EU: the issue is what kind of treaty, if any, to have).

The CBI made a high profile intervention this week in favour of a customs treaty that effectively replicates the current customs union. The timing of this was no accident – it reflects something that I have been writing on this blog for some time months now: we are now getting very close to the point where companies will have to start finalising investment and location plans in preparation for March 2019. The CBI initiative was a cue for the predictable, full-throated, fury of the Brexit Ultras, not least because such a customs treaty would preclude their shibboleth of being able to make independent trade deals. Indeed, it is striking how it is this rather than immigration which has now become totemic for Brexit politicians. It is doubtful if the same is true for many who voted leave.

In any case it is something which has little obvious economic merit since being in the EU does not preclude trading with rest of the world, in part through EU free trade agreements, and any new agreements the UK signs would be unlikely to compensate for the trade lost by leaving the single market. David Davis’ insistence today that Britain should be able to conduct trade talks during any transition period is especially empty since, even if the EU agreed, no country is going to enter into substantive trade talks until the future terms of UK-EU trade are settled. The real issues for trade posed by the EU’s phase two guidelines are, first, what will happen to British access to the EU’s third country agreements – they do not automatically continue for the UK, and whether or not they do will depend in part on those third countries – and, second, that the proposed end to the transition period of December 2020 makes it too short. But these practicalities are ignored in favour of the purely symbolic demand for an independent trade policy.

Equally impractical is the objection that a comprehensive customs treaty would mean the whole of UK business being bound by EU ‘red tape’ when most British firms do not trade with the EU or anyone else. Alas, such a view fails to understand that far more red tape is involved in having two sets of regulations, one for those which trade with the EU and one for those who do not, and the far greater red tape entailed in trading with the EU from outside the single market and customs union. Meanwhile, the Brexit vote continues to take a steady toll on business, with Jaguar Land Rover announcing cuts in production in part as a result of Brexit.

But the days when the Tory Party was the party of business seem as remote as when the Church of England was the Tory Party at prayer. Symbolism is, indeed, now the Brexiters’ stock in trade. Rather than propose any remotely workable plan for Brexit they obsess about the colour of passports or, this week, the crucial issue of whether Big Ben will ring out the bells of freedom on Brexit day. That’s all so much easier than boring things like Rules of Origin, or what Most Favoured Nation actually means (hint: the clue, for once, isn’t in the name). It’s a deep irony that many of those who most ferociously denounce ‘identity politics’ are currently its most enthusiastic proponents.

Insofar as the Brexiters do have a discernible position, it seems to be stuck at cakeism, hence their great joy at the (mis)reports that President Macron had held out the possibility of a ‘bespoke deal’ for Britain. For Brexiters, that’s code for cake. Unfortunately for them Macron didn’t actually say this, and the position he set out was no different to what the EU has been saying since long before the referendum, and which is in any case logically entailed by the nature of the single market. You can either be in it or out of it. If you’re out of it, you have less good terms of trade, especially for services and most especially for financial services. That circle can’t be squared, any more can the one that says that if there to be a transition period whilst still in the single market and customs union that means being in with all that is entailed in terms of freedom of movement, ECJ, Common Commercial Policy.

So far as can be seen, the government are inching towards accepting all of this, both as regards a transition period and what can realistically come afterwards (and certainly bullish talk of no deal being better than a bad deal seems to have become very muted). But, if so, then they can’t say it for the same old reason: their Ultras won’t accept it, as their cheerleader Jacob Rees-Mogg – now the leader of the ERG party within a party, the two previous leaders having been promoted to Ministerial roles - has this week made clear from his apparently permanent seat in the BBC’s studios. This sets the stage for, either, a massive political crisis when the realities of phase two happen; or a damp squib, as happened with phase one, with the Ultras accepting anything to get them over the line in March 2019 without the government imploding.

Meanwhile, to the extent that the Tory leadership is softer on Brexit than its rank and file, Labour is still stuck in the opposite position where its leadership is taking a harder line than its membership, voters and MPs. Again, that’s a position which is unlikely to survive for many more months and depending on if, when and how it changes the entire domestic politics of Brexit could also change.

Thus it’s conceivable, at least, that if the Tory rank and file force their leadership to harden and the Labour rank and file cause their leadership to soften then the stage will be set for a major parliamentary crisis, with a further election and even a referendum by no means out of the question. At all events, these quiet days at the beginning of 2018 will not be typical of the year to come.

Finally, although there is little light relief to be found in Britain’s Brexit tribulations, there was one moment of amusement this week. David Cameron was recorded saying that Brexit was “not a disaster” but was a “mistake”. It is easy to see why he would not want to own to it being a disaster, of course, given his dismal role in creating it (and to see that had he said otherwise, he would have been lambasted for ‘talking the country down’). But it is truly bizarre to see the glee with which Brexiters greeted this news, as if “it’s not a disaster, just a mistake” was a ringing endorsement of Brexit. Perhaps they should have put it in the side of a bus.

Friday 12 January 2018

The week that Brexit plumbed new depths of absurdity

Any expectation that the New Year would concentrate Brexiters’ minds on the pragmatic realities of Brexit has been abundantly dashed this week, with a string of absurdities. Yet, absurdities though they be, each of them is revealing of some of the deep and recurring flaws within Brexit.

So, first, came the news that David Davis had consulted lawyers as to possible legal action against the EU for producing documents outlining the consequences of Britain becoming a third country to the EU after Brexit (see, for example, this one on the consequences for road transport). The legal advice, predictably, was that there was no basis for such an action but even to entertain the idea is extraordinary (and to which court would the case be taken? The despised ECJ presumably). For it is an ineluctable consequence of Brexit that, in March 2019, Britain will become a third country, and a real possibility – actually welcomed by some Brexiters – is that there will be no deal. It was even rumoured this week, although nothing came of it, that Britain would create a Minister charged with planning for a no deal scenario. Thus it is bizarre that Davis would think it illegitimate for the EU to plan for this. Equally bizarre was his claim that the EU was not giving sufficient credence to a transition (or, in Brexit-speak, implementation) period since – apart from the fact that this is by no means assured – the EU documents in question did, precisely, identify this as a possibility that could mitigate or defer the full consequences of being a third country.

This piece of nonsense was elegantly taken apart by Jonathan Lis in the latest of his string of excellent, excoriating articles on the government’s approach to Brexit. But in addition to the points he makes I think this episode is a fresh illustration of something I have written about before on this blog (in fact, it is by a long way the most read post), namely that Brexiters constantly talk as if Britain is being expelled from the EU rather than choosing to leave. So the consequences are treated as if they are a punishment for, rather than being entailed by, that choice.

The notion of punishment also formed the backdrop to the ‘charm offensive’ visit to Germany by Davis and Philip Hammond this week. Speaking to a business audience, Hammond argued that it would be crazy to ‘punish’ Britain for Brexit by creating new barriers to trade between Britain and Germany (and the EU generally) since, currently, none exist. Well, quite. But of course that is what the government’s policy of (hard) Brexit does.

In making these arguments, and to this audience, Hammond was channelling some recurrent themes in Brexiter mythology going back to before the Referendum. First, that it would be possible to get round the EU-27 by dealing directly with individual member states, especially Germany. The Brexiters in government have repeatedly tried this ploy and repeatedly failed. Second, that German businesses are going to come to the rescue of Brexit and force Germany and in turn the EU to drop its defence of the integrity of the single market. They haven’t and they won’t (because they also care about the integrity of the single market); and moreover they can’t (because they don’t make German, still less EU, trade policy). And, third, that existing regulatory convergence makes a Brexit trade deal easy. It doesn’t, because the deal is going to be about divergence, not convergence.

And then the final absurdity, Nigel Farage’s suggestion that he was warming to the idea of a second referendum - not on the final terms, but a re-run of the in/out choice – in the expectation of a more emphatic vote to leave to scarify the ‘remoaners’ once and for all. As many commentators have pointed out, this is most obviously understood in terms of Farage’s desire to be back in the limelight and to reprise what no doubt he considers his finest hour.

But I think there is something deeper here than Farage’s ego. There is a significant strand of Brexiter thinking, exemplified by Farage, which is besotted with a self-pitying sense of victimhood. For these people, winning the Referendum was actually a catastrophe, taking away their victim status and requiring them to do something quite hateful to them: to take responsibility for delivering what they said they wanted and which they claimed would be easy. It is that which accounts for the way that since the Referendum they have continually acted as if they were still fighting it. And, more profoundly, it directly feeds into talking about Brexit as if Britain were being forced out of the EU on ‘punitive’ terms, thus perpetuating a sense of victimhood. In this way, there is a seamless weave between Farage’s desire to re-live his moment in the sun, Davis’s attempt to blame the EU for the consequences of Brexit, and Hammond’s talk of post-Brexit trade on anything other than near identical terms to EU membership being punitive.

Until the Referendum – or at least until the Article 50 letter – Britain could keep going round these endless loops of brassy, breezy optimism (‘they need us more than we need them’ and variants thereof) and sullen, lachrymose victimhood (‘ordinary folk done down by the EUSSR and the establishment’). That won’t do now that Brexit is happening, and happening very soon. Brexiters love to say that the refusal of ‘remoaners’ to accept Brexit is undermining the country in the EU negotiations but the reality is that what makes Britain ridiculous – and incomprehensible – to the EU is, precisely, the deep-rooted inability of Brexiters to accept Brexit.

For Brexiters are no longer – if they ever were – the insurgents. Now, they drive government policy and are in the key positions of authority to deliver Brexit. And that has exposed both their completely inadequate grasp of the practicalities of what Brexit means and their psychological aversion to taking responsibility for it. Farage apparently believes that a second referendum would deliver an overwhelming mandate for Brexit but I suspect that in his heart of hearts he – and many other Brexiters – would prefer to lose such a Referendum. Then, not only would all the boring practicalities of responsibility to deliver an impossible policy be avoided but also Brexiters could return to their comfort zone of victimhood.

And if that analysis is right, then the absurdity of Britain leaving the EU becomes truly enormous: for it means that we are doing so against the wishes not just of remainers but of leavers too.  

Friday 5 January 2018

Britain would do better to look to Ukraine than the Pacific

The need for realism about Brexit, suggested in my previous post, is underscored by the report this week that Liam Fox and the Department for International Trade are developing plans to join the Trans-Pacific Partnership (TPP). This – like joining NAFTA or creating hypothetical Commonwealth or CANZUK free trade areas – is the kind of idea that surfaces from time to time amongst Brexiters on social media, but so far as I know this is the first indication that it is being seriously considered.

The deficiencies of this idea should be obvious – there is a very big clue in the name. Regional trade agreements make sense for countries in a particular region, but not for countries on the other side of the world. Which is also why the TPP countries account for a very small percentage of UK trade currently and any further expansion by joining TPP would be trivial compared with the volume of UK-EU trade. In any case, the EU already has actual or in progress trade agreements with seven of the eleven TPP countries, including Japan, the biggest. Moreover, as Samuel Lowe argues in an article in Prospect, the TPP negotiations are already fraught and there is absolutely no reason to think that the countries involved have any interest in adding Britain to them, and certainly not whilst the terms of the UK-EU relationship are unknown.

In short, the whole idea is a non-starter and its meaning, if it has any meaning, seems only to be to avoid the reality – also mentioned in my previous post – that Liam Fox’s role is an empty one, at least until Britain is no longer bound by the EU Common Commercial Policy which is, at the least, several years off. But even if TPP were a viable option for the UK, it would only serve as a reminder of the limitations of the Brexit argument for ‘sovereignty’. All trade deals to some extent, and regional partnerships to a much larger extent, entail some loss of sovereignty. The ECJ is anathema to Brexiters, but TPP (like NAFTA and many other trade agreements) will make use of Investor-State Dispute Settlement (ISDS) systems which effectively by-pass national courts and are beyond public scrutiny or accountability.

The reality is that you can have trade agreements, or you can have complete sovereignty: you can’t have both. Indeed, a strong argument for the EU single market is that it embeds regional trade within a set of publicly accountable political institutions, including democratic institutions. Britain within the EU has far more control of its own affairs than will the ‘Global Britain’ envisaged by the Liam Fox and Boris Johnson version of Brexit. For that matter, the typical requirement of modern trade deals to liberalise immigration policy bodes ill for those who voted for Brexit in the belief that it would limit immigration.

By contrast with the nonsense about TPP, Andrew Duff has written an extremely interesting and incisive analysis of the Brexit situation on Policy Network. It is well worth reading in its entirety, but the particular aspect that caught my attention was the idea that the UK could seek to create a form of association agreement with the EU modelled to some degree on the Ukraine Deep and Comprehensive Free Trade Area (DCFTA).

This, in brief, would entail free movement of capital, goods, some services on a sectoral basis potentially including financial services, but not free movement of people; a customs agreement (including rules of origin) outside of the customs union and the common commercial policy, as well as co-operation on security and defence. There is no contribution to the EU budget, although contributions are made to specific agencies and programmes such as Erasmus (something the UK have already indicated a desire to do). I am not entirely clear what the precise implications of a DCFTA would be for the Irish border, but my assumption is that free movement of goods would help to resolve one of the key aspects of this issue and that, in general terms, the closer the partnership the softer any border would need to be. (For more detail on what the Ukraine DCFTA involves see, apart from Duff’s excellent article, the European Parliament’s briefing on the economic impact of Brexit, especially p. 24).

Taken together, this would seem to be something that could be called the ‘deep and special partnership’ that Theresa May has repeatedly spoken of but without giving concrete detail. It goes well beyond the Canada CETA both as regards trade and non-trade issues and is more promising than CETA for resolving the Irish border issue. The fly in the ointment for Brexiters, of course, is that the DCFTA model gives an ultimate, albeit arm’s length, role of arbitration to the ECJ, and a high degree of compliance with the EU acquis (and the more services sectors that get included, the higher the degree of compliance). Clearly the Brexit Ultras will immediately reject this model, therefore. But it is at least possible the UK government will be more pragmatic. Such a DCFTA would give many Brexiters a lot of what they want – including an end to free movement of people, an end to EU budget payments, and freedom to pursue an independent trade policy – whilst being far less economically damaging than CETA (let along no deal/WTO). In terms of ‘control’ and sovereignty, it is already clear from the phase 1 agreement on citizens’ rights that the ECJ red line will be crossed, and most likely it will also be for participation in the various agencies. In any case, as noted above, all international trade agreements entail compromises of sovereignty.

The reality is that if Britain is going to salvage anything from Brexit then the corner that May’s red lines have painted us into will have to be substantially breached. I speculated in my previous post that they seemed to have been drawn up entirely by Theresa May and her (pre-election) inner circle of advisers. Since then, I have been reading Tim Shipman’s fascinating book Fall Out (London: William Collins, 2017). In it he confirms this speculation, writing “it is extraordinary that these, the foundational decisions of Britain’s withdrawal strategy … were taken, in essence, by two people [May and Nick Timothy]. The cabinet certainly had no chance to debate them” (p.12). Extraordinary, indeed – and it would seem absurd, given all that has happened, since that they should be treated as sacrosanct, whatever the political difficulties of modifying or abandoning some of them. There are, after all, political difficulties in all scenarios.

Of course this is not just about Britain. As Duff explains, a DCFTA would also require some degree of compromise on the EU side and would not automatically be available to the UK. Still, he regards it as worth exploring as “the least bad choice”. If by that he means, as compared with, in order, EU membership and EFTA membership then I think I agree. At the very least it is a model which deserves to be more widely discussed and considered than it has been; doing so will certainly be more worthwhile than wasting time with fantasies such as TPP.