Friday 23 February 2018

Britain still refuses to get real about Brexit

In December 2017, after the end of the phase 1 talks, I wrote on this blog that what would now happen would be that “we will continue to travel endlessly around the Mobius Strip of Brexiter madness. That is to say, on the one hand the Ultras will keep finding new ways to imagine that it is possible to have all of features of being in the single market without being in the single market, whilst the EU will keep finding new ways to explain that this cannot be so”. The Chequers Awayday meeting was the last chance the government had before the phase 2 talks start to get off this endless fantasy loop. They blew it, and have arrived back at something that was first mooted as far back as 2016: a form of sector-by-sector Brexit.

The current version goes by various new names – three baskets, managed divergence or, freshly minted today, ‘ambitious managed divergence’. Whatever term is used the idea is almost certainly doomed to failure. In December 2016 I discussed some of the reasons why in a blog on UK in a Changing Europe website. I won’t reprise all that now, but one issue, which may not be immediately obvious, is that business sectors are rarely, if ever, discrete, clearly bounded, entities. For example, the government can talk about ‘the automotive sector’ but that pulls in goods and services from all kinds of other sectors, such as textiles or computer software. Sectors do not stand alone.

That indeed is one of the reasons why (as is already clear) the EU are highly unlikely to agree anything like the Chequers model. That is often expressed in terms of a refusal to allow ‘cherry picking’, but I think that is a misleading expression, implying that the juicy cherries are there to be plucked if only the EU would be more flexible or if the UK were to negotiate bullishly enough.

The real point is that the single market is, conceptually, precisely that: a single market. It is not in principle a single market in X or in Y, and if it were to be, or become, so it would lose what is central to its defining characteristic and its economic rationale. It is true that, to the extent that it is still a work in progress, especially in services, some sectors lie outside it and are only gradually being brought in. But those sectoral exceptions are temporary, usually for reasons of technical difficulty; anomalies to be rectified, not end states to be made permanent. The single market doesn’t just unify national markets, it creates a unified market tout court.

There is another issue – perhaps not worth spending much time on, since the whole model is almost certainly not going to happen, but important for understanding one of the key confusions of Brexiters. That confusion is the now often-stated idea that a UK trade deal with the EU will be easy because of existing convergence, which is the thing that is time-consuming in normal trade deals. The meta-problem with that is that this is not an ordinary trade deal in that it will be concerned – uniquely – with divergence not convergence, as discussed in a previous blog post. But within that, there is a particular issue that arises from the idea of a sector-by sector Brexit.

If we think about a normal trade deal, one of the key sources of delay is that powerful business groups lobby for their sectors to be excluded (i.e. to protect themselves from competition) and/or to shape the forms that regulatory convergence takes. In the Brexit case, the same lobbying will happen but in reverse: almost all sectors will lobby to be amongst those included in the single market and/or to shape the forms that regulatory divergence will take. So whereas it would very probably be fairly quick to agree a soft Brexit of Britain staying entirely in the single market (via EEA/EFTA), it will be no quicker to negotiate a sectoral Brexit than it would be to negotiate any other trade deal – in other words, many years.

But all this is, as I say, largely beside the point. Unless something drastic changes on the UK red line on the ECJ (and that’s not impossible: we already see signs of it softening over Citizens’ Rights and security), then ‘ambitious managed divergence’ is a dead duck. It simply won’t work to have some sectors of the UK economy in the single market on the basis of the UK sticking to EU regulations for this or that sector or having some form of mutual recognition agreement (itself a much more complex matter than the government seems to understand, which would need another post but in the meantime see this briefing from the Institute for Government). The reason it won’t work is simple: what happens when there are differences between, or disputes about, the application of regulations? Some body has to decide, and that has to be a supra-national body. The UK courts by definition are national not supra-national, so it has to be the ECJ. This the key take away from a detailed assessment of ‘sectoral Brexit’ from the UK Trade Policy Observatory (which is well worth a read not just on the ECJ issue, but also those of mutual recognition agreements and the WTO constraints on sectoral Brexit).

So, still, the Brexit government is trying to square the circles of incompatible demands. What they want is logically impossible to deliver, and it doesn’t matter a jot how often Brexiters invoke ‘the Will of the People’ to insist that it ‘must’ be delivered. You can vote that the earth is flat, but it doesn’t make it so, and it doesn’t enable ships to sail or aircraft to fly to insist it ‘must’ be so. It is extremely unfortunate – and, frankly, embarrassing - that it falls to the EU to keep having to  tell the British government that its demands are impossible because that, of course, feeds the Brexiters’ narrative of ‘punishment’. It would be far preferable if our own politicians were to have the courage to tell the British people the truth.

The Conservative Party, of course, is hamstrung by its ERG Ultras, who have been out again in force this week demanding a scorched earth Brexit (for a revealing analysis of this group and its motivations see Otto English’s blog, and for an analysis of the inadequacy of the ERG letter’s understanding of the WTO issues it raises, see ex-WTO official Peter Ungphakorn’s twitter thread). As a result, the government shows only occasional flashes of realism (for example, this week, on the likely need for a longer transition period and on an acceptance that EU nationals arriving in the UK during the transition period will have full rights), and these only after having resisted the obvious for so long that this realism can be positioned as a betrayal by the Ultras.

It is Labour who hold the key, because although politics is a complex business sometimes it can be thought of in the very simple way of parliamentary arithmetic. For the time being, they are only inching towards something realistic in terms of a customs union, but it is too little and too slow. It’s actually quite strange that the Labour leadership seem to have reservations about a comprehensive customs union only on the grounds that it would entail the Common Commercial Policy (CCP; i.e. no independent trade policy), since business doesn’t care about that (as the business benefits are almost non-existent whilst the costs are huge) and the Corbynite objection to the EU is on the grounds of global neo-liberalization.

It is a tantalising thought that if Jeremy Corbyn were to come out in favour not just of a comprehensive customs treaty but also single market membership then he would be both the most left-wing leader of the Labour Party in modern times and the champion of the ‘jobs first Brexit’ he apparently wants, whilst also positioning Labour as ‘the party of business’. That term used to be the unquestioned possession of the Conservatives, of course, and one of the strangest political turnarounds of Brexit is how unequivocally they have become an anti-business party as well as becoming committed to damaging British geo-political standing and influence. Above all, the Conservative Party used to pride itself on being ‘non-ideological’ and pragmatic. In its Brexit incarnation it is neither. Hence we have a government committed – and there is no precedent for this in modern British history that I am aware of – to the art of the impossible.

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