Friday 11 January 2019

The backstop is a symptom, not a cause, of the Brexit crisis

It is apposite that Sky News are now badging all of their Brexit coverage with the label ‘Brexit Crisis’. For the political crisis which has been incipient since, at least, the 2017 General Election is now well underway, and will almost certainly intensify.

At the moment, almost all attention is on the Parliamentary debate and delayed vote on May’s Brexit deal and, within it, much of the focus of complaint is on the Northern Ireland backstop in the Withdrawal Agreement. But this fails to recognize that the backstop is an aspect of, and grows out of, a much deeper set of problems. It also fails to recognize the full significance of the relationship between the Withdrawal Agreement (WA) and the Political Declaration on future terms (PD).

A two-stage process

Brexit was always going to be a two-stage process, because of the nature of Article 50. Thus criticising May’s deal for not including a binding future terms, and especially future trade terms, deal is misguided and, sometimes, opportunistic – although it is legitimate to point out that many Brexiters, and for a time May, said or implied that this would be possible. What can also fairly be said (and, notably, it was the main line of Sir Keir Starmer’s critique in this week’s resumed debate) is that the level of detail and precision of the PD is much lower than it might have been had any substantive phase 2 discussions taken place. And the reason they did not is, entirely, because until the Chequers’ Proposal in July 2018 the UK government advanced no plan for what should be discussed and, when it did, it promptly fell into massive, and still ongoing, infighting.

That reflects what remains the unavoidable, central fact about Brexit. The UK voted for it, and then embarked on enacting it, without having agreed what it meant in terms of a final destination. Even so, it is not the case, as is sometimes suggested (e.g. Starmer, again), that the PD leaves all destination options open. Of course, it is not legally binding. But it should not be dismissed or ignored to the extent that it is being, as if only the WA mattered.

For the PD does set a direction of travel, most significantly in terms of the reference – reportedly at May’s personal insistence – to ‘respecting the result of the 2016 Referendum’ by ending freedom of movement of people and allowing the UK to have an independent trade policy. In other words, it embodies the red lines of no single market membership and no form of customs union.

That this is in the PD is the core reason for the backstop being in the WA. As soon as those red lines were set, the necessary implication was a border around the UK. This is not for some arcane technical reason and still less due to EU or Irish chicanery. It flows from the basic fact that if the UK wishes to set its own tariffs and regulations there has to be a territory within which they apply and so there has to be a border. Indeed, who would want to do a trade deal with the UK if this were not so? This automatically means trade cannot be completely frictionless, and, since no technology exists (yet, and may never do so) to completely remove the need for any new physical infrastructure at the Irish border specifically, the backstop was devised.

However, even if – as the Norway+ advocates* are seeking – the PD were to be written without these red lines being incorporated, that would not make the backstop go away (and they do not claim otherwise). The non-binding nature of the PD is normally talked about as if the issue were simply that it is not a binding agreement between the UK and the EU, and as if the main danger were of the EU refusing to do a deal. More important is the corollary of that, which is that the UK might at any point re-adopt May’s red lines, or new ones; or the UK might continue to fail to agree what it wanted, making the danger that it could not agree to any deal.

Since there is clearly still no stable consensus in the UK about what Brexit should mean, then there is nothing to say that a new government, or a new Prime Minister, or both, would not overturn anything the Norway+ MPs might manage to insert in the PD before the end of March by dint of the crisis. This might have been different had, post-Referendum, a durable consensus around a Norway+ outcome been built, but it wasn’t and there isn’t time to do so before March.

An FTA +++ is an FTA

At all events, as things stand, the PD is as it is, and it reflects the UK red lines for future terms. Yet a bizarre feature of the present debate is that the Ultra Brexiters are in complete agreement these red lines, but they will not accept the consequence of them for the WA, and hence oppose it. It is this which has led to latest iteration of the ‘no deal’ deal fantasy, in a document produced this week by Global Britain and Labour Leave.

Aside from repeating many long-discredited claims or half-truths about trade on WTO terms, its core proposition is that the UK can leave with no WA (going straight to WTO or, as the report meaninglessly puts it, WTO +++ terms) but then seek to negotiate a future terms agreement which they designate as a Canada +++ Free Trade Agreement (FTA).

To call this na├»ve is to flatter it absurdly, and not just because of the backstop issue; it also embodies the persistent Brexiter misunderstanding that the financial settlement is a down payment for the future, rather than a settling of past accounts. The idea that a viable first step for a new relationship is to renege on what you agreed during the previous relationship doesn’t deserve serious scrutiny, and to present it as if it did is grossly irresponsible. May is right to argue that the WA, in something like the present form, is the necessary gateway to an FTA.

So whereas the Norway+ group try to downplay the two stages of WA and PD by over-claiming what the future terms statement can do, the Brexit Ultras try to circumvent the two stages altogether by imagining there can be future terms with no WA at all.

But, in any case, no amount of ‘+’ signs or ‘super-‘ prefixes can avoid the fact that, even if agreed, this would be a FTA which means a border. If it didn’t, the Brexiters would have nothing to fear from agreeing the backstop and the WA. It is presumably because they know it does mean a border that they object to the backstop as being something that would end up being permanent. But for the same reason, the EU could never agree an FTA without first agreeing the backstop and the WA. In short, the whole idea is ludicrous in every conceivable respect, but that is, or ought to be, well-known and is not really the key point.

The backstop is not the real problem with May’s deal

Rather, the key point is that it’s not the backstop in the WA that is the terrible problem with May’s deal, it is that the backstop is a consequence of the terrible problem of making an FTA the best available form of the future terms. And the main reason why that is a terrible problem is, in one word: services. The clear implication of the PD is that it will prioritise “comprehensive arrangements” for goods trade (although, even there, trade is not the only issue – the internal supply chains of goods manufacturers will still suffer) over services trade, where all that seems to be envisaged are more or less standard third country market access terms.

Indeed, this is an inevitable feature of any FTA end state. The latest Global Britain/ Labour Leave document again naively latches on to a sentence spoken by Donald Tusk – taking it out of context and without understanding its meaning - to the effect that an FTA would, like other FTAs, “address services”. But, of course, the reality is that “other FTAs” barely “address services” beyond the limited liberalisation of WTO terms, and certainly far less than occurs within the single market.

Of course, there are good reasons to argue that the UK economy is over-reliant on services, although that is the consequence of 30 or more years of UK policy, rather than of EU membership. But correcting that by yanking the country out of the most comprehensive services trade bloc in the world, and moreover the one closest to us, is not the way to do it. There are good reasons to argue that I should reduce my waistline, but self-surgery with a hacksaw is not a sensible method of going about it.

What is especially bizarre about the FTA model of Brexit is that pre-referendum all the talk was of the negotiating advantage of a trade deficit. But (even if that is an advantage) that deficit is in goods trade, not services trade where the UK has a surplus with the EU-27, so setting up a situation where the EU has much better access to the UK goods market than the UK has to the EU’s services market is, to say the least, perverse. But that is what the PD suggests.

These and other issues are discussed with great acuity in a recent article by Matt Ross – based in part on an interview with former Cabinet Secretary Sir Gus O’Donnell – on the Global Government Forum website. The key point made in that discussion is that almost none of the current UK political debate is really focussing on what would happen next if May’s deal were to be passed. There is an over-attention to the WA and an under-attention to the PD (or, as I have tried to suggest here, insufficient attention to how these are inextricably linked).

What will follow, the article suggests, are years of one-sided negotiation, with UK politics still in turmoil and – at best – a highly disadvantageous final deal, or even, after all that, no deal at all. In the meantime, inevitably, the existing process of business disinvestment and relocation – which is already dramatic and alarming – will continue.

What is Brexit? The still unanswered question

Of course it seems more likely than not that May’s deal will not pass next week. In that case, the Brexit crisis is going to become full-blown and the increasingly ugly public mood will turn uglier yet. The pro-Brexit demonstrators outside Parliament know what they want to happen. It is encapsulated in their monotonous, aggressive chant of “Out means Out”.

But that tells us nothing and simply begs the question that Brexiters, and the government that tried to implement their referendum victory, have never been able agree an answer to: what does ‘out’ mean? From which failure all that has happened since, and is happening now, has flowed.

So if May’s version of what Brexit means does fail, then, possibly after May has wasted even more time, MPs (and it will likely fall to MPs collectively, since there is scarcely a functioning government any more) are going to have to agree what ‘out’ does mean. That seems unlikely given the failure so far to do so. Or they must find a way of abandoning Brexit altogether. And they’ll have to do it quickly, because in less than 80 days these decisions will be made for them and, of course, for the rest of us.

*Norway+ now seems to have morphed – perhaps because people felt there were not enough Brexit models around - into being described as ‘Common Market 2.0’, but the central idea remains single market membership and a customs union, with the immediate route being the WA as currently written but with a “significantly reworked” PD to reflect this idea.
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