Friday, 20 December 2019

Johnson's 'no deal 2.0' virtue signalling

The first week of Johnson’s new administration has seen both speculation about, and the beginning of some answers to, how he intends to undertake Brexit. The outrageousness of that situation shouldn’t pass without comment. We have just had an election campaign in which Johnson made ‘getting Brexit done’ the central theme. Yet, as pointed in a previous post, he avoided saying almost anything about how it would be done – and neither the opposition parties nor the media were able to pin him down.

So he will now claim a mandate from voters for doing it any way he wants. It is a travesty of democracy, which replicates the way that during the Referendum Brexiters refused to tell voters what they were voting for, only to define it later and claim it as the ‘will of the people’. Thus whilst a reasonable interpretation of the election was that people were voting for ‘Johnson’s deal’, as expressed in the Withdrawal Agreement (WA) with the EU and operationalised domestically by the Withdrawal Agreement Bill (WAB), Johnson is already changing the latter.

Amongst these changes, the most striking is to make it illegal for the government to seek an extension to the transition period, with the associated removal of a parliamentary vote on extension. It might be argued that this is consistent with Johnson’s campaign pledge not to seek such an extension, but that pledge did not entail (legally) removing the option just (politically) not exercising it.

Of course, doing so is, in a way, a meaningless gesture. Just as with the ‘enshrining in law’ of the 29 March leaving date, it is something that can always be removed by further legislation if necessary. In that sense, it is simply what in other contexts would be called ‘virtue signalling’.

A signal to the Tory Party

Yet gestures and signals matter, and so in another way it is not meaningless. It carries a message, perhaps to voters though I think at this point more to his party, that Johnson will not renege on his campaign pledge. This in turn underscores that, as I pointed out in my post-election post, the ERG remain a powerful force.

Indeed, given the near unanimously pro-Brexit character of the new intake, the ERG are larger and more powerful than ever before. As this new signal indicates, any idea that Johnson’s majority frees him to pursue a softer Brexit – even assuming he wanted to – is surely mistaken. Forty-five rebels can take it away, and there are certainly that number who would have no compunction in doing so, as their track records show.

This incipient possibility is underscored by the very fact of the ERG’s continued existence. For what is the purpose of this ‘party within a party’ now that the Conservatives as a whole are fully committed to Brexit and are led by the erstwhile figurehead of the Leave campaign?

The answer to this question is, as again pre-figured in my earlier post, that the endless civil war within the Tory Party is far from over, and is almost certainly going to revive in the coming months. Indeed, less than a week after their landslide win, it is reported that there are splits within the cabinet (£) over, precisely, revisions to the WAB (although, in this case, potential changes to the powers of British courts vis a vis the ECJ, rather than over the transition period extension).

These splits probably won’t amount to much now, but they lie waiting in the wings. And they were manifested in a different way this week. Early reports suggested that the revised WAB would scrap the previous commitments to workers’ rights. Later, this was disowned. Then it emerged that they had indeed been removed from the WAB. In this can be seen how there is still a political juggling act going on, and very likely a degree of administrative chaos. Far from being master of all he surveys, Johnson is, like any other Prime Minister, subject to diverse pressures (e.g. from the ERG but also from his new ex-Labour seats). But, anyway, just as enshrining no extension to the transition period in law does not mean that the law can’t be changed, neither does the enshrining – or not – of workers’ rights.

So the conclusion is the same: what matters about these legal signals is not that they set in stone what will happen, but that they reflect the political messages Johnson wants to send which, in turn, reflect the political exigencies he faces.

A signal to the EU

Party issues aside, there is another audience for the transition period gesture and it is the EU. Johnson, and the Brexiters generally, have always believed that Theresa May failed to be sufficiently hardball in negotiations and think that they can do better. One aspect of that is, simply, having a majority. Interviewed on Radio 4 this week, the former Brexit Secretary David Davis – a man who has been wrong in just about everything he has ever said about Brexit – opined that this in itself strengthened the UK’s hand because it meant that remainer politicians would no longer be able to disrupt the government’s plans.

This is based on the Brexiter myth that what happened in the WA negotiations was that the UK was undermined domestically – and by remainers rather than by the Brexiters who opposed May’s deal - rather than it arising from the UK’s own negotiating red lines, as enthusiastically approved by the Brexiters. But even if that were not a myth it could actually be argued that having a majority makes negotiations more difficult – the familiar tactic of international negotiations of saying ‘we cannot agree to this because we will never get it through parliament’ is eroded.

That aside, the signal the transition period law is meant to send the EU is that the UK is ready to leave without a future terms deal if necessary, and to pressurise the EU into agreeing such a deal quickly, a point made this week by, again, David Davis. It is about as ill-judged an approach as could be imagined, having learnt none of the lessons – or the wrong lessons – from what happened with the Article 50 (A50) negotiations.

For, then, as soon as A50 was triggered, it was the UK which was always most under time pressure. And that pressure was all the greater because of not having an agreed, detailed, plan for what was being sought from the future terms during phase 2 of the A50 negotiations. The latter is likely to be the same this time, because of the tensions between ERG purism and business and economic pragmatism.

Time pressure exists in the future terms negotiations anyway, since the transition period cannot be easily or endlessly extended. Johnson’s WAB gesture just increases that, making it more difficult, politically, to extend. So it just recreates the time dynamic which was so damaging to the UK in those previous negotiations. For, make no mistake, the timescales proposed are ludicrous. It is not even just a matter of the eleven months between the UK leaving and the end of the transition period, since some, at least, of this will be needed for ratification. And the timescale for extending the transition period is even tighter – just until the end of June.

For the EU, the effect of Johnson’s signal was only ever going to be to lead them to say – as they immediately did (£)  - that, given this self-imposed additional time constraint, only a very minimal deal will be available. As before, the threat of no deal is a rather empty one (and may even breach the good faith requirements of the WA)  since it would be so much more damaging for the UK than the EU for simple reasons of economic scale and the asymmetry of the trading relationship.

It could have been different, but it’s going to be the same

So all that Johnson has achieved so far is to limit his options, purely for reasons of domestic politics despite the fact that his majority might have freed him from such constraints. As with Theresa May, but with even less excuse, he is repeating the errors which have dogged Brexit from the beginning.

For whilst I’ve never thought Brexit is viable, still less desirable, those who do have consistently made a mess of it. It’s not completely unimaginable that a self-confident, pragmatic Brexit government could approach the complexities of undertaking it in a realistic way. That would entail dropping the confrontational, aggressive and paranoid posturing towards the EU and instead approaching the negotiations as the technical, bureaucratic exercise they to some large extent are.

It would also mean eschewing all the grandstanding about deadlines and recognizing that it would be a long and gradual process, requiring extensive consultation with parliament, businesses, civil society and others as to how to deliver it. By contrast, the revised WAB removes the role of parliament in setting negotiating objectives and even its right to receive updates on progress.

It would – again, for those who seriously believe in it – be conducted with the confidence of knowing that it was about building a desirable and durable new national and geo-political strategy which involved patience, the formation of new relationships externally, and the development of consensus domestically. Nothing like that has happened. Instead, the process has been, and continues to be, rushed, and conducted in a way which has destroyed trust and good will with the EU and credibility beyond the EU.

Meanwhile, at home, remainers – or even just those who are concerned or perplexed – have been stigmatised and insulted, and consultation confined to those who are ‘true believers’. Yet if Brexiters want their ‘great national project’ to succeed they need to bring with them a decent proportion of the nearly half who voted to remain, the more than half who would now do so, and the two parts of the United Kingdom which did so.

Theresa May set the stage for most of this – not least in her desperate wish to be accepted as a true convert – and Johnson is continuing it. At root, it is driven by the constant suspicion of the Brexit Ultras, both inside and outside the Tory Party, that they will be betrayed, and fear of what they will do as a result. Like a metastasising tumour, that suspicion and that fear have now spread throughout the body politic.

If there was a chance to press the re-set, it would have to have been begun by Johnson immediately. It would take great leadership, and it might well fail – but it is already clear that he isn’t even going to try. And, thus, any possibility of doing Brexit in a half-way sensible manner has now disappeared.

Hence, now, Johnson even with his big majority is still making the same mistakes for the same reasons and is now digging himself, and the UK, into a deeper and deeper hole. He is either going to have to do the mother of all U-turns and extend the transition period, or do an extremely limited deal – perhaps to be followed by several years of supplementary deals – or end the transition period with no deal.

No deal 2.0

It’s important to clarify that the ‘no deal’ now being entertained at the end of the transition period is not the same as that which would have obtained had there been no WA. The new version – call it no deal 2.0 – would be different because the WA terms would be in place. That is, primarily, the agreement on the financial settlement, on Citizens’ Rights and on the Northern Ireland arrangements. So it would be somewhat less damaging than the original no deal (‘no deal 1.0’) and that matters, in particular for EU-27 nationals in the UK and for UK nationals in the EU-27. Moreover contingency planning for ‘no deal 2.0’ will presumably be more advanced than before.

Equally, it’s important to recognize that there are three, partially overlapping, features to what has to be done during the transition period.

Trade

The first, which gets by far the most attention, is future trade terms. I’ve written a lot about that on this blog, but just briefly to recap. Future trade terms matter, economically, because about half of UK trade is with the EU. It is true by definition that even the most ambitious Free Trade Agreement (FTA) will have little provision for services, because that is the nature of FTAs and one of the ways they differ profoundly from single market membership.

Thus any FTA will be worse for a service-based economy, such as the UK’s, than single market membership. But even considered as primarily goods-based agreement, FTAs can have varying depths and extents. The quicker a deal is done, and the less that the UK agrees to in terms of Level Playing Field (LPF) conditions (e.g. state aid rules, competition rules and environmental standards), the shallower and more limited it will be.

Johnson has already indicated an unwillingness to accept extensive LPF (some think that could change, but if so it will open up a row with the ERG), and the added time pressure he has created simply increases the chance that any deal done will be so limited – for example with respect to coverage of intellectual property rights and data management - as to significantly damage even goods trade. The more limited it becomes, the closer it is to the no trade deal position of falling back on ‘WTO terms’ which would be the least advantageous of all the outcomes.

Non-trade

The second feature of the transition period negotiations, which gets far less media attention than it should, relates to future terms for all the non-trade issues as set out in the Political Declaration. These include security, law enforcement, aviation and other transportations, fishing, science, energy and much else. Here, again, the less time there is the more difficult and more limited a deal becomes.

However, on these issues, there is not even the fall back of something like WTO terms, as there is for trade. Instead, what would happen under ‘no deal 2.0’ would be some limited, temporary workarounds in at least some of these areas. Some have already been developed by the EU in preparation for ‘no deal 1.0’, for example a basic framework for aviation.

This shouldn’t be mistaken for the ‘micro-deals’ that ‘managed no-deal’ Brexiters used to speak of. They are not deals at all, they would be unilateral measures taken by the EU and in the interests of the EU which might have the side-effect of protecting the UK from the worst disruption. Even so, the implications of no deal for, perhaps especially, security would be very serious.

Northern Ireland

The third feature of ‘no deal 2.0’ relates to Northern Ireland. Failing to reach a trade deal would have particular consequences for Northern Ireland since, by virtue of the WA, it will be in a different position to the rest of the UK and, in this scenario, there would be a sudden and sharp divergence. Moreover, with or without a trade deal, the Northern Ireland protocol of the WA needs to be operationalised.

This entails considerable complexities, as set out by Professor David Phinnemore of Queen’s University, Belfast, some of which would vary according to the nature of any trade deal that might be done, others of which need to be resolved anyway. Under ‘no deal 2.0’ the time available to do so would be extremely tight, perhaps impossibly so.

So this is a qualitatively different aspect compared with the first two features of ‘no deal 2.0’. For whereas the first two arise from what does or does not develop from the political declaration on future terms, this third one, whilst interacting with those future terms, arises from the way that an unextended transition period would impact on the capacity to deliver the agreed terms of the WA which, of course, will be a legally binding international treaty.

Whether Boris Johnson, given his comments during the election campaign, begins to understand what this treaty entails must be open to question. But his government will have to get to grips with it, and fast, especially given his clear intention not to extend the transition period.

Johnson’s gamble

Just from the first week of his new premiership, it’s possible to see that Johnson has embarked on a series of gambles in the domestic management of his party and in the negotiations with the EU. But he is taking a far bigger gamble without, apparently, realising it.

That gamble relates to the UK economy, and the investment and location decisions of businesses from some of the very largest right down to some self-employed individuals. An indicator that this is indeed the story of the week can be seen in how the pound, having risen on news of Johnson’s election victory, returned to its previous level when the transition period policy was announced.

For Johnson is saying, unequivocally, that from January 2021 businesses will be outside of the single market and customs union and that, unequivocally, if necessary that will be without any new trade deal being in place. He is also, therefore, telling them that they will face increased barriers to trade of a greater or lesser extent, whatever happens. For example, even if there were a zero tariffs, zero quotas goods trade deal, there will still be the extra costs of new customs procedures and, of course, new barriers to the hiring and deployment of staff.

In the time horizons of both business and personal planning that is a short period. Johnson perhaps believes, like so many Brexiters, that despite all the evidence to date the ‘Project Fear’ warnings were just that, so he can virtue signal about no deal with impunity. He’s doing so for political reasons but, in doing so, creating a potentially horrible economic trap. For the more his party, the electorate and the EU believe him the more likely it is that businesses will do so too, and act accordingly.



Huge and heartfelt thanks to Matt Roxburgh @mattroxburgh for responding to my Twitter appeal for help and patiently fixing the technical problems that prevented some readers from accessing last week’s posts, a task made more difficult by my techno-uselessness. Hopefully, no problems with this post – but if so down to me not Matt - although previous posts may still have problems until I have completed work on them.

This will be the last post on the blog this year. I will resume at the beginning of January. Many thanks to all who have read, publicised or said kind things about it this year. Very pleased to have the 3 millionth visit recently. Hugely appreciated, and never taken for granted.

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