Wednesday, 30 December 2020

So this is Brexit?

The protracted drama of whether or not there would be a Brexit future terms deal finally ended on Christmas Eve, and today it has been overwhelmingly approved by MPs. Perhaps, as some claim, that was always in prospect, and the last-minute timing was just a negotiating tactic by the UK government (though if so, as always, it’s unclear whether that was for domestic consumption as much or more than for the EU)? If so, it has placed British businesses, and many citizens, in a situation of huge and unnecessary stress, and made political scrutiny of the deal effectively impossible.

Or perhaps the defeat of Trump and the departure of Cummings shifted the government’s approach some weeks ago? Or perhaps Boris Johnson only blinked at the prospect of no deal at the very last moment, with the mayhem at Dover concentrating his mind? It may be a long time before we know, definitively, exactly when and why the decision was made and how close we came to the disaster of no deal.

And that is the first thing to be said about the deal – the fact that it exists is, unequivocally, better than if it did not. Better economically, and better in terms of the possibility of a future relationship which may become deeper or at least more harmonious in tone. However, as with all the gaslighting about the rollover or renegotiation of existing trade agreements, it should never be forgotten that, at best, the deal prevents some things getting worse. It is not, and could not be, a ‘good deal’ in any sense other than not making everything worse. Unsurprisingly, Johnson with his trademark shameless mendacity is already claiming that he has secured a ‘having cake and eating it’ deal. That is a flat out lie.

The broad shape of the deal is unsurprising

As for the deal (formally the Trade and Cooperation Agreement) itself, months of fevered speculation have now given way to days of equally fevered analysis of its detailed contents, which are complex and technical, and the practicalities of how some of it will work remain to be seen, with arrangements for Northern Ireland still especially unclear. Law and Policy commentator David Allen Green has created a very useful compendium of some of the early expert readings of the agreement, and the Institute for Government has provided a good initial summary of its main provisions and many of the examples given in this post draw upon it (if not, separate links are provided).

However, it’s important not to get totally lost in the detail because, standing back, what has emerged overall is broadly what we have known ever since Theresa May’s Lancaster House speech of January 2017 would be the shape of a deal, if there was to be a deal. By setting a course that excluded single market and customs union membership, and any role for the ECJ, what was left, as per the Barnier staircase, was, as regards trade, a deal in the shape of a free trade agreement.

That meant, at best, there being no tariffs and quotas for goods trade but inevitably – compared with single market membership - significant new non-tariff barriers to goods trade, and reduced liberalization of services trade. We knew that, because that is the definitional difference between a single market and a free trade agreement. Similarly, we knew that a trade deal, in the absence of a customs union, was never going to prevent the introduction of customs formalities. So whilst the precise terms of the deal do matter – and for specific industries, firms and individuals they matter hugely – what has emerged is not a surprise and is certainly not a triumph.

It is easy to forget now, but a deal of this broad type was precisely May’s aim. What is now referred to as ‘May’s deal’ was only a Withdrawal Agreement (WA). The waters of that got muddied because (in brief) few believed that any such deal would suffice to avoid the provisions of her backstop agreement, and so this got treated as defining the de facto future terms arrangement. That might well have been true – and, had it turned out to be so it is worth noting that, even then, there would have been little on services trade – but it was not her stated intention.

Her intended future terms deal would have been similar in form to Johnson’s, albeit with ‘alternative arrangements’ for what would have been the Irish land border. It’s true she had conceded Level Playing Field provisions in her WA, unlike Johnson’s, but Johnson has ended up accepting these, “the most stringent …. ever seen in a trade agreement” according to trade expert David Henig albeit less than what the EU originally sought, perhaps to no less of a degree than would have eventuated under May’s plan had her WA passed, especially had Johnson replaced her afterwards. Many other details would have been different, some perhaps in very important ways, but it would have been the same species of trade arrangement as we have now arrived at. In passing, it is therefore a bit rich for May (or any other MP) to now express bemusement (£) that Johnson’s deal does so little for services.

So without rehashing all the complexity of this past history, the second point to be made about the deal is that, fundamentally, it is the hard Brexit that May set in train, with all the attendant costs of that compared with what the UK had as a member state or could have had under soft Brexit. In this way, it falsifies the claims made before and since the referendum that there was some way of retaining similar or even the same terms of trade under the aegis of a free trade agreement. That was always a lie, and has been proved to be a lie.

Of course, as compared with what was in prospect under May, Johnson avoided any possibility of being stuck in the backstop by the expedient of creating the frontstop whereby Northern Ireland, only, will effectively remain in the goods single market and the customs union, with a regulatory and customs border across the Irish Sea. This we have known since his WA was signed but it is worth spelling out at this moment exactly what it means, because most media coverage is not doing so, or at least not in sufficiently stark terms: leaving the single market and customs union has been achieved for Great Britain only by breaking up the single market and customs union of the United Kingdom.

Nothing remotely like this was ever suggested during the Referendum campaign, and Theresa May had dismissed it as something no British Prime Minister could every agree to. From the outset, Brexiters either failed to understand, or lied about, what Brexit – and especially hard Brexit – meant for Northern Ireland. It was a failure of almost criminal irresponsibility.

The effects will vary by sector, but none will find trade easier

So far as the details of the trade deal are concerned, commentators seem split as to whether it should be regarded as a ‘thin’ or a thick’ one – perhaps because these terms are difficult to define. In some respects, it could have been better for the UK (for example on the extent of sanitary and phyto-sanitary checks, and on the recognition of professional qualifications for services trade); in other respects it could have been worse (for example, what was agreed on electric cars and on legal services was more than what a ‘standard’ EU trade agreement might have allowed). On the key ‘sticking point’ issues of Level Playing Field, fisheries and governance the EU largely got its own way, but the UK did achieve its primary, if negative, aim of being entirely free of the ECJ.

Just how badly affected particular industries are going to be will vary a lot, and there will be a mixture of impacts – the chemicals industry, for example, has been saved from tariffs, but faces complex and still uncertain regulatory duplication. The road haulage industry will continue to be able to operate within the EU but will be more limited in the number of pick-ups/ drop-offs it can make. The seed potato industry looks set to be devastated, and the situation for the processed meats industry is uncertain. These are just a few of many examples of the impact of non-tariff barriers to trade. It is fitting that in announcing the deal Johnson claimed that it meant there would be “no non-tariff barriers” since this showed that even at this late stage he is still either lying or does not understand what he has done.

Whilst the impact of the deal will vary according to sector, in one respect the impact is the same for all of them. For there is not a single case in which any firm or sector is going to find it easier to trade with the EU than it presently does and, again, that was baked in to the deal since May’s 2017 decisions. So whilst businesses would have been even worse off without a deal, they are to a lesser extent worse off as a result of the deal – with all that implies for investment, jobs, taxes, and public services. At the very most it provides some damage limitation, as the automotive trade body has stated. Again, this is something that the Brexiters never told the public, and for the most part still don’t admit.

The services sector is the biggest loser (though again with sub-sectoral variation) because the centre piece of the deal is tariff-free trade and services, of course, don’t attract tariffs. That matters not so much because of the oft-quoted fact that 80% of the UK economy is services (it’s true, but many of those firms don’t trade internationally), but because services have hitherto generated a trade surplus with the EU (£18 billion in 2019). So whilst the deal is particularly good for – yes – German car makers, French cheese makers and so on exporting their goods to the UK, it is a calamity for British services exporters to the EU. And, separately to the deal itself, the financial services sector awaits an EU ruling on regulatory equivalence (the UK also awaits a ruling on data protection adequacy). There is a good argument that the UK economy is in need of a rebalancing away from services, and financial services in particular, but doing so by taking a hacksaw to them, whilst applying a hammer to manufacturing, is another item on the charge sheet of the damage Brexiters have done.

Beyond trade

The deal is not just a trade deal, of course. It is also about numerous forms of cooperation, including security. Here the picture is similar in that whilst a considerable degree of cooperation will continue, there is nothing that will be improved by the Brexit deal and, in many respects, including real-time sharing of some EU databases, things will get worse. As former National Security Adviser Peter Ricketts puts it, “it’s going to absorb more time and effort in making the system work rather than going out and catching criminals”.

So things will limp along, with various fixes but a lot more sand in the administrative machinery so that, just as will be the case in the economic sphere, the damage may not be dramatically noticeable but consist of operations being that bit slower, or that bit more expensive. In the same way, whilst the coming weeks may see considerable disruption at borders because of new customs procedures it is just as likely that some trade may become too expensive to bother with. As a consequence, some firms may go out of business, or employ fewer staff than they would have done. Some items may be harder to find in the shops, or their prices will go up.

Certainly the end of freedom of movement is set to cause problems in several sectors, with social care being a prominent example and the fashion industry (£) and music industry perhaps less obvious ones. And as has been widely trailed – but may still come as a shock to some when they are encountered – new restrictions and bureaucracy for individual travel are about to become the new reality.

Also separate from trade is the issue of continued UK participation in some EU programmes, including the Horizon Europe research funding scheme, where these are open to third countries and with the appropriate budget payment. This is good news because though clearly not a benefit of Brexit, being simply the replication of the status quo (and probably with less say), there was always a fear that the Brexit Ultras’ loathing of all things European would preclude even this degree of cooperation.

Even so, the UK will not continue in the Erasmus + student exchange programme and, apart from being dismal news in itself, this is of note for two reasons. First, because it seems to be a piece of culture warfare based on the idea that the scheme indoctrinates young people with pro-EU attitudes and/or is a ‘middle-class perk’ and not ‘the people’s priority’. And second because it has already led to Ireland’s government saying it will support Northern Irish students on the scheme, and demands from Scotland for inclusion. Taken together, these two things indicate that, even now, the UK government has no interest in trying to repair the divisiveness of Brexit, and seems almost to be the willing handmaiden of the disintegration of the United Kingdom.

A defining, but not concluding, moment

The deal obviously marks a decisive moment within the Brexit process. It defines, for now, what Brexit means. But it is a moment, not an end point, and what Brexit means will continue to change. That is partly simply because having been cobbled together in such a rushed process there are numerous loose ends still to be agreed, some of them non-trivial, and no doubt many unforeseen issues which will arise.

The latter isn’t helped by the ludicrously compressed timescale for ratification. It is deeply ironic given that the heart of the case for Brexit was to restore the primacy of the UK parliament, that the deal is being rushed through so quickly that few if any MPs will have understood its full implications. And although Johnson will regard them having now done so as a triumph, Brigid Fowler, the highly respected Senior Researcher at the Hansard Society, who is not known for intemperate language, has described the proceedings as a “farce” and a “constitutional failure”, whilst political historian Professor Robert Saunders called it an “absolute travesty of parliamentary democracy” and a “charade”. It may very well be that the economic damage of Brexit will in the long run be dwarfed by the battering that parliamentary and constitutional norms have taken over the last few years, with this vote being its culmination.

For both parliamentary and wider political reasons it is hugely significant that the Brexit Ultras have for the most part accepted the deal. Nigel Farage endorsed it before it had even been published, which considering the extent to which he, UKIP and the Brexit Party drove the entire saga undoubtedly represents a big coup for Johnson. The ERG, after having convened its clown car ‘star chamber’ to read the text, pronounced that it satisfied their cartoonish understanding of ‘sovereignty’ (Northern Ireland seems no longer to figure in their thinking).

Neither of these endorsements may last for very long. Farage flip-flopped in his support for Johnson’s WA, and much of the ERG which voted for it later repudiated it (partly on the grounds that there had been insufficient time to scrutinize its terms). The same may happen with this deal. Even so, apart from some complaints about the agreement on fisheries, the betrayal narrative has, even if only temporarily, gone almost silent. That is noteworthy and, I admit, has surprised me.

Never-ending Brexit

So what is now in prospect is an entirely new phase of Brexit. Whilst I don’t think it is helpful to dissect the deal in terms of EU or UK wins and losses, one clear victory for the EU was to create a single, over-arching agreement rather than, as the UK government had wanted, a series of separate agreements. With that has come an immensely complex governance architecture, consisting of a Partnership Council along with a myriad of over thirty sub-groups. There are also a whole series of mechanisms for reviews, including a five-yearly review of the whole deal.

Taken together, this means that there will be the ongoing possibility of the relationship becoming closer or more distant over time, and even of the entire deal being scrapped and ‘no deal’ returning. This is not surprising – I’ve remarked many times on this blog that a deal would not be the end of Brexit, but the beginning of a new kind of process – but the extent and complexity of the institutional framework within which this is going to occur perhaps is surprising.

Numerous commentators have already remarked on the implication that the deal is “a five year political truce” (David Allen Green) and that “negotiations over something or other will continue for years to come” (Sam Lowe, Centre for European Reform) so that “we are going to see the same dynamic in future that we have witnessed over the last four years: constant talking and bickering” (Ian Dunt) with the deal “just the end of the beginning” (Tom Hayes, Brussels European Employee Relations Group). (Each of the commentaries linked to is well worth reading in full.)

In consequence, as the former Brexit Party MEP Alexandra Phillips recognizes (£), the deal “could turn out to be a springboard towards greater divergence or an umbilical cord leading us back to Brussels”. This situation has considerable economic significance – most obviously because it does not create a very promising environment for foreign investment – but an even greater political one. It creates a new context in which both pro- and anti-EU actors can work.

It’s not hard to see that the ERG and others will be agitating for greater divergence and perhaps, eventually, for an end to the entire deal. One obvious fight they may push for is over the linkage of the security parts of the deal to the UK’s continuing membership of the European Convention of Human Rights, which some of them long to derogate from. It is of note that this aspect of the deal is (apart from fisheries) the only one which is already being described as a ‘betrayal’ in the Brexit press.

But a future Labour, or even Conservative, government might well seek to make the deal closer or deeper. Indeed the Best for Britain campaign has already identified ten ways in which this should be done. Erstwhile remainers as well as business groups will certainly have the opportunity to lobby for such improvements, and Ian Dunt’s analysis is that the logic of economic and geographical proximity means they have a good chance of success. At the very least there is still much to play for, starting – as again I’ve argued in several recent posts – with the need to wrest from Brexiters control of the narrative of UK-EU relations so as to move it on from their monocular focus on Brexit and away from the invariable toxicity of their tone.

Brexiters have got their Brexit against what almost all opinion polls since the Referendum have shown the majority to want, and in a form which the majority never wanted. They own that, and we’ll see how it works out, but they do not own our future relationship with the EU.

This blog

All this will have major consequences for the future of the UK – including the future existence of the UK – and some for the EU. It also has the extremely minor consequence that I have decided to continue writing this blog, at least for as long as it continues to attract a substantial readership. As of the beginning of 2021 it will be re-named ‘Brexit & Beyond’ and will continue, normally on a Friday morning, to offer a weekly (or perhaps in due course less frequent) analysis of Brexit and its consequences. The first post will be on Friday 8 January.

Many thanks to all who have read and/or publicized the original blog since its launch in 2016. I do hope you will continue to do so in its new incarnation.

Happy New Year.

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