The UK must take a less zero-sum approach to the EU

Good afternoon. It’s honestly hard to know where to start this week. 

Over the past seven days Brexitland has been led in a dizzying circle. Last weekend Suella Braverman was at peak culture war stridency, before she was sacked to make way for the surprise return of David Cameron to the cabinet on Monday. 

But the ink had barely dried on all those opinion pieces about Sunak reclaiming the Cameroonian centre ground, before the prime minister was promising to defy the ruling of “foreign courts” after the UK Supreme Court eviscerated his Rwanda asylum policy. 

Having seen this blowhard movie before, it was hard, honestly, to find anyone on the EU side getting overexcited by talk of the UK leaving the European Convention on Human Rights, which underpins the Good Friday Agreement and the security chapters of the EU-UK trade deal.

It was also noted that James Cleverly, the new home secretary, chose his words carefully in a marked change of tone from his predecessor. Given the life-expectancy of this government, the ECHR membership question is not an issue of imminent concern.

More pertinently, perhaps, the EU is itself wrestling with the legality of Italy’s migration deal with Albania to process migrants offshore and, according to more than one EU diplomat, member states will be watching carefully to see if Sunak is able to rescue his own agreement.

Beyond that, it’s not clear that Sunak’s political contortions really alter much in the management of the EU-UK relationship, except to confirm that British politics is wrestling with many of the same demons as other parts of Europe.

But beneath the rhetoric, there was actually quite a lot of Brexit news that shows that the EU-UK relationship is plodding on, within the limited framework set for it by the Trade and Cooperation Agreement.

A statement released this week on EU-UK relations ahead of the EU council meeting in December talked about “exploiting the full potential” of the TCA “bearing in mind the limits stemming from the current agreements”.

And speaking of those “limits” it’s notable that the discussion on whether to delay imposition of planned ‘rules of origin’ for electric vehicles remains unresolved. 

My colleague Andy Bounds in Brussels tells me that EU Affairs ministers discussed the EV issue on Wednesday but — according to diplomats — France was still resisting any change.

The Franco-German wrangling on this issue of mutual concern highlights how slowly EU-UK trade matters move. But it also suggests that a future UK government would be advised to try to reframe the discussion around areas of broader common strategic interests like net zero, rebuilding Ukraine or Balkans security.

This week the British Chambers of Commerce boss Shevaun Haviland was in Brussels looking at ways to deepen EU-UK trade ties, including a meeting with Maroš Šefčovič, the European Commission vice-president.

Shared interests

Thinking about mutual strategic interest, it was notable that Haviland said she’d raised the issue of the Carbon Border Adjustment Mechanism (CBAM) and alignment on emissions trading schemes and future regulation with Šefčovič. 

“It’s only by keeping this dialogue open and understanding the aims and intentions of both sides that we can reach the best outcome for business and our economies,” she added.

The use of pronouns is important in that sentence — making the discussion about “our economies” and not presenting a British wishlist. As one person close to the conversation put it to me, there needs to be a “commonality of challenge” and shared sense of potential solutions.

Taking a more holistic “neighbourhood” approach will have to be foundational to any attempt by a Sir Keir Starmer-led government to reboot relations. 

So this week, my colleagues reported that Jeremy Hunt will introduce a UK CBAM. That, however, looks fundamentally to be a defensive UK-centred trade measure to avoid the dumping of high-carbon products on the UK market after the EU’s scheme goes live in 2026.

The question for a Labour government will be whether to seek to link the EU and UK carbon pricing schemes (a move for which there is provision in the TCA) as part of increasing investment and improving energy security across Europe as a whole.

UK business lobbies are aware that they have a better chance of success in Brussels by co-opting the support of their European confrères — as they have done with the EV rules of origin issue by enlisting German industry and government to pressure the Commission to move.

Because if the rules of origin issue on electric vehicles cannot be resolved, then EVs will face 10 per cent tariffs in both directions, something that will only increase the advantage of Chinese manufacturers at the expense of European and UK ones. That doesn’t make sense for either side. 

There are recent examples of UK and EU lobbies joining forces. In 2016-2020 they worked together over common issues related to cars, food and chemicals but failed to move the Commission. The argument that the UK should not avoid the consequences of Brexit always prevailed — Starmer must try to create a less defensive atmosphere.

Deals that cut both ways

There are other issues that cut both ways, like a youth mobility deal. There were hints of receptiveness to a more collaborative approach from the EU side this week. Šefčovič said there was consensus for a deal on a “pan-European” level “based on reciprocity and non-discrimination”.

Another is the UK-EU border arrangements. This week the cabinet office minister Baroness Neville-Rolfe said the government would press ahead with its plans to introduce a UK border on EU exports to the UK, starting in January.

Leave aside bigger questions about the need for the interoperability of trade facilitation technology, when the UK border is imposed it should lend impetus (as EU businesses feel the pain) for the EU and UK to work on mutual approaches to using technology to reduce friction as far as possible.

No one should be too starry-eyed about what’s possible within the limits set by Starmer — outside the EU single market and customs union — but by the same token, it would be foolish not to try to imagine a different, less zero-sum approach to the EU-UK relationship than emerged from the bitter divorce years.

Brexit in numbers

This week’s striking chart comes via the Institute for Government and the FT’s data visualisation team. It shows that the “churn rate” of the four top positions in government has broadly tripled in the wake of the Brexit vote.

Arguably the longevity of Tony Blair and Margaret Thatcher skews the picture when it comes to prime ministers, but for the other major offices of state — the chancellor, home and foreign secretaries — the picture is pretty stark.

Go further down the food chain to ministries such as Defra and education — important for key long-term agendas like national skills development and the environment — and the ministers come and go even more rapidly.

Investors often talk about whether they can “look through” political cycles to see a clear and stable regulatory environment, but in recent years the chopping and changing has taken place within political cycles.

As noted above, the UK is introducing its new border from January in order to beef up biosecurity and level the commercial playing field, but it’s not so long ago (April last year) that Jacob Rees-Mogg was telling trade groups that such borders were unnecessary. 

It’s the kind of uncertainty that makes investors take a ‘wait and see’ approach, or even decide to put their money elsewhere.

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.

Source: Economy - ft.com