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The Brexit trade talks are getting spicy now, it seems, with EU officials briefing that Michel Barnier, the EU chief negotiator, might not bother coming to London this weekend unless the British side signals a willingness to engage further.
Depending on your point of view, this bubbling over of frustration is a testament to David Frost’s steely negotiation skills — he’s finally getting under the EU’s skin — or a troubling sign that even at this late hour we are stuck having the same failed conversations as six months ago.
This week there was a flutter over whether a four-year “review clause” might provide a mechanism by which the two sides could create the space for a deal, but the differing interpretations of how that might work speak to the divide between the two sides.
What started with a conversation about kicking the can on the fishing issue (which the EU has always said must be traded against access to the EU’s single market) opened the door to some thinking on a possible fix for the overall deal.
Under some UK thinking, a four-year review clause on the free trade agreement would enable Brussels to assess if the UK had behaved in a way that undermined non-binding promises on free and fair competition — with Brussels imposing tariffs on UK trade in retaliation if necessary.
Such a proposal was never going to fly for the EU. The imposition of tariffs after the fact is far too small a price to pay for competitive divergence — particularly if the UK should retain all the other market-access elements of the proposed FTA, from aviation freedoms to border trade facilitations.
More realistic, from an EU perspective, might be to agree a review clause where the penalty for the UK walking away from its level playing field obligations was a much more “nuclear” option, with both sides reverting to a full no-deal scenario if the deal wasn’t working.
Given the ideological deadlock and the chronic absence of trust between the sides, such a clause might yet provide the means by which both could move forward. But the very idea of such clauses speaks to the philosophical divide in these talks.
The UK seeks a “review clause” on as weak terms as possible because it wants — actively — the right to diverge from the agreement over time.
Put another way, the UK views level playing field commitments as regulatory handcuffs from which it seeks to wriggle free, while the EU sees them as the prerequisite of free and fair competition and the basis for an enduring and stable relationship.
Those “ratchet clauses” on maintaining standards over time, set alongside a governance mechanism to guarantee that those commitments are upheld, are part of what EU officials call a “dissuasive system” with both sides sticking to their side of the bargain as a basis for trade.
But viewed from a UK perspective, the deal effectively becomes a menu for divergence, in which the UK can move away from the agreement, if necessary by paying the appropriate price, at the appropriate time.
As the clock runs down, those who are confident that a deal will be done seem to base their faith on the mutually held assumption that the other side will fold in the end.
The UK assumes the EU will stop being such a control freak, accepting that Brexit means divergence by definition and agreeing to creative solutions to manage this reality, largely using the standard sanctioning tools found in trade agreements (the EU resists this because it can see its businesses losing out, over time).
The EU assumes that Boris Johnson will look at this week’s sobering Office for Budget Responsibility forecasts for the costs of a no-deal exit, and decide that it is clearly in the UK’s interest to pay the price for access to the market that takes nearly 50 per cent of its total trade (the UK resists this, because it can see itself becoming trapped as an EU tributary state, over time).
Brexit has always tended towards the binary — and the fudges, as we’ve seen with the Northern Irish Protocol, tend to be messy and create uncertainty. If there is a deal then this, sad to report for already battered businesses, is where we’ll most likely end up.
But even at this late stage, with barely a month to go until the end of the transition period, it is still not clear — to quote Ursula von der Leyen speaking to European MPs this week — “if in the end there will be a deal”.
Behind the scenes, the UK expresses confidence a deal is nigh, but it has been saying this for weeks and has been consistently more upbeat these past six months than the EU side — part of a nothing-to-see-here strategy, perhaps, designed to minimise the scope of what it wants from Brussels.
There is time yet to reach a deal, but the later it goes and the more compressed the political choreography and ratification process becomes, the higher the risk that no agreement becomes the path of least resistance for both sides.
We are not there yet. Both Downing Street and the European Commission have a common interest in taking things right to the brink, using mounting urgency as a weapon to bounce their respective awkward squads (the European Research Group, the Elysée Palace) into accepting uncomfortable compromises.
Whatever the outcome, it is bad luck for business — and consumers, workers, travellers and everyone else that will be caught in the fallout — that it has apparently been impossible to organise an EU exit in an orderly fashion.
Brexit in numbers
As we hurtle towards the January 1 cliff-edge, one question is whether business and market pressure will intervene to build on both sides to reach a compromise. As yet, they seem to have made precious little difference.
This week the auto industry body, the Society of Motor Manufacturers and Traders (SMMT), tried to ramp up pressure by warning that a no-deal exit would cost the industry £55.4bn over the next five years. The chart shows just how important the EU market is for UK-based carmakers.
The industry calculates that even a Canada-style FTA is expected to cost more than £14bn because manufacturers that rely on non-EU parts in their supply chains are still going to be liable to pay tariffs, under the expected terms of the deal.
It is one of the truly remarkable things about Brexit, that such a wrenching change to the UK’s trading arrangements with its nearest neighbours should have taken place with so little cognisance of — or consultation with — those that do the trading.
For now, judging by Rishi Sunak’s recent performances at the despatch box and on The Andrew Marr Show last weekend, the government’s tactic seems to be to ignore or downplay the changes that are coming. Whether that changes after January 1 we shall have to wait and see.
Source: Economy - ft.com
