23 October 2020

Federal Trust: A Difficult Choice for Johnson: A Brexit deal or no deal

News that the Brexit talks were to be resumed sent the external value of the pound back up again. Political commentators, especially in the UK, began to predict the relatively rapid conclusion of an agreement on future trade relations between the UK and the EU.

They pointed in particular to the commitment of both parties to “intensify” their negotiations, working on the basis of submitted legal texts, and to the softening by the Commission President and Michel Barnier of the uncompromising rhetoric adopted lasted week by the European Council when discussing Brexit. Such optimism should be treated with caution. It is by no means clear that any agreement will be achieved this year and, if it is, it will certainly fall far short of the seamless continuity in trade relations between the UK and its neighbours promised by the Leave campaign in 2016.

All outcomes still possible

The negotiations will certainly be facilitated by the restructuring of their format, opening the way for simultaneous progress on differing issues. But both sides recognise that each individual element of their negotiations is subordinate to the achievement of an overall political agreement between the UK and the EU, an agreement which cannot be struck by Frost and Barnier alone. This political agreement, essentially between the British Cabinet and the European Council, cannot be taken for granted. Wide disparities remain between the parties, especially on the issues of fisheries, competition policy and the governance of the agreement (dispute settlement). The underlying differences of interest and philosophy may still prove to be unbridgeable in these areas.

Fisheries should be soluble

It seems unlikely that any agreement between the EU and UK will founder (or flounder) on the question of fisheries. A range of compromises exists between the original demand of the EU that the present quota system should continue indefinitely and the original British demand that the system should be abandoned immediately. The negotiations have already seen some softening of positions on both sides, with the traditional topics of transitional periods, reviews after a fixed number of years and financial compensation for the disadvantaged beginning to figure as elements of an emerging consensus. It has moreover been clear from the start that both sides see fishing as a pawn in their wider negotiating strategy.

Other topics are more difficult

Much more problematic, however, are the questions of competition policy and the overall governance of the agreement. In their differing but related ways, both are intimately connected with the underlying nature of Brexit and the EU’s strategic response to it. The EU is intensely suspicious of the possibility that a post-Brexit Britain may attempt to exploit through lax internal regulation and state subsidies its quota-free and tariff-free access to the Internal Market in order to undercut EU producers. The EU will want enforceable assurances that any such attempts can be promptly detected and sanctioned. Their suspicions have been heightened by the Internal Market Bill and its underlying assumption that the British government retains the right to break international treaties when it finds it convenient to do so.

The British government’s position on this issue is complicated and uncertain. It predictably wishes to retain for itself the greatest possible room for domestic economic manoeuvre, a desire reinforced by the well-publicised desire of Dominic Cummings for lavish public subsidies in the digital sector; and by the Conservative promise in the last General Election to “level up” the less prosperous areas of the country, presumably once more by state subsidy to struggling industries. On the other hand, many Conservative MPs and commentators are acutely aware of the recent history of their Party as the resolute opponent of state intervention. David Frost’s consciousness of this incongruity was well reflected in his recent remark that if an arbitration forum were set up to judge on state subsidies after the end of the transition period, then the UK might well have recourse to it more often than the EU. It would be historically an eccentric choice for the Conservative Party if it accepted the economic cataclysm of a “no deal” Brexit, in order to allow itself to subsidise commercially unviable industries. It would be an ironic expression of the reclaimed sovereignty supposedly confirmed by Brexit, recalling the Churchillian definition of a fanatic as one who by the time he achieves his obsessive goals has forgotten why he wanted them in the first place.

Similar confusion prevails in the Conservative mind on the subject of domestic regulatory standards after Brexit. The government has regularly, if not always entirely convincingly, disavowed any desire to preside over a general lowering of these standards. It knows that this would be unpopular with the wider electorate. But there is within the Conservative Party an important strain of opinion which holds that the “promise” of Brexit resides precisely in the UK’s ability to emancipate itself from the bureaucratic stranglehold of Brussels, with its petty, unnecessary and outdated regulations. This strain of opinion generally favours the prospect of a “no deal” Brexit, which supposedly will allow the UK to make a clean and salutary break (“Liberation Day”) from continental oppression. For this break to have any economic and political coherence, it must inevitably involve the dilution of the relatively high regulatory standards on which the EU’s internal market is based. Ever since the Single European Act of 1986, there has been a tension between the view of most Member States that the Single Market should be based on high common standards and the view of doctrinaire free marketeers that it should rest on the fewest and lowest common standards possible.

Can Conservative confusion be resolved?

Given these cross-currents within the Conservative Party, it is very difficult to predict whether the British government will be able to adopt any coherent position within the final Brexit negotiations which will be acceptable to both the EU and the Conservative Party. There are distinct political attractions for Boris Johnson in allowing a “no deal” Brexit to occur by default, simply because it is too difficult to choose between the uncongenial options with which he is confronted. If Johnson is only able to rally a bare majority of his Parliamentary colleagues to support a treaty agreed with the EU then this will be nothing like sufficient to guarantee his continuation as Prime Minister. It would be an intolerable humiliation for Johnson and his Party if passage of the treaty through Parliament were dependent upon the goodwill of the Labour Party. Johnson knows by contrast that blaming the EU’s intransigence for the damage of a “no deal” Brexit is a tried and tested way of uniting the Conservative Party, both in the Commons and among its wider membership.

Johnson may well be further sustained in this analysis by the knowledge that even the minimal “deal” which is all that can now be achieved will lead to economic and trading chaos in the early months of next year. Ever since Theresa May accepted that Brexit meant leaving the Customs Union and the Internal Market, it has been clear that a long-term effort of British state planning would be necessary to mitigate the effects of this decision at the end of any transition period. May’s and Johnson’s governments failed to make this effort, partly because undertaking it would advertise the damaging consequences of their Brexit policies and partly because it was more ideologically attractive to believe that the private sector could better meet the burden of adjustment than could the over-burdened British state, hollowed out by years of underinvestment and outsourcing. It is only in recent months that the government, already hampered in its functioning by Covid-19, has been able to bring itself to admit that any Brexit will involve from next year a gigantic increase in customs and regulatory formalities. Even now it is standard to cloak this admission in implausible references to “changes and opportunities,” “investment in the Customs service” or “moving house.” Such disingenuous rhetoric is understandably offensive to hard-pressed British business representatives, who are more struck and worried by the daunting prospect of lorry parks being hastily constructed in Kent to meet the overflow of lorries queueing to carry out customs formalities in Dover from the early months of 2021. The casual admission of Michael Gove earlier this week that there will in any case be no implementation period for a “deal” in the first half of 2021 will have shattered an illusion apparently held by many in the business community that the transition period, perhaps under another name, might be extended beyond the end of 2020.

No good choices for Johnson

The Prime Minister therefore has a number of conflicting arguments to weigh in his own mind. His courtier press and television reporters will present any “deal” concluded with the EU as a diplomatic triumph, a triumph moreover which will somewhat ease the obvious damage to trade with the EU in the early months of 2021. On the other hand, even with Johnson’s envisaged “deal,” there will still be damage inflicted at the start of next year on cross-Channel trade in particular. It will be much more difficult for him to evade blame for this damage if he has preened himself six weeks before on the excellence of the “deal” he has extorted from the EU. There can be little doubt that opposition within the Conservative Party to a “no deal” Brexit would be muted at worst, perhaps non-existent. Any “deal-based” Brexit would by contrast be highly controversial within his own party, his continued leadership of which depends heavily upon the most radical Eurosceptics within its ranks.

It may well be that even now, Boris Johnson has no clear idea of where he wishes the Brexit negotiations to end up. Equally, there is reason to believe that his closest advisers and Cabinet colleagues continue to be divided on the issue. Johnson’s continued pursuit of the Brexit negotiations suggests that he does not want “no deal.” He is, however, dissatisfied with the deal so far on offer. He may find himself confronted with a grim paradox: neither having his cake nor eating it. The Brexit project, designed to increase British decision-making freedom, has ended up simply creating a range of options for British decision-makers, all of them equally repugnant.

 

 

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