10 February 2020

Paul Goldschmidt: The “Future Relationship” between the European Union and the United Kingdom

Goldschmidt suggests some negotiating guidelines that can lead to achieving a constructive agreement that allows Britain and the EU to pretend that both parties “red lines” have not been crossed.

[...]in their early stages, discussions will lean towards a barebones agreement, possibly including an exchange of threats or even leading to an outright suspension. Rather than starting the talks on the basis of limiting the divergence from an existing common legal and regulatory framework, one is leaning towards a more classic negotiation aiming at improving on far looser and more limited WTO rules. This posture explains Johnson’s reference to the EU-Australia trade agreement and is not conducive to the building of trust he is advocating.
 
As a result, it is of paramount importance, as emphasized by both Johnson and Barnier, that economic operators reinforce their preparations in view of the UK’s departure from both the Single Market and the Customs Union on December 31st 2020. The consequences will, however, be asymmetrical: decisions taken, in particular those involving delocalization, will be mostly irreversible which should penalize the UK far more than the EU in what is inevitably a loose/loose situation. The more the start of the negotiations become bogged down, the more actors will be tempted to act; time to reach an agreement being shortened commensurately, the probability of a limited agreement will become a self-fulfilling prophecy.
 
As was well expressed by Martin Wolff in the FT of February 5th, despite that on paper discussions are taking place between two equally sovereign entities, the underlying reality is quite different, the EU holding most of the trump cards. In addition, the ability of the UK to negotiate trade agreements with third countries will be highly dependent on the relative importance of the EU market for each of them, reducing significantly the number of partners for whom the UK market is a priority.
 
Even more fundamental is the fact that a limited agreement (that would not guarantee the fluidity of trade) would put into jeopardy Johnson’s ambitious pledge to regenerate the left-behind UK territories (whose votes assured his Parliamentary majority) which are precisely those who are vulnerable, at least in the short term, to impediments to commercial relations with the continent.
 
In the obstacles that Johnson seems to be inflicting on himself one should mention his aim to negotiate in parallel additional trade agreements with USA, China, Commonwealth countries, etc. In this dangerous game he could well become isolated, loosing on all fronts or, at best, exchanging the “vassalization” to the EU that he seeks to escape (in which the UK was involved in decision making) for a far worse subordination to – or instrumentalization by – other major powers.
 
It is indeed in the sphere of geopolitics that the speculation on the consequences of Brexit risks to have a largely unforeseeable impact. For instance the recent surge of Trump’s popularity in the polls measuring his reelection chances could encourage him to offer an advantageous FTA to the UK in which he would deliberately sacrifice some commercial interests with the sole purpose of weakening the EU. In turn this could lead to tensions among the Member States, relating not so much to UK-EU relations but affecting, for instance, the EU’s relations with Russia with whom some Members – to the absolute horror of others - seek improving ties as a necessary counterweight to the duopolistic Sino-American domination. It is therefor indirectly that the cohesion of the EU could be undermined; the results of the upcoming Conference on the future of Europe should constitute an excellent barometer.
 
In conclusion, after the expected macho postures preceding important negotiations, it behooves both parties to demonstrate very rapidly that a constructive agreement is achievable within the short timespan allocated. To that effect, in order to pretend that both parties “red lines” have not been crossed, a compromise along the following lines could be envisaged: establish as a priority a notification and  consultation process (on the model of the EU/USA cooperation in financial services regulation preserving the mutual recognition of equivalence), followed by setting up a monitoring unit for the implementation of the agreements (W/A and Future Relationship) as well as a robust mechanism for resolving conflicts resulting from their application. In this way, the UK could pretend that it has preserved its full sovereignty and its unilateral right to diverge while, simultaneously the EU would dispose of the necessary instruments to protect the integrity of its internal market (and vice versa).

Full article on Paul N. Goldschmidt website

© Paul Goldschmidt