Wednesday, December 06, 2017

What have the Brexit negotiations taught us this week?

Published on CapX

On Monday, the Democratic Unionist Party effectively torpedoed a draft compromise between the UK and the EU have “continued regulatory alignment [with] those rules of the internal market and the customs union which, now or in the future, support North South cooperation and the protection of the Good Friday Agreement”. 

The next day, Brexit Secretary David Davis made clear that the idea was actually to apply regulatory alignment to the whole of the UK, not just to Northern Ireland. To pre-empt criticism that this would mean that Britain becomes a “rule-taker”, he specified that “alignment isn’t harmonisation. It isn’t having exactly the same rules. It is sometimes having mutually recognised rules, mutually recognised inspection – that is what we are aiming at.” 

Many still expect there to be a deal ahead of, or at, the EU Summit on 14 and 15 December. That would mean talks could move on to the all important question of trade, and open up the possibility of a transitional deal being concluded in January. So this crisette may be forgotten relatively quickly.
Still, what have we learned from a tumultuous few days? 

Current talks on the Northern Irish border can only be settled through an empty declaration because trade negotiations haven’t been opened yet 

It was always nonsensical for the EU to count the Northern Irish border question as one of the three issues that needed to be resolved in its first phase of negotiations, which in theory would only deal with divorce and not with trade issues. The reason there is the risk of a “hard border” after Brexit is precisely because there may be a need for customs checks and restricted market access to the EU for UK companies. Those are trade issues. 

It was expected that both sides declaring their determination to avoid a hard border would be enough to move things on. That changed when the Irish government insisted that the UK explain how it was going to avoid a hard border; the rest of the EU27 had no choice but to back them up. 

Precisely because the EU refuses to discuss trade and all the details, it won’t be possible for the UK to give such hard guarantees. So either Ireland – with the support of the rest of the EU – can blow up the negotiations, risking a cliff-edge Brexit that would badly harm the Irish economy and the peace process in Northern Ireland, and leaving the EU27 to go “whistle” for their cash after all, or they agree a “a fudge that gives all sides the leeway to move on to trade talks”, as The Times described the draft deal, which is now likely to be altered a bit.  Indeed, as the Sunday Times correspondent in Brussels has put it: “The original demand of ‘no divergence’ for NI - which would arguably mean staying within the EU system - morphed into ‘alignment’. The latter can mean all things to all people. That's how the EU works, and always narrowly avoids disasters.” 

Interestingly, Irish Taoiseach Leo Varadkar has said: “’regulatory convergence’ and ‘regulatory alignment’ (...) mean the same in our view. We are happy to accept either.” So if this would have been agreed, the UK and Ireland wouldn’t even agree on what “alignment” means. If you want to talk about trade while refusing to talk about trade, you’ll end up with an empty compromise. 

The Irish government may be overplaying its hand 

The Irish government wants “firm guarantees on the lack of a hard border in any circumstances" and “regulatory convergence”. That may be asking a little bit too much. If interpreted strictly, it would mean that the UK would need to remain a full rule-taker. And not just Northern Ireland, but, as Davis has pointed out, the whole of the UK. 

This because an idea to decentralize power to let Northern Ireland decide to align with EU regulation so to minimize border friction doesn’t seem to appeal to the Northern Irish Unionists. Not our problem, the Irish may say? Well, think again. One hardly needs to be a political mastermind to realize post-Brexit Britain won’t be content with a copy-and-paste approach to all EU rules for the next few decades. The UK government is happy to do that during a transition period, but only for a few years at the most, after which a Swiss-style or Canadian-style arrangement would follow.
The same is true for the Irish demand for Britain should stay in a customs union with the EU, as this would avoid customs checks at the border. How sensible is it for the Irish government to try to force the UK to outsource its trade policy to Brussels? Again, Britain is prepared to do this for the transition period, if it is be allowed to negotiate trade deals with third countries at the same time. Asking for unsustainable solutions may well risk the cliff-edge the Irish rightly are fearful of.  

Ireland’s stubbornness on this issue is particularly ill-advised when there are alternative technical solutions that work for the EU-Swiss and EU-Norwegian customs borders and that according to both the Swiss customs chief and one of Sweden’s most prominent customs experts could a good idea for Ireland.

Irish academic Dan O'Brien put it well when he wrote: "[the Irish government] pushing too hard has come with costs. These costs could multiply if the Government's hand is overplayed." 

Many British Remainers continue to propose politically unrealistic solutions, demanding that the UK stays in the single market and the customs union

It is absolutely fair for British Remainers to advocate solutions that could help soften Brexit. The only problem is that they are formulating unsustainable solutions, like for example suggesting that the British Parliament would rubber stamp all EU rules and regulations, without being able to vote on it. An EU official already mocked David Davis’ lighter version of “alignment”, telling the Guardian that that this would mean that "the UK will not have any say on the decisions taken in Brussels and will basically implement them without having any influence.” 

Yet, that and a more radical version of it is precisely what both London’s Mayor and the Scottish government have proposed, repeating their demands that the UK should stay in the single market and in the customs union. Not only do they seem to confuse what the UK government has in mind with regards to “regulatory alignment” (which means shadowing regulation in a voluntary manner) with actual formal membership of the single market (which means being obliged to automatically impose EU regulations). They truly should stop presenting it as realistic that for the next few decades, Britain would turn into a fax democracy and sit at the kids’ table of trade policy. 

Just like the Irish government, they should understand that “tout ce qui est excessif est insignifiant.” If they are genuinely concerned about economic disruption due to Brexit, it’s time for them to come up with solutions that fall within the remit of the politically conceivable. 

The DUP matters and now the EU knows it 

Did the DUP’s intervention surprise Theresa May? Apparently, the party vetoed it during her lunch with Commission chief Juncker. The Independent’s John Rentoul describes the party as “world-class naysayers”, while making the point that this episode really “strengthens Theresa May’s position”, as it’s now very clear for the EU that she cannot just agree to anything. The EU isn’t keen to face a new British Prime Minister, as this may well be a hardline Brexiteer or someone who reopens some of the deals that the EU is keen on, for example the one that plugs the “Brexit hole” in the EU budget. It’s hardly a surprise that the DUP is using its political power. The EU and Ireland basically invited them to the Brexit party when they insisted on talking about the Northern Irish border before trade talks had begun. 

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