The Brexit deal needs to be renegotiated. Here’s how

Published on CapX and highlighted by The Daily Express

The draft Withdrawal Agreement, negotiated between the EU and Theresa May’s government, hasn’t exactly been welcomed with great enthusiasm in the UK. It has been savaged by many Brexiteers and Remainers, deploying both serious and less-than-serious arguments. But the Prime Minister is sticking to it, at least as long as she can also reach a deal on the non-binding declaration on the future relationship.

When the deal is voted on in the House of Commons, the maths don’t look good for the Prime Minister. She can rely on Conservative payrollers and loyalists as well as the odd Lib Dem that is already secure. That leaves her at least 84 MPs short, according to a Bloomberg analysis. In a rosier scenario, the 25 Labour Brexiteers and Labour MPs who represent pro-Brexit districts may be convinced. But pro-EU Tory and Labour MPs, the DUP, a sizeable chunk of Tory Brexiteers, Corbyn loyalists, the SNP, Lib Dems, Plaid Cymru and Greens are all likely to reject the deal.

Among the British public, at least according to one poll, one third of those who have an opinion on the matter are in favour of the deal, with two thirds against.  In other words, it will take nothing short of political magic for Theresa May to deliver the approval she needs to reach a final agreement with the EU. A second vote might work, but it would be risky.

And so renegotiation of some sort, as set out by Michael Gove, are a likely outcome, whether or not Theresa May remains in power.

The EU claims it isn’t budging, with chief negotiator Michel Barnier saying there was no more room for “bargaining” now, echoing statements made by European governments. German Chancellor Merkel was a bit less forthright, stating that “there’s no question about whether we should continue to negotiate something”, but adding the all-important three words “at the moment”.

The BBC has picked up rumours that the EU intends to stick to this text until the vote in the Commons, only contemplating “tweaks” once it has been voted down. A source close to French President Emmanuel Macron specified that this meant “nothing fundamental”.

According to Politico, some EU27 diplomats have said that tweaks might still be possible if they  made the difference between the deal succeeding or crashing. But they too ruled out a radical overhaul.

The EU27’s own concerns

Part of the lack of an appetite for further changes is the fact that some  EU27 member states feel that they have made significant concessions.

First, there is discontent about fisheries access, that electoral goldmine that rewards political grandstanding, with some countries unhappy that negotiations on it have been kicked into the  transition period.

Secondly, there is predictable Spanish posturing over Gibraltar, with the Spanish government insisting it must be able to veto whether or not any future EU-UK trade deal would also apply to Gibraltar, a power it already has given that EU trade deals have to be agreed unanimously.

Thirdly, there’s grumbling about the EU’s acceptance that businesses in the whole of the UK and not only those in Northern Ireland would continue to enjoy tariff-free access if there is no deal at the end of the “transition period” or the extension of the transition period, during which Britain will be a rule-taker with full access to the single market and customs union. In return, the UK won’t be able to conduct its own trade policy and will have to sign up to so-called “level playing field” commitments. These are not subject to the rules on dispute settlement. This means only political haggling would follow in case the EU thought the British didn’t properly respect “non-regression” on environmental and social policy. No court proceedings could follow, which mirrors the current relationship between the EU and Switzerland, which is also characterised by eternal haggling.

France and Germany are especially wary of the UK gaining a competitive advantage in this way. The most robust level playing field provisions in the UK-EU customs backstop relate to state aid, as the EU’s top court, the ECJ, would have legal standing in UK courts. On taxation, the UK has merely agreed to maintaining standards set out in existing EU directives.

Apparently, one EU27 country’s representative is even “worried” that the draft exit deal offers too much to the UK on services. That’s a strange concern, given that the negotiation on services access hasn’t happened yet.

Why increase the chance of “no deal”?

Whether Theresa May remains Prime Minister or whether another Conservative takes over, what is likely is that either May or her successor will tell the EU that this deal will need to be renegotiated or a “no deal” scenario looms. And that is something everyone wants to avoid.

Also, because a “no deal” would involve lots of negotiation in order to minimize its damage, negotiators may wonder why they aren’t negotiating a proper deal. In other words: the negotiating table will exert a gravitational force on both the EU and the UK. One therefore wonders why the EU would waste precious time, waiting until after Parliament votes the deal down to renegotiate. It might make sense if there was a decent chance of it making it through the Commons, but that just isn’t the case at the moment.

Brexiteer concerns and how to deal with them

What is it what would need to be changed in order for this draft withdrawal agreement to be made acceptable to a majority of UK MPs?

According to Dominic Raab, who resigned as Brexit Secretary after he was reportedly bypassed by Theresa May, the customs arrangement is the “fatal flaw” of the draft but “a deal could be done” if two or three points were changed.

In his resignation letter, he notes that the “two reasons” for him to oppose the deal are that “first, I believe that the regulatory regime proposed for Northern Ireland presents a very real threat to the integrity of the United Kingdom.” and “second, I cannot support an indefinite backstop arrangement, where the EU holds a veto over our ability to exit.”

The influential hard Brexit European Research Group of Conservative MPs also lists these two points, however adding another three in a summary of their criticism: handing over £39 billion, “remaining a ‘rule taker’ over large areas of EU law” and the fact that “the European Court of Justice will remain in control of the agreement and large areas of EU law directly effective in the UK”.

The EU is unlikely to re-open the money issue. Even if this really amounts to pocket change in the grand scheme of things, it may complicate an already complex intra-EU27 debate on the EU’s budget. It would be a mistake for Britain to prioritise the bill. Not least because the win wouldn’t be big.

“Rule taker” status is also not the right battle to fight. As the foreseen under backstop, this isn’t as extensive as the kind of – voluntary – rule taking that Switzerland accepts in return for access to the EU’s single market in goods. The “level playing field” requirements are certainly not as stringent, as explained above, but then Great-Britain won’t enjoy access to the single market for goods, unlike Northern Ireland and Switzerland.

The extent to which the UK should be a rule-taker in return for market access really is something that is still to be negotiated. For now, the EU has been sticking to its mantra that the “four freedoms” cannot be split up, despite the precedents of the EU-Switzerland deal – which excludes decent access for services providers – and the EU-Ukraine deal, which cuts off free movement of people.

The areas where it would be worth pushing for concessions are the backstop and the role of the ECJ, not least because the EU should find it acceptable to make changes there.

The backstop can still be seen as splitting up the UK’s customs union

According to the current draft of the deal, if the UK enters “backstop” status, Great Britain will be in “a” customs union with the EU while Northern Ireland will essentially be integrated in “the” EU Customs Union. This raises the risk that if that UK-EU Customs Union were to end, Northern Ireland could remain in the EU’s Customs Union and some goods that are imported into Northern Ireland from the UK would be subject to EU tariffs.

This is a theoretical threat. As Open Europe has made clear in its research paper on the “backstop”, it is simply implausible that a Northern Ireland-only backstop could be practicable or enforceable in the absence of a wider UK-EU deal. How would the EU ensure and enforce checks and controls between Great Britain and Northern Ireland if the UK and EU fail to strike an agreement on future relations? An EU diplomat admitted this, stating: “it’s an insurance policy, but that doesn’t mean that it’s right up to being tsunami proof.”

If this is really only a theoretical “win” for the EU, the question is why it belongs in the deal at all, especially if it risks sinking the entire agreement and delivering a “no deal” Brexit that would be disastrous for Ireland economically and mean the return of the hard border everyone is trying to avoid. An insurance policy is supposed to alleviate the consequences of accidents, not make them more likely.

Last December, the EU agreed that there would be “no new regulatory barriers” between Northern Ireland and Great Britain unless the “executive and assembly agree [that]… distinct arrangements are appropriate”. Reintroducing a real say for local democracy in Northern Ireland would help address concerns about the UK’s territorial integrity, which are not just a concern of the Northern Irish DUP but also of the Labour opposition.

The Good Friday Agreement relied upon empowering – currently shaky – local democracy in Northern Ireland, as well safeguarding trade links not only with Ireland but also with the rest of the UK, which “trades” more with Northern Ireland than the Irish Republic does.

As much as Irish worries about a hard border are absolutely justified, we shouldn’t forget that there are two communities with equally valid concerns. It’s welcome that the EU has largely scrapped its toxic plan to carve up the UK’s own customs union. But for this to be a sustainable deal, every trace of that idea needs to go.

The EU holds a veto over the UK leaving “backstop” status and recovering trade powers

Raab’s concern that “the EU holds a veto over our ability to exit” the EU’s customs yoke is justified. Even if the UK has the ability to initiate an arbitration procedure in case the EU would refuse it an exit, the EU could in theory block this procedure – laid down in article 171 – by refusing any candidates to act as chairperson. Also, a sentence was added at the last minute saying that future “customs arrangements” will “build on the [backstop’s] single customs territory”. Those words should be scrapped.

The EU must understand that in practice, it wouldn’t be able to keep the UK from recovering trade policy anyway. Moreover, EU member states themselves aren’t very keen on “backstop status” lasting very long; several are very nervous about the rather loose “level playing field” requirements.

Perhaps a compromise could be to outsource the decision on whether the UK complies with the conditions to leave backstop status, in the absence of a trade deal with the EU, to an internationally respected private arbitration court. Another solution could be write in the deal that the backstop only applies “as long as” the EU was working “to negotiate and conclude” a permanent agreement with the UK.

This may alleviate UK concerns that the EU would use its veto over ending backstop status as leverage during trade talks. In reality, a proper EU veto over this would not be properly enforceable anyway, as we are talking about international law, so the EU and Ireland should simply recognize reality here.

In any case, the UK isn’t planning to deploy whole teams of border guards to its land border with Ireland on the day when it recovers trade freedom. On the contrary, fears among the likes of France are that the UK, as well as Ireland, wouldn’t really bother to check goods entering the Irish Republic from Northern Ireland properly, which would result in a so-called “hole in the single market”. The fear is that the “backstop” would turn into a “backdoor” and all kinds of goods would be flooding into the sacred EU’s customs union and single market.

On this subject, France and the rest of the “EU26” should relax a little. Northern Ireland would continue to align with EU regulations, as foreseen under the backstop, so no product violating EU safety standards would enter the EU customs union. The only risk would be that the proper tariffs would not have been levied on that good entering the Irish Republic from Northern Ireland. Is that a big problem? Surely not, given that the Mayor of Antwerp estimated that the city’s port, which is Europe’s second largest, is “leaking like a sieve”, with only about one percent of containers being checked. Embarking on a round of hysteria about customs collection when such problems already exist makes little sense. Why risk a “no deal” Brexit over a possible tiny Northern Irish hole in the already very leaky EU customs border?

The ECJ: the Swiss are watching

What about the ERG’s assertion that “the European Court of Justice (ECJ) will remain in control of the agreement and large areas of EU law”? This is correct, but there are some caveats. In a nutshell: the ECJ, whose rulings will be binding, but won’t have direct effect in the UK, will have a say over citizens rights, but only for a number of years. It will, however, permanently remain the ultimate arbiter when matters of EU law are at stake. This is due to the fact that the EU’s top court is possibly even more keen on “sovereignty” than the most ardent Brexiteers, often invoking “the autonomy of EU law” in this regard. In 2014, the ECJ issued a well-known opinion, opposingsubmitting the EU to the activist judges of the European Court of Human Rights in. Following the UK’s exit, the ECJ and France are the remaining factors blocking EU membership of the ECHR.

This most certainly was the reason why EU negotiators wanted the jointly composed “arbitration panel” to be forced to listen to the ECJ whenever there are disputes of EU law at stake. However, it will be the “arbitration panel” determining whether there is a question of EU law which would need to be submitted to the ECJ’s wisdom. It was precisely because the ECHR in Strasbourg would have obtained the power on whether to refer questions to the ECJ that the latter decided to advise against joining the body. Some therefore even think the ECJ would dare to strike down this part of the Brexit withdrawal agreement.

Apart from the safeguard that the arbitration panel can simply claim something doesn’t relate to EU law, some disputes are even excluded from arbitration. Both for environmental and social policy, where the UK has simply already signed up to non-regression of existing EU standards, commitments would not be subject to arbitration and therefore also not to ECJ oversight.

These arrangements are a result of EU concessions, given that it would have preferred direct ECJ supervision. Still, that isn’t enough to convince Carl Baudenbacher, the former president of the European Free Trade Association court, which oversees the EEA agreement. He commented that “this is not a real arbitration tribunal — behind it the ECJ decides everything,” adding “This is taken from the Ukraine agreement. It is absolutely unbelievable that a country like the UK, which was the first country to accept independent courts, would subject itself to this.”

Switzerland, which is currently renegotiating its relationship with the EU and where some are keen to submit the Swiss to the ECJ, is closely watching EU-UK negotiations. As I’ve arguedbefore, many in the UK and the EU should take a closer look at EU-Swiss relations.

The Swiss government said in March it is willing to accept a special arbitration court that would settle legal disputes arising from Swiss-EU bilateral relations, but there still is no deal with the Swiss, to the EU’s frustration. Swiss liberal MP Hans-Peter Portmann has said of the Brexit deal that he’s assuming that the Swiss-EU arbitration court will get more freedom in terms of following EU law than the one foreseen in the UK’s draft withdrawal agreement. That’s yet more evidence that the role of the ECJ is very much up for negotiation.

Given that the deal will almost certainly not pass the Commons in its current form and that an early election seems unlikely, not least because of the Fixed-Term Parliaments Act 2011, the UK government is likely to request a renegotiation of this draft withdrawal agreement.

Why wait until Christmas or risk a second Commons vote in January to renegotiate? Even a dire “no deal” Brexit would mean more negotiation so why not get around the table now and try and avoid the worst case scenario sooner rather than later?