The Brexit debacle this week not only signals trouble in closing phase 1 of the negotiations, but also points to the fundamental problem of Brexit: What is the relationship between the EU and the UK going to look like after March 2019? For the EU it made perfect sense to divide the negotiations into two phases: First divorce proceedings and then the longer-term arrangement (including transition arrangements). The UK tried to merge the two, but this was the first on a lengthening list of surrenders. It is now clear that the two phases are closely connected, but by dealing with the terms of divorce first, many of the principles governing the future trade relationship have already been settled before the start of the trade negotiations.
Despite all the fuss, money was never going to be the thorniest issue. The United Kingdom has been a member of the EU/EC since 1973, and was always going to pay its fair share of previous financial commitments – despite the statement from the Foreign Secretary, Boris Johnson, this summer that the EU could “go whistle” if it expected Britain to pay a divorce bill for withdrawing from the EU. Brexiteers still threaten to walk away and withhold the funds, but even in a Brexit, where all ties are severed, the EU remains Britain’s largest trading partner. Any future trade deal would come with the precondition of a settlement of outstanding financial liabilities. Chancellor Hammond, arguably the most pro-EU government minister, made this point on Wednesday to the Treasury select committee, although this is his personal view and not the official government line.
The real challenges in defining the long-term relationship are exactly the two issues that are now the sticking points in the divorce proceedings: the role of the European Court of Justice (ECJ) and the degree of regulatory convergence (or alignment as Brexit Secretary Davis insists on calling it).
European Court of Justice
The European Court of Justice is the highest court in the European Union in all matters of EU law and is thus the chief arbiter of issues with regard to the single market. Theresa May was Home Secretary before becoming Prime Minister, and for her as well as the Brexiteers, eliminating the jurisdiction of the ECJ in the UK after Brexit has been a top priority.
In the divorce negotiations, the European Court of Justice is important with regard to the rights of EU citizens living in the UK. It has been reported that the British government has offered a time-limited jurisdiction for the ECJ over EU citizens in the UK after March 2019. Brexiteers made it clear last weekend, that any role for the ECJ in Britain after Brexit is a red line, and further British concessions to the EU could embolden conservative Brexiteers to pull their support for PM May. On the European side, the European parliament has made it equally clear that the role of ECJ is as much of a red line to them as it is to hardcore Brexiteers. The parliament has to approve a final deal – as do the national parliaments. Particularly for the Eastern European countries, citizens’ rights are a big deal.
The border between the Republic of Ireland and UK’s Northern Ireland exploded on Monday as the Gordian Knot of the divorce negotiations. A breakthrough was announced with the UK guaranteeing that “In the absence of agreed solutions the UK will ensure that there continues to be no divergence from 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.” While that guarantee satisfied Irish concerns, it fueled strong opposition from Northern Irish unionists and Brexiteers.
The soft border on Ireland is one of the elements in the Good Friday Agreement from 1998, which ended the long period of violence. Since both the Republic of Ireland and the United Kingdom were in the single market and customs union at the time, the free movement of goods and persons was more of a practical (security) than legal issue. Now this is also becoming a legal issue.
When the UK exits the customs area, customs checks have to be established on the EU’s outer customs borders, which then will run across the island of Ireland. Both the Irish and British government want to avoid this. The British government has also committed itself to preserve the economic integrity of the United Kingdom, hence Northern Ireland will leave the single market and the customs union on the same terms as the rest of the UK – or there will have to be customs checks between Northern Ireland and the rest of the UK. This is what the fight is now about, because having both the soft external border (on Ireland) and no internal economic border is only feasible if the rules governing goods and services are aligned across the border. This is what the British and Irish government had agreed to over the weekend – and is what the Northern Irish Democratic Ulster Party objected to.
Regulatory alignment or convergence is not the same as membership of the single market and customs union, but implies that the UK ensures a high degree of regulatory equivalence with the EU. The Transportation Secretary and Brexit-supporter, Chris Grayling, made this point today. In this scenario, the UK implements the essence of EU laws and rules (not necessarily word by word) without taking part in the rulemaking itself. Divergence is not a problem immediately after Brexit (assuming the UK adopts the EU rulebook as a starting point and during the transition period), but standards would naturally begin to diverge down the road. This becomes even more of an issue, when the UK starts making trade deals with third countries.
Take the case of chlorine-washed chicken, which has emerged in the British debate as a prime example of the challenges Britain faces in upcoming trade negotiations. The US allows chickens to be washed in chlorine, while the EU does not. If the UK were to allow the import of pale poultry as part of a US trade deal, customs checks would be unavoidable to ensure they are not re-exported into the EU. The same goes with US hormone beef. The US Commerce Secretary has already made it clear that the UK is expected to show regulatory convergence with the US – but that is impossible, if the same is to be maintained with the EU.
Hardline Brexiteers have argued that use of tracking technology could solve the problem in the case of goods, but it does not seem quite practical – or a solution the EU would be satisfied with. As agriculture is central to the Irish “regulatory alignment” discussion and is central to almost all trade agreements, even a limited regulatory alignment with the EU would reduce the ability to make bespoke third-party trade agreements. This is also why Brexiteers were quick to support the DUP position.
So tell me what you want, what you really, really want
Chancellor Hammond disclosed on Wednesday, that the government still has not agreed on an “end-state position” with regard to phase 2 of the Brexit negotiations. In other words, there is no agreement on the vision for post-Brexit Britain. While unsurprising, this is exactly why the British government has not been able to present a coherent policy in Brussels.
The basic question is, whether the UK wants to continue to follow European traditions as exemplified (for better or for worse) by EU-legislation and rulemaking, or wants the freedom to move to a low-tax, light-regulatory haven – a “glorious” global Britain, as particularly conservative Brexiteers have been arguing; the Boris Johnson and Michael Gove vision.
The EU will not allow a favorable trade deal, if the UK were to introduce easier regulation on (among other things) labor, environment, food safety and financial services – or lower the corporate tax rate substantially. Regulatory divergence and a “deep and special” relationship are simply not compatible. EU-chief negotiator Barnier has reiterated this point several times over the last weeks.
While Northern Ireland is in focus now, alignment would have to cover all of the UK for both practical and political reasons. Scotland, Wales and London have already jumped on the opportunity, amplifying the sense of a Disunited Kingdom. Brexiteers are becoming increasingly vocal as they realize that the divorce negotiations are creating the framework for the trade negotiations. Who knows if they will allow Theresa May to remain Prime Minister in a few months’ time? At the same time, Labour is moving in the opposite direction, talking about membership of the customs union and some even of a second referendum.
For the Europeans, the ongoing mess is yet another confirmation that the central issue in these negotiations is the chaos and uncertainty in London. No one really knows what the UK is trying to achieve, even when “sufficient progress” is reached. Brussels currently views the Canadian Free Trade Agreement (CETA) as the most probable model for the future EU/UK relationship, while British businesses would prefer the much closer Norwegian arrangement. Brexiteers argue for none of the above.
As long as Brexiteers are in command, Brexit is slowly, but surely moving towards a cliff edge. Only a broad, cross-party agreement on the vision for a post-Brexit Britain can stop this.