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Brexit must go into ‘extra time’ to agree on future trading relationship

It’s not too late for both sides to change their negotiation strategy but the exit date should be postponed by at least two years, argues former OECD Director for Trade and Agriculture, Stefan Tangermann

Like in a classic Greek tragedy, the drama of Brexit negotiations appears to be headed towards an irrevocable disaster.

The Withdrawal Agreement negotiated between the UK and the EU27 in endless meetings over months and months is considered not acceptable by a majority in the UK Parliament, and the EU27 are not willing to open the negotiations again.

If neither side changes its stance decisively in the next few weeks a 'no deal' Brexit is unavoidable. The economic costs would be considerable, but even worse will be the political fallout on both sides.

What has generated most of the heat in the last few weeks is the 'backstop' provision in the draft withdrawal agreement, meant to keep the Irish border order open as long as the future of trade arrangements between the UK and the EU27 is not yet clear. It is not difficult to understand why this provision has become the breaking point.

For the EU, it is extremely important to avoid the erection of a hard border between Ireland and Northern Ireland. This is in the interest not only of the Republic, as maintaining peace on the island of Ireland is of utmost political importance for the whole of Europe, including the UK.

For the UK, on the other hand, it is clearly imperative not to be shackled, potentially indefinitely, be an EU regime which it is determined to leave – that is after all precisely what Brexit is supposed to achieve.

And thus, under current conditions both sides are on tacks that, as one can understand, are not easily modified. And hence there is a real threat of an immutable collision and eventual breakdown.

What makes this situation not only dramatic but rather absurd is the fact, surprisingly downplayed in political circles on both sides, that a 'no deal' Brexit would have precisely and unavoidably the consequence that both sides, the UK and the EU27, are keen to shun.

If the UK leaves the EU on 'World Trade Organisation terms', establishing its own national regime of tariffs and other trade-relevant regulations, then there will be the immediate need to establish controls at the Irish border. In the absence of such controls, trade across the Irish border would undermine either the British or the EU trade regime or both.

The EU must therefore have a great interest in avoiding a 'no deal' Brexit. Insisting on the backstop provision, in the interest of keeping the Irish border open, might however, if it results in a Brexit without a ratified withdrawal agreement, lead to exactly the situation the EU is rightly afraid of like the devil fears holy water. Can anyone think of a more bizarre negotiating strategy?

Trade arrangements at core of the problem

There is a nearly infinite number of issues that need to be settled in the context of Brexit, ranging all the way from budgetary arrangements through legal treatment of trade marks to regulations regarding air traffic.

But what at this moment stands out from all these many things is the way trade relations between the UK and the EU27 will be arranged.

After all, a 'hard' border between Ireland and Northern Ireland would potentially be needed only to control the flow of goods between the two territories.

Thus, like on many other occasions in the history of mankind, an apparently mundane matter such as trade in goods can cause trouble of huge magnitude.

It has now become strikingly clear that the sequence of matters to be covered in the Brexit negotiations was far from ideal. What needs, or needs not, to happen at the Irish border depends on the nature of the regime that will govern trade between the UK and the EU27 after Brexit.

It would, therefore, have been a more logical sequence of items for the Brexit negotiations to begin with negotiations on the future trade regime across the Channel and to turn to the matter of the Irish border only after trade arrangements are settled.

Clearly the EU had an interest in emphasising, right at the beginning, that it placed absolute priority on keeping the Irish border open. It could have stated that point expressly and repeatedly as a political position.

And both sides could have come to an understanding, like always in such negotiations, that nothing in the negotiations is agreed before everything is agreed. On that basis one could then have turned to negotiating trade matters right away.

Instead it was decided to leave trade negotiations to a later point in time, after the UK has left the EU. This is what the draft Withdrawal Agreement foresees. And this is the reason why the infamous backstop provision was made part of the draft withdrawal agreement.

The strategy can be revised

Is it too late now to correct this fatal decision? Is the disaster of a 'no deal' Brexit unavoidable? Not at all.

What could, and should, now happen is that the UK and the EU27 agree to postpone the date of Brexit. This would not only take the steam out of the current drama but, most importantly, create the opportunity and time to let the current dust settle and sit down calmly to consider and negotiate the nature and details of the regime that will govern trade between the UK and the EU27 after the UK has left the Union.

Once agreement has been found on how to deal with UK-EU trade after Brexit, one can then return to the question of the Irish border. In reality, both sides will, and should, have the issue of the Irish border in mind while negotiating the overall trade regime.

"There is no point in just hoping that political positions will change as further water flows down the Thames without any further modifications in the agreed framework for Brexit. The extra time would need to be utilized to hammer out an agreement for future trade between the UK and the EU and, based on that, the nature of the border regime in Ireland."

This is because what has to happen, or what can be avoided, in terms of border controls between the two territories on the Irish island, depends on the nature of the overall regime that will be established for trade between the UK and the EU.

How long will such trade negotiations take, and hence by how long should the date of Brexit be postponed? This is hard to say. Two years might be a reasonable estimate.

A few still informal statements that were made after talks at the sidelines of the recent summit between the EU and the League of Arab States in Sharm E-Sheikh appear to suggest that the possibility of postponing Brexit is beginning to be considered in earnest by leading politicians. This can be taken as a positive sign.

It is, though, important to be clear and explicit on why the Brexit date is postponed, and on what is envisaged to be achieved during that extra time.

There is no point in just hoping that political positions will change as further water flows down the Thames without any further modifications in the agreed framework for Brexit.

The extra time would need to be utilized to hammer out an agreement for future trade between the UK and the EU and, based on that, the nature of the border regime in Ireland.

The dominant option is a customs union

It should be clear to everybody that there is fundamentally only one regime for trade in goods that will unambiguously allow for the Irish border to remain open without resorting to questionable solutions relying on behind-the-border checks and supposedly effective modern technology.

That regime is a customs union between the UK and the EU.

In the UK, those who oppose a customs union argue that it would not allow the UK to negotiate its own independent bilateral trade agreements with third countries. As a factual statement that is largely true. Whether it makes sense in normative terms is, however, a different question.

The EU has a much more effective lever in trade negotiations with third countries than the UK will realistically ever have. What is more, traditional tariffs have come down considerably in recent decades, except – unfortunately – for a number of agricultural products.

Thus, in bilateral trade negotiations much more time and energy is these days typically spent on regulatory matters rather than on tariffs.

In order to make it more attractive for the UK to go for a customs union, the EU should invite the UK to participate, after Brexit, in any bilateral trade negotiations it will conduct with third countries. How precisely the role, rights and obligations of the UK would be defined in that context is a matter of negotiations.

Leaving more time for negotiating the trade terms of Brexit would also allow the EU27 to reconsider their theological position on the sanctity of the four freedoms prevailing in the Single Market.

As the UK will not want to remain in the single market there is no reason to request it to accept either all of the ‘four freedoms’ or none. A customs union combined with close regulatory co-operation, if not a joint regulatory regime, would make a lot of sense for both sides.

And (largely) free trade in services could be added without the need to have an entirely free movement of people.

Second referendum?

In regard to the political process in the UK one can also ask whether the sequence of steps taken was ideal. When the referendum took place people could not possibly have full information on what the implications of Brexit would be.

After all, what Brexit means for the future of the UK (and of the EU27) depends decisively on the nature of the relations the UK will have with the EU after its exit. This can be known only after the full set of all future links between the UK and the EU is agreed in negotiations. Trade relations are an important part of that set.

It was certainly necessary to begin Brexit negotiations with the EU27 only after the UK's population had decided, in a referendum, that Brexit was the preferred option to pursue.

However, for the final decision to be based on all relevant facts, the outcome of the Brexit negotiations on all relevant aspects needs to be known before a rational choice can be made.

It would, therefore, appear to make a lot of sense to postpone Brexit, enter into negotiations on the future trade regime and any other outstanding matters, and go back to the electorate with a second referendum where people can base their votes on full information of what Brexit really means.

There is still time to go for that rational process.

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