Brexit Enters Its Meghan and Harry Phase
(Bloomberg Opinion) -- Brexit has felt a little like Meghan and Harry’s decision to stay linked to the Royal Family but “financially independent” of it. It has been hard to imagine what the new order will look like, but it’s obvious that getting there will be messy. As he seeks regulatory independence from the European Union, Boris Johnson (like the royal couple) will have to make some real trade-offs.
So far it’s been smooth sailing. The Brexit legislation that was a Sisyphean burden for his predecessor Theresa May for much of last year proved an easy lift Thursday with Johnson’s new parliamentary majority. The House of Lords may wag a few fingers (for example, protesting the clause that gives ministers the power to tell courts where they can depart from EU case law), but it won’t stand in the way of Britain’s Jan. 31 departure.
The hard part is deciding priorities for the U.K.-EU trade talks that will immediately follow, because compromises carry costs. Johnson often gets his way against the odds, but the difference between what he hopes for from an EU deal and what he can realistically expect is the difference between imagining yourself as Mikaela Shiffrin tearing down a slalom slope rather than an average vacation skier.
Britain’s objective is a trade agreement that covers goods and services, along with cooperation in a range of other areas. Johnson also wants flexibility to diverge from EU rules and to sign new trade deals, including with the U.S., which has a very different regulatory framework to Brussels. He has pledged that Britain won’t request an extension to its transition period for exiting the EU, meaning the deal needs to be concluded this year.
On her visit to London Wednesday, European Commission President Ursula Von der Leyen smiled kindly at these demands. But beneath the soothing tones and talk of a partnership “unprecedented in scope,” her message was to get real. Not only do both sides have to agree negotiating objectives, priorities and sequencing, they then have to agree the terms of a deal, the legal language and allow time for it to be implemented, including devilishly complicated new customs arrangements for Northern Ireland.
Even if both sides want very much to conclude a deal, their starting positions are far apart. Von der Leyen and her chief negotiator Michel Barnier made clear this week that there’s a trade-off between market access and divergence from EU rules and standards. That, indeed, is the EU’s overarching objective. The more freedom Britain has to diverge, the more Brussels will worry about a competitor on its doorstep that will use laxer regulatory standards and lower taxes to attract talent and investment. Even if the feared Singapore-on-Thames is overblown, Britain is now seen as a fierce competitor.
That makes the question of sequencing in the talks paramount. The EU won the first phase of the negotiations (for the withdrawal agreement) by insisting that the divorce terms — especially the Irish border question — were resolved before trade talks started. Britain gave away its best cards too early.
Johnson doesn’t want to repeat that mistake, but with so little time, both sides will have to agree where to focus negotiations. A deal that concentrates on eliminating tariffs and quotas for goods trade only would benefit the EU (with its large goods trade surplus with Britain) more than the U.K., though it would also allow Johnson to stick to his timetable, claim a political victory and avoid having to pay more into the EU budget. Beyond that bare minimum, though, he’ll probably have to concede ground on the so-called “level playing field” provisions — ensuring the U.K.’s regulations and product standards are equally tough — that are an EU obsession.
While there’s much talk about a fisheries agreement — a key goal for EU members, who want access to British waters, but also for the U.K., which sells most of its fishing haul into the EU tariff-free — agriculture might be a bigger sticking point. The EU will be reluctant to remove its farming protections without knowing what kind of deals the U.K. will strike with other countries, notes Eric White, a trade law consultant at the law firm Herbert Smith Freehills. “For goods trade the tariffs are really quite small and it doesn’t really stop people from importing; the regulatory barriers are much more important. But for agriculture, you have some very high duties on beef, lamb and other products [without a trade deal]. Countries are very careful about giving trade concessions for agriculture because it can devastate markets,” he says.
Even if these goods issues can be resolved, that still leaves services — critical to the finance-dominated U.K. economy — and many other areas. The EU wants to avoid the Swiss scenario of multiple agreements, as it makes it hard for the EU to link them if it needs leverage over its trading partner. But given time constraints and the depth of the EU-U.K. relationship, it’s hard to see how the two sides have any choice but to separate out some issues, perhaps creating joint committees for adopting decisions down the road, not dissimilar to Johnson’s deal and the question of customs and the Irish border. It seems likely that the first trade negotiation will be one of many.
The drama may be gone from the U.K. parliament after Johnson’s thumping election victory, but trade negotiations will inevitably engage EU member states much more than the divorce talks. Wallonia, a region of Belgium, nearly scuppered the bloc’s trade agreement with Canada, a risk neither Britain nor the EU wants to run this time.
White notes that member nations have often tacked on additions to trade deals in the past just so they can have a seat at the table or signing ceremony, although the European Court of Justice has taken a broad view of what the EU can negotiate on their behalf without requiring ratification by member states and regions. Ultimately, how quickly this can get done will be a political decision. “You can put an awful lot into an EU-only agreement,” White adds.
Cooperation has always seemed a lot to ask when it comes to Brexit. Everything depends now on whether Johnson and Barnier can live up to their reputations for getting things done.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.
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