The hardest possible Brexit

British Prime Minister Boris Johnson, The Economist argues, faces an uphill battle with the European Union. The coming trade negotiations between London and Brussels “will boris-johnson-wave-1024x580not be easy to resolve … [the article says, because] … The British side says it is intolerable to impose more arduous conditions than those Canada has to accept .. [and] … It adds that the EU, which has a large trade surplus with Britain, needs unfettered access to its market … [but] … The EU retorts that trade with Canada is far smaller, not least because it is thousands of miles away, whereas Britain is a bigger economy right on its doorstep … [and] … As for trade patterns, British exports to the EU are worth 12% of Britain’s GDP, four times as big a share as the EU’s exports to Britain.

The article adds that “Several other issues are likely to increase the friction. The EU wants to preserve its rights to fish in British waters. Agreeing rules for data adequacy and financial-services trade could be problematic. The application of the Northern Ireland protocol, an arrangement to keep the province, in effect, in the EU’s single market and customs union, still needs to be worked out. Spain wants to use Brexit to put more pressure on Gibraltar. And so on … [and] … Two things will make everything more difficult:

  • The first is the extreme shortage of time. Ambitious trade deals typically take years, not months, to negotiate and ratify. The EU says 11 months is nowhere near long enough for a full free-trade agreement, and has suggested that Britain should use its right to extend the transition period by one or two years. Yet Mr Johnson insists that he will not in any circumstances seek to prolong transition beyond December 31st; and
  • The second is the conclusions that the two parties have drawn from their three years of tortuous negotiation on the withdrawal treaty. The EU reckons that because it is bigger and better organised it can continue to get its way, so long as all 27 member countries stay united. Mr Johnson’s team believes that concessions to the EU over money, citizens’ rights and Northern Ireland came about only because his predecessor, Theresa May, refused to walk away from the table. If both sides stick to their hard bargaining positions, the risk that Brexit will happen on December 31st with no trade deal at all in place must be substantial.

I think that Prime Minister Johnson is, already, reconciled to “no-deal” or “hardBrexit on 31 December 2020. In effect, on 1 January 2021 trade ~ and there’s a lot of it ~ between the EU nations and Britain will be under WTO rules. But I suspect that will hurt the weaker European economies more than it hurts Britain and one of the EU’s weaknesses, its socioeconomic diversity, will come to the fore and the weaker economies will plead with Brussels for a better deal and the “Canadian deal,” the CETA, will emerge as an acceptable model. That will make negotiating a Canada-UK (CANUK) trade deal all that much easier but both Britain and Canada should aim for more. Both should aim to increase trans-Atlantic trade at the expense of Anglo-European trade.

Screen Shot 2020-02-03 at 09.56.05Prime Minister Johnson has taken an aggressive stand. He says he wants to “unleash Britain’s potential” and he says that it must be possible, à la Canada, to have (relatively) free(er) trade with Europe without being bound by all of the EU’s (somewhat misunderstood) rules on e.g. the permissible curvature of a banana. He is, probably, correct to do so.

Screen Shot 2020-02-04 at 05.54.01But, Britain cannot afford to sit by, complacently, while it waits for the EU to concede (⇐ graphic courtesy The Telegraph). What the UK’s government needs to do next, in my opinion, is to reach out, capital-by-capital to Denmark, Estonia, Finland, Germany, Ireland, Latvia, Lithuania, the Netherlands,  and Sweden, while largely ignoring Brussels (and Athens, Madrid, Paris and Rome) and remind them that the United Kingdom is a good customer and major trading partner and that it is willing to, for example, negotiate fishing rights with countries that share its conservation and environmental concerns, but Britain will not provide carte blanche access to the EU. It needs, in effect, to isolate Brussels and the bureaucrats and “go to the people” in the parts of Europe, especially in the so-called New Hanseat League, in order, quietly but effectively, to sow divisions that highlight the inherent contradictions in the EU as currently structured.

A “hard Brexit” on 31 December 2020, seems very likely to me … but it will not, I am certain, be the last word. The EU will want a trade deal with the UK but 11 months will not be time enough to craft all the necessary compromises to make a CETA like deal work. That will be to Canada’s (and Australia’s) advantage. While Britain cannot, as I understand the rules (and my understanding may be flawed and I would be happy to be corrected by someone who knows better) sign new trade deals during the next 11 months, nothing prevents Britain from talking to America, Australia, Canada, New Zealand and the Trans-Pacific Partnership nations and getting ready to sign deals with them when its formal, legal ties to the EU are, finally, severed. Britain wants new, global, liberal trading relations. CANZUK (and see my post from a couple of days ago, too, please) would be a good place to start.

 

 

 

 

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