Colm McCarthy: No guarantee of a 'soft' Brexit

Last Friday’s agreement in Brussels to proceed to the next phase of the Brexit talks has been spun by the UK government as some kind of victory for Theresa May and her colleagues. In truth, the UK has accepted just about all of the terms dictated in the EU‘s draft withdrawal agreement and various cans have been given another hefty kick down the road. The UK is headed for a Canada-style free trade agreement (FTA), yet to be negotiated, which will fail to minimise the economic damage and virtually guarantees a border problem in Ireland.

The blind faith that a painless outcome can be achieved has driven UK policy

The blind faith that a painless outcome can be achieved has driven UK policy throughout the process. In Manchester last September, UK minister for international trade Liam Fox declared that “I believe the UK is in a prime position to become a world leader in free trade because of the brave and historic decision of the British people to leave the European Union.”

This is not a policy, it is a votive offering at the altar of Brexit. Six months later, the government of which Doctor Fox is a member remains committed to departing more than just the European Union, the choice on the ballot paper at the fateful referendum in June 2016. Mrs May’s government also plans to depart both the EU’s customs union and the single market, ensuring problems with the Irish border but also raising the likelihood of a bad outcome for the broader economy and particularly for UK agriculture.

Trade experts

Doctor Fox’s optimism is at variance with the assessment of almost all of the experts in international trade who have tried to tease out the consequences of the government’s chosen course, including a recent report from his own officials. Leaving the political structures of the EU is what people were asked to vote on. They were not asked about future trade arrangements and it was open to Mrs May’s government to respect the referendum decision while minimising the economic damage. The easiest way to do this is to stay in the single market, avoiding non-tariff barriers, while staying close to the customs union also, avoiding tariffs and quotas.

Capitulations

The negotiations to date have consisted of a series of strategic capitulations by the UK, reluctantly accepted by the Brexiteers for whom exit from the EU on any terms is the great prize. Each capitulation is spun as a victory, with a background drumbeat in the press about the EU’s “hardline” stance.

there has been hardly any media attention on the big issue: what long-term trading relationship with its biggest market does Britain want?

The UK media has devoted enormous coverage for the last two weeks to four issues: the former Russian spy and his daughter poisoned in Salisbury; the future of the tiny UK fishing industry, campaign financing irregularities during the referendum and the award of the contract to print Britain’s post-Brexit passports to a firm from France.

Over the same period, there has been hardly any media attention on the big issue: what long-term trading relationship with its biggest market does Britain want? What is it likely to get?

Given the wide gap between British expectations and the EU constraints, not to mention the unequal negotiating power, there is little chance that the more grandiose British expectations will be met. In his confident exaltation of the UK’s future prospects as champion of free trade worldwide, Minister Fox has the field to himself.

No-deal

A no-deal crash-out in March next year appears to have been avoided and there should be a no-change transition to the end of 2020. But unless a permanent deal has been agreed by then, or the transition period is extended, the problems have been deferred rather than fixed. Transition is a concession by the EU and is conditional. Failure to fix the Irish border problem by next autumn would see the most challenging condition unfulfilled.

For UK agriculture, the long-term trading relationship, from the 2021 transition onwards, is crucial. A Canada-style FTA with the UK outside both customs union and single market will not cover agriculture and there will be a hard border in Ireland.

there is no guarantee of a soft Brexit

Various UK politicians concerned about the continuing threat to the economy have been campaigning to extract a commitment, thus far refused, to stay close to the customs union. Some have asserted that a hard border in Ireland is thereby averted, but this is a mistake. Without a single market deal as well, covering full alignment of food standards and animal health, as well as a continuation of existing tariffs and other restraints on imports from outside Europe into the UK market, there will be barriers on the Irish border. There will also be customs and border inspection posts at Dover and other ports. On current indications there is no guarantee of a soft Brexit.

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