The Brexit trade deal

Britain has now left the EU in a ‘Brexit’ after having been a member for 48 years.  BBC articles on the New EU trade arrangements report on the trade deal that has been negotiated and some key points in it: trade in goods will be free of tariffs and quotas, but new customs paperwork has become necessary.  Empty supermarket shelves vividly illustrate the problems created by this bureaucracy.  Some companies will simply find alternatives to trading with Britain.

This blog post analyses the nature of the deal, how it was reached, and its impact on the future.  It focuses on how politicians manoeuvred to reach the current position and the relative power that can be wielded by the EU and the UK going forward.

The nature of the deal

An initial report in the Telegraph on 24 December 2020, Boris Johnson hails £660bn Brexit trade deal which finally ‘takes back control’ from the EU, quoted the Prime Minister as saying:

“We have taken back control of our laws and our destiny. We have taken back control of every jot and tittle of our regulation in a way that is complete and unfettered”.

“From January 1 we are outside the customs union and outside the single market.

“British laws will be made solely by the British Parliament interpreted by British judges sitting in UK courts and the jurisdiction of the European Court of Justice will come to an end.”

“There is some good language about equivalence for financial services, perhaps not as much as we would have liked, but it is nonetheless going to enable our dynamic City of London to get on and prosper as never before.”

The New Statesman explained how Boris Johnson’s negotiating approach was different from that of his predecessor, Theresa May:

“…May wanted to end the free movement of people and secure the ability for the UK to strike its own trade deals while securing the closest possible relationship with the EU compatible with those two aims – and her withdrawal agreement would have allowed her to achieve those aims. Johnson wanted a withdrawal agreement that allowed England, Scotland and Wales to escape the customs and regulatory orbit of the EU, and his withdrawal agreement allowed him to secure those aims.”

Several newspaper headlines on 26 December were forward-looking and optimistic: The Telegraph, The Daily Express, The Times and The Daily Mail.  These supporters of the deal all mentioned the importance of Britain’s ‘sovereignty’ – a concept which is always limited in practice.  A government signs a treaty or trade agreement because it expects to gain benefits, but it thereby limits its sovereignty.  Britain has now lost many of the benefits of EU membership by leaving, but it can now freely set up trade agreements with other countries.  It has gained more power to manage its own affairs, but it now has less power over its neighbours.

Boris Johnson has gained more autonomy than Theresa May negotiated, but he sacrificed friction-free trade within the EU.  He appeased the hard-line European Research Group in his party by apparently removing the explicit requirement for regulatory alignment with the EU, which was part of Theresa May’s deal, but UK exports to the EU will still have to meet its product standards.  He sacrificed friction-free trade for an illusion of independence.

His trade deal has flaws from a UK perspective.  It largely fails to address services, which account for 80% of Britain’s GDP; it introduces bureaucracy, including customs checks between Great Britain and Northern Ireland (which he had previously argued against); the fishermen claim that they will be “absolutely worse off”; and an OBR report forecasts that it will diminish UK GDP by 4% in the long term (and it would have been 2% worse than that with no deal).  The New York Times offered perhaps the clearest summary: Brexit Deal Done, Britain Now Scrambles to See How It Will Work:

““The result of the deal is that the European Union retains all of its current advantages in trading, particularly with goods, and the U.K. loses all of its current advantages in the trade for services,” said Tom Kibasi, the former director of the Institute for Public Policy Research, a research institute. “The outcome of this trade negotiation is precisely what happens with most trade deals: The larger party gets what it wants and the smaller party rolls over.”

“Brexit was always going to be a long-running hit to the U.K.’s competitiveness,” said Mr. Kibasi, the analyst. “But the way it’ll play out is by damaging investment in the U.K., so it’s a slow puncture, not a quick crash.””

Perhaps the deal should not be analysed in terms of what it does for the economy, but rather how people perceive it.  Those who support Brexit hope that Britain can prosper beyond Europe; they might see themselves as supporters of a proudly independent Britain – an appealing identity for older voters who may be nostalgic, or for voters in deprived areas who seek to bolster their self-esteem.  Those who wanted to remain in the EU regret the economic damage that it has already inflicted, the forecast future loss of GDP, and Britain’s loss of international influence.  This polarisation of opinion will take some time to dissipate, if it ever does.

How the deal was reached

When the British people voted for Brexit, the winning margin was small: 52% to 48%.  Both Labour and Conservatives were internally divided on the subject.  It might seem reasonable to suppose that the government would try to allay the fears of the many who voted to remain in the EU by trying to minimise the disruption of leaving: a so-called ‘soft Brexit’.  Conservative Prime Minister Theresa May negotiated such a deal.  It included a bespoke customs union, which would have avoided the need for paperwork on the movement of goods between the UK and the EU, in return for agreeing regulatory alignment – but she failed to get it through Parliament.

Britain’s parliament and its electoral system are inherently adversarial, with a tradition of confrontational votes rather than patient negotiation.  Theresa May failed to win enough support for her deal within her own party and she failed to reach out to other parties.  Some MPs wanted a confirmatory referendum, in the hope of reversing Brexit.  The Labour Party and its leader wanted to oppose any deal that had been negotiated by the Conservatives.  A fragmented opposition failed to support a deal which would have suited them better than what was ultimately achieved.

Boris Johnson, who had been a prominent opponent of Theresa May, then won the leadership contest to replace her after her resignation in June 2019.  He effectively manoeuvred the opposition into allowing an election on 12 December 2019, in which he won an 80-seat majority with the slogan “Get Brexit done”.  This majority allowed him considerable political freedom, which he used to negotiate a new Withdrawal Agreement – formally leaving the EU on 31 January 2020 and entering a Transition Period that ended on 31 December 2020.

The Transition Period allowed only a short time to negotiate a trade deal, but agreement was reached on 24 December 2020.  There was then insufficient time for proper parliamentary scrutiny before exiting the EU on 31 December and businesses had little time to prepare for the resulting customs paperwork.  The EU (Future Relationship) Bill was debated and approved on the 30 December.  It could not have been amended without restarting the trade negotiations, which would have meant a no-deal exit from the EU and causing serious damage to the economy.

Sir Keir Starmer had already announced before the debate that the opposition Labour Party would support the bill because the alternative was so much worse.  He said that “it was a rotten deal” but that “it is not credible for Labour to be on the sidelines”.  It was useful for those who opposed the deal to have their views put on the parliamentary record, but he appears to have thought that voting against it was just virtue-signalling when the alternative was a no-deal exit.  Caroline Lucas voted against it, though, saying “The agreement will pass – but voting against it is how we keep alive the belief in something better, for our economy, our environment, and for Europe too”.  Some Labour MPs also voted against it.

The impact of the deal on Britain’s future

On 31 December, after the parliamentary approval of the trade deal, Sir Keir Starmer made a speech in which he predicted the UK’s “best years are still to come”.  This speech was politically necessary for him, because he was on record as having voted to remain in the EU but he needed to convince Labour Brexit supporters that he was putting the split in the party behind him.  Managing for the future is in any case the only politically responsible course of action.

The geopolitical aspect of Brexit received insufficient attention, both during the referendum campaign and since, but a few commentators have picked up its importance.  The Observer, which had consistently advocated remaining in the EU, was critical in its editorial: “A deal that makes us poorer, reduces global influence and imperils the nation’s integrity”.  Sir John Major recommended that Britain should choose foreign policies which reflected its status as a significant second-tier power: it could lead by example but it could not realistically project force all over the world.

The Economist pointed out that Britain’s relationship with Europe will be similar in many ways to that of Switzerland: continual negotiation and adjustment.  Its foreign policy would be incomplete without finding a way of working more closely with the EU: Britain needs to co-operate with the EU on many issues, including the environment, security and many aspects of foreign policy.  As the President of the European Commission, Ursula von der Leyen, was quoted as saying: “Britain has won nothing and has lost a continent”.

The EU will be weaker without Britain, but it “got an orderly transition that leaves Britain worse off than membership” and other countries don’t currently look likely to follow the example of Brexit.  Tensions and nationalist pressures remain in the bloc, though, and the EU can’t afford to be complacent.  Whereas the Eurozone needs more coherence, other EU countries do not want to be unduly controlled.  A multi-speed Europe is desirable.  If the UK were to move back closer to the EU at some point in the future, which currently looks unlikely, it would want to join the outer rim.

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