Saturday 18 August 2018

Now 70pc chance of EU-UK talks ending without a deal

Boris Johnson preparing to board the Vote Leave campaign bus in Truro, Cornwall the month before Britain’s vote to leave the EU. He has set out his vision for Britain’s exit from the European Union that revisits the widely criticised claim that Brexit could boost the UK’s NHS coffers by £350 million a week.
Boris Johnson preparing to board the Vote Leave campaign bus in Truro, Cornwall the month before Britain’s vote to leave the EU. He has set out his vision for Britain’s exit from the European Union that revisits the widely criticised claim that Brexit could boost the UK’s NHS coffers by £350 million a week.

Padraic White

In a status report last May on the state of play in the Brexit negotiations, Brendan Halligan, president of the Institute of International and European Affairs (IIEA) put the chances of failure of the Brexit negotiations with the EU at "about 30pc".

I would now put the chances of failure at about 70pc and increasingly we need to prepare ourselves in Ireland for a cliff-edge ending to the negotiations on the withdrawal of the UK from the EU in March 2019.

The negotiations from the UK side cannot escape from the forces which led to the UK referendum of June 2016 and the Brexit decision. The referendum was called by then Prime Minister David Cameron as a way of heading off a split in the Tory Party by the hardliners who wanted out of the EU. The campaign, which he expected to win, was dominated by lies and half-truths about the EU and fantasy visions of a global, powerful Britain after exiting the EU.

The driving forces behind the Leave Vote were the concept of "take back control" from the EU and "controlling immigration".

Now, Boris Johnston , the Foreign Secretary of the UK and of one of the three ministers responsible for leading the Brexit negotiations, has broken ranks, re-ignited these sentiments and set out his "vision for a bold, thriving Britain enabled by Brexit". He has reiterated the discredited claim that they will take back control of £350m primarily for the National Health Service.

The Tory hardliners in Westminster like Jacob Rees-Mogg and John Redwood have been quick to come out behind the Foreign Secretary .

All of this re-emergence of hardline Brexit rhetoric is scarcely helpful to the negotiations with Michel Barnier and his team - negotiations are already faltering .

Substantive progress has not been made on the divorce settlement bill, the rights of citizens, while in the case of Northern Ireland, progress has been made on the Common Travel area .

There is now little prospect of "sufficient progress" in the negotiations by the time of the European Council Summit on October 19-20 to persuade the EU leaders to trigger the start of discussions on the future of the UK relationship with the Union.

So, the time for working out the future trade relationship with the UK which is crucial to Ireland and Northern Ireland will then be even shorter and the chances of a cliff edge end more probable.

The common vision stated many times by both the Irish and UK Governments of a "seamless and frictionless" Border has reached its own crisis point. The UK Government published a position paper on 'Northern Ireland and Ireland' in mid-August and put forward the option of a new customs partnership with the EU so that goods moving between both areas would be treated as they are now for customs purposes. The UK side recognised that "this is an innovative and untested approach" which would take time to develop and implement.

In a surprise reaction, Barnier's team issued on September 6 a specific set of guidelines for the dialogue on Ireland/Northern Ireland which was very strong on the need to avoid a hard Border and asserted that the physical Border itself was a symbol of division and conflict.

It looks as if the EU did not accept the proposals by the UK in relation to the Border because it is now asserting that the onus for solutions to the Irish Border issues remains with the UK .

Essentially, Barnier is saying to the UK: "You are the ones who decided to leave the EU, the customs union and the single market. Now find a solution, but it must respect the fact that Ireland will be part of a separate Customs Union with its own external barriers, tariffs and legal order."

There is no obvious solution - unless the UK were to change tack in relation to being part of the European Economic Area or the Customs Union. Another blind spot in the UK approach to withdrawal from the EU has been the failure to recognise the need for a "transitional phase" between withdrawal in March 2019 and the formal commencement of a new trading relationship with the EU and the rest of the world.

Its simply inconceivable that a new arrangement could be in place with the EU on the day the UK leaves. Trade deals typically take years to negotiate and formally agree and ratify.

The UK has initiated discussions with the US, Canada, Japan and some 18 countries on negotiating post-Brexit bilateral trade deals with Britain. These deals with take years to bring into effect. In fact, the UK will have to replicate, through separate negotiations, all the 60 trade deals which the EU has in place on behalf of its members!

Its only this summer, a year after the referendum, that there was gradual acceptance by UK Ministers that a transition period would, in principle, be necessary, even though there is no consensus among them on the duration and EU links and obligations during such a transition.

The UK Labour party caused a big surprise in August by its formal support for retaining full membership of the EU in a transition period of up to four years.

The best outcome for Ireland would be a "status quo" deal between the UK and the EU for about three years after the withdrawal date in March 2019 where effectively the UK would continue to be members of the Customs Union and Single Market .

The final piece of the puzzle is the nature of the agreement, including a trade agreement, which the UK will have with the EU after any transition phase. Assuming a three-year transition, a new deal could commence in January 2022 after an approximate three-year transition phase ending in December 2021.

The UK has stated its wish for an ambitious free-trade agreement with the EU but has also stated it does not want to remain in the Single Market (thereby accepting free movement of people) or the Customs Union (which would prevent it from negotiating its own trade agreements with the US for example).

The EU has for its part laid down some tough markers. Any trade agreement has to be wide-ranging (not cherry-picking sectors like automobiles), must ensure a level playing field in terms of competition and State aid and have safeguards against the UK getting an unfair advantage by manipulating tax rates/laws or social, environmental and regulatory measures .

So the gap between the UK ambition and expectations for a deal with the EU and the EU negotiating outline is huge .

No one in the UK, not least its Government has set out with any clarity the characteristics or scope of such a long-term agreement. An examination of existing models such as the European Economic Area between Iceland, Norway and Liechtenstein and the EU or the Swiss/EU arrangement indicates that they involve EU conditions which the UK has ruled out .

Any new UK-EU agreement will be difficult to negotiate and finalise. In the absence of a ratified agreement to kick-in at the end of a transitional period, World Trade Organisation (WTO) tariff regimes come into effect by default .

All three of the negotiation phases, withdrawal agreement, transitional phase, new UK-EU trade deal - look hazardous given the expectations on both sides . That is the basis of my judgment at the outset of this article that today the chances or probability of failure are 70pc.

Padraic White is former Managing Director of the Industrial Development Authority of Ireland. He is chairman/director of a range of Irish and foreign owned companies. He is a member of the Brexit UK Group of the Institute of International and European Affairs ( IIEA) but has sole responsibility for this article.

Brendan Keenan is away.

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business