Tuesday 20 August 2019

May can still avoid Brexit train wreck - but she will have to take a new line

The EU-27 won't call the UK's bluff despite its negotiating stance bordering on fantasy

BOXED IN: British PM Theresa May at an Eastern Partnership summit in Brussels last Friday
BOXED IN: British PM Theresa May at an Eastern Partnership summit in Brussels last Friday
Colm McCarthy

Colm McCarthy

'What the hell does your government think it's doing?" a former Conservative minister asked the Irish Times' London correspondent, Denis Staunton, last week. "Do they not know the pressure she'll come under to just walk away?"

The UK Prime Minister Theresa May has already capitulated to pressure from the ultra Brexiteers in her party and has chosen a costly and disruptive route to departure from the European Union. These post-referendum choices are the source of the difficulties over the Irish border and of the bewilderment in Europe about the UK government's negotiating objectives revealed in the leaked memo from the Irish foreign affairs department last week.

The British electorate chose to depart the EU but it is the British government that has chosen to implement this decision in a manner that has created the stand-off with Europe, concerns about Britain's longer-term economic prospects and conflict over the Irish border.

STAND-OFF: Michel Barnier
STAND-OFF: Michel Barnier

It is not credible to finger Michel Barnier, Jean-Claude Juncker, Leo Varadkar or any of the other candidates being auditioned in the tabloid press for the inevitable blame game which will ensue.

Any 'hard' version of Brexit, involving the UK's exit from both the single market and the customs union, means a hard border, either in Ireland or between the island of Ireland and Britain. Even halfway-house solutions, say a UK decision to retain single market membership while pursuing a go-it-alone trade policy outside Europe, means differential tariffs and hence customs barriers.

There is just one policy package that avoids this damaging outcome, and that is continuing UK membership, a la Norway, in the single market and a Turkey-style deal which would see uniform external tariffs and a continuation of de facto membership in the customs union. Such a deal would comply with the June 2016 referendum decision - the electorate were asked only if they wished to depart the EU. Indeed several prominent Leave campaigners, including foreign secretary Boris Johnson and the voluble MEP Daniel Hannan, assured voters that continued single market membership was not at risk.

It was open to the government formed by May in July 2016 to take the UK out of the EU while minimising the economic damage. The commitments she chose to make, after the referendum, to leave both the single market and the customs union were political decisions, not ineluctable consequences of the referendum result.

The insistence on quitting the single market, thus ruling out the readymade 'Norway' option, reflects an interpretation of the motivation behind the voters' decision, namely that it was largely about immigration, and specifically immigration from elsewhere in Europe.

Single market membership requires free movement of persons so there can be no controls on European immigration. But opinion surveys do not support the view that European immigration was the dominant, or even a principal, concern for most Leave voters.

The decision to leave also the customs union is based on a calculation that the UK is foregoing important trading opportunities outside Europe, through the constraint of the EU's common external tariff. Whatever trade might be lost in Europe will be more than offset by gains elsewhere, in this view.

Aside from a single maverick group, not one of the very large number of studies by economists versed in trade matters has supported this conclusion. It is an act of faith. May even established a dedicated government ministry to preach the faith, headed by a full cabinet minister, Liam Fox.

Notwithstanding the consequences which inevitably flow from these two decisions, the UK government expects that a process of negotiation can somehow lead to an outcome where the UK enjoys the same trading terms with Europe, greater opportunities outside, and all at no cost, as well as a frictionless border in Ireland. This is not going to happen because it is technically impossible, as British ministers have been dutifully informed by officials at the Treasury and the Foreign Office who are paid to understand these matters. Several of these experienced officials have resigned in frustration and have gone public.

From an Irish perspective, the best outcome would be for the UK as a whole to remain in the single market and to conclude an arrangement tantamount to staying in the customs union (pedantically only EU members are in the customs union). This would be a good outcome not only because it would avoid problems at the border but also because it would do least damage to the British and European economies. It is a tragedy that May and her colleagues have so boxed themselves in that the damage-limitation route out of the EU has, it would appear, been closed off. The error was compounded with the triggering of Article 50, the resignation letter despatched to Brussels last March, which removed the pin from a grenade with a two-year fuse.

It is not too late for a change of tack: the EU-27 would facilitate a Norway arrangement and would entertain some Turkey-style deal on customs if the British altered course. The UK would have to accept the dispute-resolution role of the European Court, as well as free movement, and the prime minister would have to cancel Liam Fox's frequent flyer card. But in comparison to the fractious atmosphere that has now been created, these negotiations would be almost straightforward.

Nigel Dodds, the Democratic Unionist Party's deputy leader, told a BBC interviewer last week that he favoured a walk-away position for the UK in the upcoming negotiations on the withdrawal deal. No deal is better than a bad deal according to Dodds, at least as a negotiating tactic, in line with the position expounded regularly by bravura Brexiteers in London.

But bluffing in negotiations does not work if your counterparty knows for sure that your stated preference is a bluff. And a no-deal outcome for the UK, including Northern Ireland, would be a chaotic train wreck, as the bravura Brexiteers must surely understand. Michel Barnier and his EU-27 negotiating team regard the no-deal preference as nonsensical and have been ignoring the bluffers.

Neither Northern Ireland nor the Republic should welcome a hard border down the Irish Sea: as Dodds quite correctly pointed out, NI does far more trade with mainland Britain than it does with the Republic, and he must know that the same is true for the Republic.

Speaking later to Sky News, Dodds had this to say about the position of the Irish government: "Their real aim is to try to get to a situation where either they try to force the United Kingdom as a whole to stay within the customs union, which is in their interests clearly. Or, if they fail that, to at least force Northern Ireland to stay within the customs union and the single market…"

The DUP chose to campaign for Britain's departure from the EU, as was its entitlement. But the DUP has yet to explain why the form of departure chosen by May and her colleagues is in Northern Ireland's interests. Why would it be a bad outcome for Northern Ireland if the UK (all of it) left the EU but stayed in the single market and customs union, Varadkar's preference, minimising economic damage and preserving an open border?

Sunday Independent

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