Wednesday 20 February 2019

Things go from bad to worse for Ireland as a 'hard' Brexit looms over the horizon

Dan O'Brien once worked for the European Commission on a free trade deal. Here he writes on how he feels the Brexit talks will play out

Choppy sea ahead: Theresa May and Enda Kenny outside No 10 Downing Street Photo: Lauren Hurley/PA Wire
Choppy sea ahead: Theresa May and Enda Kenny outside No 10 Downing Street Photo: Lauren Hurley/PA Wire
Dan O'Brien

Dan O'Brien

Twenty years ago this month I moved to Malta to work in the European Commission's diplomatic mission on the island. With the Mediterranean state seeking to become a member of the EU, my job, as the mission's economic and political affairs officer, was to be a cog in the complicated process of the country joining the bloc.

But within weeks of arrival, the government unexpectedly changed. The new administration was almost alone among European political parties at the time in not wanting membership of the EU. The Maltese had something akin to their Brexit moment. The accession process was halted in its tracks.

As is the case now with Theresa May's government, it was far from clear what kind of relationship the new Maltese administration wanted with Europe. Like the Brexiteers last June after the referendum, the island's opposition hadn't expected to win and were not prepared for the consequences of its victory.

Eventually, the new government decided to seek a free trade agreement with the EU. And so a process began. The negotiation was the most difficult thing I have ever been involved in professionally.

Products of all kinds had to be discussed, but the biscuit file is the one that sticks in my mind to this day. Discussions were needed on how each biscuit was classified. That depended on water, salt and sugar content, among other things. Then there were discussions on tariff rates (import taxes) for each of the many types of biscuit and over what timeframe those tariffs would be cut, if at all. As if that were not complicated enough, there was also a system of quotas - ceilings on the amount of each kind of biscuit that could be imported. Timeframes for their easing had to be negotiated too.

It was long, tedious and incredibly detailed. And that was just the biscuit file.

If negotiating trade agreements is difficult, unpicking the ties Britain has developed with the EU over more than four decades will be like unscrambling a million eggs and then trying to rescramble them in a different way. In the coming years, the country will attempt to negotiate trade deals not only with the EU, which will govern Ireland-UK trade, but with many other countries across the world (because EU members only have collective trade deals with non-members, a full Brexit will leave the UK with no international trade deals at all).

The task facing Britain now has never been attempted before. Not only is the breadth of the challenge unprecedented, but in depth of detail it will be almost as great. Britain's economy is more than 100 times bigger than that of Malta's and almost infinitely more complex.

In its commercial relations with the world, the sale of services - financial, legal, engineering, advertising and others - is what Britain does best. Negotiating trade agreements on services, as opposed to products like biscuits, is the most difficult.

There are many reasons for this, including that services are often of a tailored nature and hard to put into a ready category (hence it is hard to agree which tariff schedule should be applied) compared to more easily classified tangible goods.

Partly because of this inherent difficulty, there are far fewer international trade agreements covering services. This, in turn, is one important reason why the value of services traded across borders globally is a fraction of the value of goods exports.

The problem of services trade with the UK is one of the many worries for Ireland, and one which has not got enough attention.

Although most focus is on the important food sector, which sells a lot of product into the British market, it is less well known that the value of Irish services exports is actually considerably greater than goods exports, including all food products. If a hard Brexit happens and there is no agreement on a framework for services trade, the amount of services business done across the Irish Sea will be badly hit.

This column concluded after the referendum that there was a one in three chance that Brexit would never happen. That was in large part because of the sheer complexity of leaving the EU and trying to negotiate new trade deals.

Much that has happened since then has increased that likelihood somewhat. But the likelihood of a hard Brexit has increased by more. The middle ground - of a soft Brexit, allowing for a very close relationship between the EU and UK - has been squeezed.

Much of that is to do with the staunchly pro-Brexit people that are running the leave process in London and how they are likely to fare.

The man Theresa May put in charge of trade negotiations has no background in trade diplomacy. Despite this, Liam Fox, whose only previous (brief) stint in cabinet ended when he was forced to resign, has long been making claims that the world is waiting to do deals with Britain.

From his recent utterances, it appears as if he is becoming aware of the scale of the challenge facing him. And his response is to get his excuses for failure in early.

Last week, Fox questioned whether British companies, which he said had become "fat" and "lazy", were capable of taking advantage of the web of international trade deals he has promised to deliver.

Nor is it clear how his department will work with the Foreign Office, now led by Boris Johnson, and the Brexit department, headed by David Davis. As Robert Harvey, a former member of the House of Commons Foreign Affairs Committee, observed after their appointment: "All three have different ideas about Brexit, and none of them likes the others."

There is a real risk that as time passes and challenges become more apparent, divisions will open up among the three men, as well as with the woman they answer to. Cracks are already showing.

Davis was in Dublin on Thursday. Apart from a substance-free newspaper article, he said nothing publicly during the visit. That was because he had been openly rebuked by his prime minister after he had opined that it was very unlikely Britain would trade border controls for access to the EU's single market.

But it is not only in cabinet where Brexit could turn out to be explosive. The divisions on Europe among Tories more widely were not suddenly healed last June 23. It is a certainty that some of the hardline Brexiteers on the back benches will scream betrayal when compromises are inevitably made in the exit talks. For some of them, no Brexit deal can ever be hard enough. With a tiny majority in the Commons, it would not take many defections for Theresa May to become a lame duck.

Over the coming years, it is hard to avoid the conclusion that public and political opinion will polarise further.

But my hunch is that support for remaining will grow by more than those advocating a hard Brexit as times passes from last June's vote, the difficulties of leaving become more apparent and as the economic consequences become starker (last week the Japanese government bluntly warned that companies from that country would leave the UK if their access to the EU's single market was not maintained).

That will lead to more calls for the holding of a second referendum. But it is also likely to cause Brexiteers to push harder to a quick (and hard) exit for fear that their historic opportunity may be lost. Given their preponderance, and the weakness of the Labour Party, they look most likely to prevail.

A hard Brexit is now the most probable of the possible outcomes, with all the negative consequences for this island that such a rupture would entail.

Sunday Independent

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