Brexit Briefing 60: Deal or no deal? (or no Brexit?)

Barnier

There is a tentative deal. After nearly two years of negotiations, the white smoke finally emerged in Brussels not by way of a big announcement, but by an exclusive from the Irish broadcaster RTE. This started the gun on the final and most fractious phase of the Brexit negotiations, the “meaningful” vote in the British Parliament. It is clear that that process will be fraught, to say the least. At the time of writing several cabinet ministers have resigned and this weekend could prove to be very unpredictable and fast moving.

Normally when a deal is done in Brussels, it takes days, sometimes weeks, to work out exactly what has been agreed. This is no different. The withdrawal agreement comes to nearly 600 pages, so it will take some time for the contents to become clear and what they mean.

This deal is just the first step. The British Cabinet approved it, but in a sign of the troubles ahead, it provoked several resignations within hours of the Cabinet endorsing the deal. Brexit Secretary Dominic Raab stood down from his post, as well as Esther McVey, the Work and Pensions Secretary. Earlier on Thursday, Shailesh Vara, a junior Northern Ireland minister, was the first to quit. This just underlines the tricky political minefield that the Prime Minister must negotiate to win support for her deal in London. There are also many procedural hurdles to overcome. A summit is supposed to be held in Brussels on the 25th of November for the remaining EU 27 governments to sign off on it. Further changes to the draft could still happen depending on the situation in Brussels and London, and there is still time to have a summit as late as December. 

Raab

The agreement would then need to be passed by both the British and European Parliaments. Whilst the European Parliament vote is expected to be relatively excitement free that is not the case for the vote in the British Parliament, which is likely to be filled with drama.

An important proviso is that this deal only focuses on the withdrawal agreement, or the so-called divorce” phase: This includes the transition arrangements, which will last until the end of 2020, the bill that the UK will pay to honour its outstanding EU obligations; citizens’ rights and the Northern Irish border. 

Only a small portion of the withdrawal document, in the annex, focuses on the future trade deal, although it provides clues as to the direction in which we are heading, it is not detailed. Nevertheless, the majority of the future relationship will be negotiated after the UK has left the EU.

However, the main issue, and by far still the most controversial, is how to avoid the border between Northern Ireland and the Irish Republic. The so-called “backstop” that would come into force until a trade deal comes into force between the EU & the UK. 

The deal struck will avoid the EU’s preferred scenario, which was that Northern Ireland would stay in the customs union and single market in all circumstances, and a customs border would be imposed in the Irish Sea between Northern Ireland and the rest of the UK. 

Instead the whole UK will stay in the customs union until a suitable future trade deal is agreed, one which addresses the EU’s concerns that a hard border can be avoided. 

This part of the deal is a significant negotiating success for the British Prime Minister, as the EU, particularly Paris and Berlin, did not want to grant this because it allows the UK preferential access to parts of the EU single market and is therefore seen as cherry picking by the EU.

However, this success also causes significant problems for the British government. This is because the whole of the UK will now be in the customs union with the EU until the UK can convince Brussels that a trade deal between the two will provide sufficient mechanisms to avoid a hard border in Northern Ireland. The UK cannot unilaterally leave the customs union - it needs joint approval from both the UK and the EU - and the withdrawal agreement will be a legally binding international treaty, so it means there is a risk that the UK remains in a customs union with the EU beyond December 2020, when the transition period is due to end.

To leave that customs union, the UK will either need a new trade architecture which the EU can agree with which negates the need for a border, agree to separate arrangements for Northern Ireland, or unilaterally break an international treaty, in the process taking us back to a cliff edge “no deal” scenario.

Linked to this, the UK succeeded in negotiating that an arbitration panel (and not the ECJ) would rule on any disputes (such as the one described above) over the withdrawal agreement. It would be made up of five members: two from the UK, two from the EU and one chairperson chosen by both sides. It is a significant shift from Brussels’ initial position that the European Court of Justice should police the Brexit deal, although this arbitration panel will still refer to the ECJ on matters of EU law.

In short however, this all means that the customs union would be very difficult to exit and legally impossible for the UK to leave unilaterally. The UK would go from being able to unilaterally trigger Article 50 to leave the EU to not even being able to leave the customs union unilaterally. Apart from the democratic difficulties with this, it is also challenging because customs union membership when you are not an EU member is quite possibly the worst position of all to be in. It limits your flexibility when negotiating new free trade deals as I outline why here. The EU would, in essence, dictate the UK’s trade policy as we would have to apply its common external tariffs and the UK would not even benefit from EU trade deals for its exports. 

So the success of the British negotiators in avoiding a Northern Ireland only backstop has opened a far bigger problem for the government. Negotiators tried to water down the wording of this in the agreement to try to make it clear that this scenario only continues until a trade deal is agreed, however no one has currently come up with an accepted version of what such a trade deal would look like. There is a reference to “good faith” in the execution of the withdrawal agreement, but in international law the definition of this can be disputed. The UK walking away from a treaty would be an obvious breach, but how would the UK prove that the EU was dragging out trade talks in order to maintain the ‘backstop’ status quo? One former European Court Judge has suggested that the backstop is an overly expansive interpretation of Article 50 because it crosses into future relationship territory.

 

IrishB

A further problem for the British government is that Northern Ireland is still divided from the UK under the proposed deal, as the customs union alone is not enough to keep the border open. It also needs regulatory alignment in a number of single market areas for Northern Ireland. Furthermore, the deal says that goods from Northern Ireland will be labelled slightly differently from goods in the rest of the UK, for export to the EU, though they are not required to be labelled differently within the UK market. 

This also means that Northern Ireland will have different rules to the rest of the UK, will have those rules imposed on them with no say whatsoever and crucially that Northern Irish businesses and politicians can only get those rules changed by lobbying the Irish government to try to get them changed on their behalf.

So the deal poses significant challenges on two key issues for the UK. Whilst avoiding a customs border in the Irish Sea, it sets up different regulatory spheres in the UK (and the Scottish government is already demanding the same deal for Scotland that Northern Ireland has), even though of course differences already exist due to devolution, and it risks keeping the UK in the customs union perpetually with few viable ways to exit the arrangement.

In addition, because the UK will have preferential access to the EU market through the customs union, the EU has also demanded that the UK apply EU standards across a wide range of areas. “Level-playing field” clauses have been added on tax information requirements (not tax levels which largely remain non-harmonised within the EU), environmental, employment and product standards. That is because Brussels doesn’t want to give UK industry a competitive advantage if it is going to obtain tariff and quota free access to the single market.

By this measure, the agreement doesn’t appear to be a particularly good one for the UK. However the reality is this is the only deal on the table, and is at the absolute limit of what the EU could offer to the UK, given the consistent and rigid negotiating guidelines EU leaders have given EU Chief Negotiator Michel Barnier. Whilst some modifications may be possible, it seems unlikely that there will be a substantial change to the terms, given the EU's commitments to Ireland and the way it has framed the negotiations from the start. It therefore doesn’t matter who is doing the negotiating for the UK, if the UK wants to leave the EU in an orderly fashion, it is unlikely that there is any better deal available. 

There are also many compromises in this deal, but it does achieve some key benchmarks. It ensures there is no hard border in Northern Ireland and also eases somewhat (but not completely) the potential disruption at Dover which would be caused by pretty much any alternative form of Brexit.

The rights of EU citizens living in the UK and UK citizens living in other EU countries are protected by this withdrawal agreement. However, the basic principle of free movement for EU citizens to the UK (and UK citizens in Europe) will end once the transition phase is over. The British Prime Minister can genuinely claim that this deal brings back British control of immigration policy and most regulation while vastly reducing the payments the UK makes to the EU. 

Whether or not this is enough to persuade British MPs to support it when it goes to parliament is a different matter. However a week is a long time in politics and given the only alternatives to this deal (a no deal Brexit or no Brexit at all), it may garner more support than is currently expected. And as negotiators have pointed out, changes could still be made to take into account the political dynamics in London and Belfast.

This is now crunch time for Brexit. Westminster has one of the most difficult post war decisions to make. Will it pass this deal - which could potentially bind the UK to the EU permanently but does ensure that a smooth Brexit occurs in March - or will it vote it down? 

If the latter occurs then literally anything can happen. No deal, no Brexit, a general election, an extension of Article 50, and a second referendum all become possible.