Brexit Briefing No.54: Dancing into the final straight

There were no official Brexit negotiations this week with all eyes focused on the Conservative Party Conference in Birmingham. However, there are just two weeks to go until the next meeting of EU leaders. This October meeting was expected to be the key summit when the divorce deal would finally be signed off. 

After the failure of the Salzburg summit, it now looks impossible for an agreement to be sealed this month. The EU is waiting for new proposals from the UK to try to break the impasse on the Irish border. In the meantime, work is going on behind the scenes to try to find a way through which can satisfy all the red lines from both sides and can get the divorce deal over the line. 

Room for manoeuvre is tight. The talk is that the UK will try to make the backstop agreement a political declaration rather than a legal text. A statement of intent rather than a legal obligation. 

Whether the EU will agree with this is hard to tell, as it would not provide them with legal certainty that a hard border in Ireland can be avoided. It may be the only way to break the impasse. 

Yet as time is now incredibly short, there are few other options available. The EU may also come forward with new proposals to try to break the deadlock although given the rigidity of the negotiating mandate they have it is hard to see how they can propose anything radical enough to be acceptable to the UK. 

Only if there is sufficient progress this month will the EU organise a special summit in November, with the intention of agreeing the withdrawal agreement (not the future trade deal). 

birmingham

In Birmingham all the focus was on the differing views of Brexit within the Conservative Party and if they could derail the talks altogether. Many on the continent are acutely aware that the parliamentary arithmetic in Westminster is not favourable to the government. Even after a deal is agreed with Brussels, the biggest battle of all will play out in London when it goes back to Parliament.

British party political conferences fascinate many on the continent, as they are alien to the political culture of many European countries. Conferences there are usually one-day affairs and lack the extravagant theatre of a week long event surrounded by fringe meetings and exhibitions. However, this year’s conference, being the last one before Brexit, captured everyone's attention in Brussels.

The Prime Minister's dancing might have been lost in translation, although the Swedish ambassador was a big fan, but it was clear that she was in control. From a European perspective, that is good news. The last thing the EU wants now is for the Prime Minister to either lose her authority or face a challenge. 

In the fallout from the Salzburg diplomatic catastrophe, the worry in Brussels was that the criticism had gone too far and could provoke the PM’s ousting, which would take all the negotiations back to the drawing board. 

There is still substantial domestic opposition to the Chequers agreement, and significant support to pivot to a less comprehensive free trade deal like Canada has with the EU, including from within the Conservative Party, but the Prime Minister left the conference in a stronger position than when she arrived.

There remains a disconnect between the negotiations and how they are being reported in the UK. The current impasse in negotiations relate only to what would happen if the UK and EU do not agree a trade deal to ensure there is no hard border between Ireland and Northern Ireland by the end of the proposed transition agreement. Although this is dependent on what is agreed in the future trade deal, the current talks are only loosely related to the trade relationship discussions.

In the UK, all the focus is on the future trade agreement, whether it is a Chequers-style free trade deal or a Canada-style simpler free trade deal. This is misleading because although the outline of the future trade negotiations need to be part of the withdrawal deal, we will only know what is needed to keep the Irish border from hardening once the basic trade framework has been set out. The details of this will only be hashed out once the UK leaves the EU. 

That reality partly informs the EU vision. The Chequers proposals, which are ambitious in terms of creating an entirely new framework with the UK collecting tariffs for the EU, are less likely to be approved by each member state (and in some cases regional parliaments) than a simple free trade deal.

wallonian flag

There is a real danger going forward that any future UK-EU trade relationship could be agreed and then vetoed by Wallonia´s regional parliament, as happened with the recent EU-Canada trade deal. That scenario would leave the UK having to fall into the Irish backstop agreement through no fault of its own. If that backstop includes a legal obligation to split the UK in two the UK would theoretically be powerless to oppose it.

That is why the UK cannot agree the EU backstop proposal on Ireland and why it hopes to water down the legal side of it. If there is no trade deal, the UK prefers an option that keeps the whole UK inside the single market and customs union for the areas needed to protect the Good Friday agreement. This is actually limited to a small range of goods and are more or less the areas where the UK is trying to do the same thing through the Chequers proposals. However, the EU hates the idea because it claims that this is cherry picking of the single market. 

This is moving forward slowly and the seeds of a compromise are there. Yet even now, the Irish backstop remains the key to the Brexit divorce deal. This will dictate whether a deal is possible. 

A Brexit deal is both tantalisingly close and frustratingly distant. Yet the real battle will take place when an agreement returns to Westminster for a final parliamentary vote. That vote will be one of the most important events in British political history. At the time of writing, there is no guarantee which way it will go. 

In the meantime, the UK also needs to focus on replacing the many international agreements that it will also exit when it leaves the EU. These agreements will be challenging to strike, the new NAFTA deal sealed this week between the US, Canada, and Mexico shows the direction of travel. 

This deal increased the rules of origin for parts in cars to 75 percent. That means 75 percent of the parts in those cars have to come from North America to benefit from the NAFTA tariff free status when the final car moves between those three countries. This is up from the current 62 percent. This effectively shuts British car part makers out of much of the North American market. Even if the UK can do a trade deal with any of these countries post-Brexit, these cars cannot have more than 25 percent non-North American content, so any potential access would be limited. The only way to avoid it would be for Britain to force another renegotiation of NAFTA that would accommodate the country’s new position, which is unlikely to say the least. 

So we are another week closer to Britain leaving the EU and the key outstanding issues are no closer to being resolved. However, the next few weeks are vital and therefore things are going to start moving very quickly, very soon.