Brexit Briefing No.81: An Easter Pax Before The Tempest

After a whirlwind few months, the Brexit waters were becalmed this week. The House of Commons broke up for recess while MEPs across Europe are preparing to hit the campaign trail ahead of the European elections.

Aside from talks between officials and ambassadors, there is now expected to be little progress on Brexit until June barring progress in Westminster.  

Brussels hopes that British MPs, perhaps spooked by the re-emergence of Nigel Farage, might back the deal once they return from their Easter break. Yet unless Labour is willing to shift its stance, and in essence give the Prime Minister a helping hand, then this looks highly unlikely.

Talks between the government and the Labour Party have been ongoing over the past few days, although it appears the two sides are a long way away from an agreement.

The fact that the UK will have to hold European elections if a deal isn’t approved before the 22nd May suggests that the talks will now be futile anyway. Labour has far more to gain from a European election than the government and so is likely to wait until after the elections before it makes any move.

The Irish backstop remains the main reason why parliamentarians are wary about backing the withdrawal agreement. Indeed, comments by EU Brexit negotiators that the withdrawal agreement and the backstop will be the “baseline” for any future relationship only further stoke fears that the UK would effectively be dragged into a long-term customs union through the backstop. This would mean the UK would not have the ability to decide its own tariff policy on imports nor the ability to negotiate and strike its own trade deals after Brexit.

Given the EU has this week proposed to put tariffs on American imports of fish, ketchup, sweet potatoes, cheese and fruit and veg, directly increasing food prices for consumers in Britain, this issue is likely to take on greater importance in the weeks to come.

The US is in the midst of a trade war with the EU, sparked (in the view of the Americans) by a refusal of the EU to address any controversial trade issue. The Americans complain that every time they try to talk to the EU about opening up restrictions on US goods, the response is always Non,Non,Non.

The US took the approach to try to force the EU to the negotiating table by imposing punitive tariffs on steel and aluminium, and followed that up by threats of doing the same on cars. This week they introduced more tariffs related to the ongoing Airbus-Boeing dispute.

This strategy appears to be designed to get the EU to the negotiating table and to start negotiating a tariff free trade deal. At least this is what American diplomats privately say in Brussels.

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The problem is the EU hasn’t got the memo. Jean Claude Junker allegedly laughed when American diplomats offered a deal which removed tariffs on all goods.

Instead the EU has introduced a variety of tariffs on American products in retaliation. Tariffs are effectively taxes on your own people because the cost is always paid by domestic consumers in the way of higher prices and less competition for domestic producers, which reduces their need to innovate or keep costs down themselves.

So the EU response is effectively “if you want to tax your own citizens we are going to do the same to ours, but worse, just to show you how serious we are”

This is a fairly standard and traditional response to another country introducing tariffs. However it rarely works and just moves both sides further away from being able to break down trade barriers as when they do finally sit around a table and negotiate, the first thing they need to sort out are the recently introduced tariffs, and even if they can deal with them trade relations are still only back to where they were before those tariffs were introduced.

This is probably not the approach the UK would take if it had its own independent trade policy, especially given the apparent American willingness to negotiate.

A UK-US trade deal is a main goal of the UK government and if achievable, it would be a strong signal that Brexit was proceeding along the path outlined by the Vote Leave campaign during the referendum. However, it is only possible if the UK is not in the customs union and that means giving up on frictionless trade with Europe.

This week, there was a reminder of how difficult this would be from Nancy Pelosi, the Speaker of the US Congress, which has to approve any trade deal made by the administration. She made it clear, during a visit to Ireland, that the US Congress would not agree to a trade deal with the UK if the Good Friday agreement was breached. Given the fact that currently, a customs union for Northern Ireland or the whole UK seems to be the only way to avoid customs infrastructure on the border (even the UK government appears to concede that the necessary tech needed to ensure an open border may not be ready until the mid 2030s), then this leaves the UK with the same unpalatable choice that it currently faces with the EU - namely accept losing legislative control over Northern Ireland and a border in the Irish Sea as the cost of having a trade deal for Great Britain alone, or if not stay in an EU customs union.

The US Congress position shows that Brexit misunderstandings and the challenge of Northern Ireland are not just confined to Europe. The position Nancy Pelosi outlines is at odds with the official position of the Trump Administration. Their view is that whatever deal the UK and EU do in the end, it shouldn’t stop the US doing trade deals in future with either the EU or the UK. That position would appear to rule out the UK staying in the EU customs union. However that leads us back to the same dilemma - how to keep the border open if Northern Ireland and the Republic are in different customs zones? And so far no one has an answer to that fundamental question.

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It is that question which has led to the political crisis in the UK whilst up to now the EU has remained united on the issue of the backstop and protecting the peace deal that ended the Troubles, it appears that the much-vaunted unity is appearing to fray.

In Strasbourg this week, European Council President Donald Tusk made a thinly-veiled swipe at French President Emmanuel Macron, who had called for tough restrictions on the UK during the Article 50 extension period to stop the UK undermining EU policies. Tusk called those claims “scaremongering”, saying the British government remains a “responsible and constructive member state.”

It appears that there are now two camps emerging. France leads the camp favouring a tougher stance on the UK and the camp led by Germany that wants to limit the disruption caused by Brexit.

Those splits will persist, and will probably come to a head in October. That is when, if the UK has still not passed the withdrawal agreement, and if parliament doesn’t remove its opposition to a no deal Brexit, the UK will probably have to ask for another extension.

There is no guarantee that the EU will grant a further extension. Michel Barnier, the EU’s Chief Negotiator, said in private meetings in Strasbourg this week that the EU will be fully ready for a no deal by the end of June. Given France and Germany’s differing positions, such a request could provoke the shattering of the EU’s united position on Brexit.

However, for now this is all for the future, as on both sides of the Channel politicians retreat for some Easter rest and recuperation. The next few weeks are likely to be quieter on the Brexit front as the focus for the EU becomes the European elections.

Unless the deadlock in Westminster comes to an end, Brexit most likely will only come alive again after the European elections. And, as has been the case for some time, everything is still up for grabs. All outcomes are still possible.

 

**the Brexit Briefing will take a break for Easter and will be back the following week.