Michel Barnier gained attention over his public summary of Brexit negotiations. Whilst progress has been made in some areas, the blame for stumbling blocks was firmly laid at the door of the British government. Where do we go from here?
On the other hand, the UK negotiator, David Frost took a lower profile approach, issuing a written statement, confirming the same stumbling blocks of the “level playing field” and fisheries. However, he welcomed the common ground, understanding of not being subject to the ECJ and was altogether more optimistic about striking a deal.
It is not entirely clear who Barnier’s comments were aimed at but his statement can be seen from different perspectives. He is an employee of the European Commission, working to a mandate provided by his political masters. That mandate can be seen as a shopping list provided by the leaders of 27 nations.
The EU tends to advertise itself as perhaps the largest free trade area in the world, by value at any rate. Outsiders might regard that as Fortress Europe, free to trade internally but with barriers against the outside world in the form of tariffs, quotas and regulations whilst striving to maintain a captive internal market. Both views have some validity.
The EU also has several vested interests. The Commission, or civil service, are well paid to protect industries from outside competition. There is plenty of incentive to create a perception of strength. It might be a mistake to cast the UK as a smaller, less powerful entity, although in terms of population, the EU is significantly larger.
In reality, the EU maintains a significant trade surplus with the UK who are among the largest export markets for each of the 27 remaining members of the EU. The links over the last 47 years have been increasingly deeper. Of all new cars on British roads, more than 4 out of every 5 are built within the EU27. Tariffs have made the UK dependent on EU agriculture in the short term.
The protectionist measures to reduce competition from elsewhere in the world can be argued to have stifled productivity growth in some industries such as agriculture. At the same time, the existence of the Euro currency has helped the richer parts of the EU to maintain an artificial price advantage, weakness deriving from the poorer southern EU.
In short, Barnier’s negotiating mandate may be geared towards seeking to maintain advantage, keeping the benefits to the EU of British membership, making claims to protect their export markets but without recognising why Britain voted to leave.
In summary, there are several reasons why the referendum vote went as it did. Rather than maintaining a focus on a slow growth, introspective community, Britain has traditionally had a more global trading view, reflected by a multi-cultural society. The ethnic mix in the EU parliament has been significantly diluted by the absence of the UK who had the highest number of minority ethnic MEPs.
The Commonwealth provides an attractive market with development opportunities for the UK whilst assisting development of poorer nations, through trade rather than protectionism, exploitation and according to some charities, agricultural dumping.
The reality that the EU’s internal bodies do not seem to accept is in their starting point. They seek to maintain what they have, without recognising the liberties that Britain espouses, rather than seeking an improvement on the default position of WTO rules.
As for Britain, we seek to support developing countries, with orange juice at world prices rather than protected Spanish prices, rice too, not at Italian prices but world prices, providing a market that rewards their output.
The proposed British tariff schedule has already been published. On the whole, tariffs will not be charged on goods that we do not produce ourselves. What tariffs remain can be used as leverage in promoting free trade deals elsewhere in the world.
Indeed, as Britain seeks those free trade deals, EU businesses are welcome to relocate to the UK in order to provide lower priced goods to those who agree free trade deals with us. Should we reach an agreement, for example, with the USA, then motor manufacturers may choose to avoid the 10% or so reciprocal tariffs in the world’s largest single national market.
Barnier described the UK position on fisheries as “unacceptable”. The legal reality is that by leaving the EU, we become an independent coastal nation with the UN laws that apply. British fishermen might argue that the Common fisheries Policy was unacceptable in giving EU nations rights over our waters. Apparently, international law is unacceptable to Barnier.
Should the EU continue to insist on maintaining the same rights to British waters as allowed under the Common Fisheries Policy, then there is the very real prospect of what is referred to as “no deal”.
One of the pawns used in Brexit negotiations is the Republic of Ireland. Northern Ireland was a part of the “shopping list” provided by EU27 members.
In the event of “no deal”, there would be a very real threat to a large part of Irish agricultural exports, notably cheese, other dairy and beef products, the UK being their largest export markets. Irish Cheddar with tariffs of over 30% would make them uncompetitive in the UK.
As for the automotive industry, a 10% higher price for BMWs, Mercedes and VWs for example might well make them cheaper to source from South Africa, Brazil and India respectively. The domestic market for British produced Jaguars, Nissans, Toyotas and any new investors provides an opportunity for investment within the UK.
Of course, businesses seeking to sell from the UK into the EU will have to meet the standards decreed by the EU. However, we can seek different standards, not worse, not necessarily better, but different. If the EU does not agree to recognise those, we do not have to provide them with a continued export surplus.
As an example, Britain has a minimum wage higher than many EU member states. If the EU is not prepared to recognise our standards, then we do not have to accept goods from those parts of the EU with a minimum wage of less than 25% of the levels in the UK.
So how can we expect negotiations to continue?
Of course, on behalf of the EU, Barnier can not be seen to give in to the reality of an independent nation gaining by extracting themselves from the EU. In the short term, they can not be expected to yield to unrealistic demands under international law. The price of losing the trade surplus would decimate EU economies, particularly among those countries that sell motor cars or agricultural goods into the UK market.
For the current British government, not regaining the status of independent coastal state would be political suicide. There can be no movement on this issue. A diversion of trade away from the EU27 and towards other existing partners, let alone new partners, has plenty of attraction, not least in global fair trade with emerging partners.
One simple solution is to agree a series of treaties on areas of common interest, such as security and exchange of intelligence. As for trade, pragmatism must surely take over at some point.
Both sides present an almost Doomsday scenario, that if a deal is not agreed within a few months, then “no deal” would become a reality. It would appear that the UK can be more relaxed about this than the EU27, already taking steps towards trade agreements with other parties. Britain has a more recent history of supply side measures compared to the protectionist role of the EU.
However, as these pages have already highlighted, should both parties be prepared to emphasise that there are areas of agreement, there is another way.
Article XXIV of the WTO allows for the status quo to be maintained on trade whilst negotiations continue for a reasonable period, up to around 10 years. The status quo could be a simple agreement not to impose tariffs and quotas, accompanied by a schedule of talks to reach agreement within the 10 year period. All it takes to avoid a dramatic restructure of trade is a finger of fudge.
Incidentally, Cadbury’s fudge production was relocated to Poland in 2010, now made “under license from Cadbury UK”. An offer to use political license in Brexit talks would surely be seen as conferring an element of loss minimisation to the EU. Failure to agree would almost inevitably lead to significant job losses, particularly among the nations with the more fanciful shopping lists of claims on the UK.
Perhaps it should be remembered that the EU had 23 sets of negotiations “on hold”, most of them for a number of years. Any agreement reached between negotiators does not necessarily ensure ratification by all the parties within the EU, notably the European Parliament. Article XXIV might be seen as providing some sort of certainty for the medium term.
Reports suggest that neither side is totally logistically ready to press ahead with “no deal”. Perhaps we can expect the pragmatic alternative to be newsworthy in the autumn.