finance

Ditching the Withdrawal Agreement will not solve Brexit


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The Brexit front lines have now fallen silent for a couple of weeks as negotiators in London and Brussels take some holiday before the final “big push”. To quote one official involved in the talks: “It’s going to be a hell of an autumn.”

The dates for the new campaign have already been set, with the first round coming on August 17, followed by talks in the weeks commencing September 17 and September 28 so that both sides can (in theory) wrap up an agreement ahead of the European Council meeting on 15-16 October — but don’t bet against an additional emergency summit.

But while the big guns fall temporarily silent, behind the lines Brexit partisans like Iain Duncan Smith continue to skirmish with Brussels and lobby Boris Johnson to ditch the Withdrawal Agreement altogether in order to fully reclaim sovereignty.

The latest claim — faithfully reported by pro-Brexit tabloids like the Sun the Express — is that the UK faces “£160bn EU loans bill” as a result of the EU-UK financial settlement that was finally ratified last autumn.

Even by the standards of the “we send £350m a week to Brussels” claim, this is outlandish. It would require the entire loan book of the European Investment Bank to go bad, and then the EIB to do nothing about it, but I suppose it all serves to keep Brexit revolutionary fervour high.

A full list of infringements on British sovereignty, real and imagined, can be found in the Centre for Brexit Policy report which was published last month and argues at length why the Withdrawal Agreement (which Mr Duncan Smith and colleagues so enthusiastically supported last year) should now be ditched. 

But the idea that repudiation of the Withdrawal Agreement and the Irish Protocol would address these problems is deeply flawed. Only pragmatism on both sides will do that.

There is no doubt that elements of the Irish Protocol are problematic — potentially impinging on Westminster’s control over state aid, but also disrupting the UK’s internal market as a costly one-way customs border between Great Britain and Northern Ireland is imposed. 

Repudiation would mean that the UK, just as it seeks to establish its credentials as a new solo actor on the global stage, would be reneging on the last international treaty of significance it had signed, and a treaty with its largest single trading partner at that. 

And while the UK would be accused of “going rogue” and souring its relations with Brussels, Nicola Sturgeon would no doubt have a field day making the case that Scotland would be so much better off voting for independence and rejoining the EU.

All of which is why it’s very hard to see — even in the event of a “no deal” exit — why it would be wise for the UK to ditch the Withdrawal Agreement. 

But that doesn’t mean Mr Duncan Smith and other Brexit purists can be completely ignored; it serves as a reminder to Number 10 not to do a deal that leaves the UK with any unnecessary and unforeseen encumbrances with Brussels — as they now argue was the case with the Withdrawal Agreement, and particularly the Irish Protocol.

Number 10 may even find this helpful, allowing British negotiators to play that bellicose domestic drumbeat back in the negotiations in Brussels, arguing for a minimalist state aid regime (see last week’s briefing) as the only politically sustainable solution in London.

At the same time, the UK is now openly spooling up its contingency planning for January 1. This week the government announced a new consultation on reviving Operation Brock to stack trucks on the M20 in Kent in the event that the new customs border causes delays. Drug stockpiling is also back on the agenda.

The fact that this kind of contingency planning (originally devised for a “no deal” Brexit in 2019) will now be needed whether or not the UK gets a deal, points to just how thin the UK-EU FTA will be, if and when it comes. 

And here again is where the sovereignty-at-any-cost Brexiters’ campaigning can play back into the final period of negotiations.

The argument will run that since the UK is already fully prepared for friction whatever the outcome — accepting all the costs and disruption that comes with implementing full customs control and setting up dual regulatory regimes for chemicals, medical devices and industrial products — then why compromise at all on fundamental areas like state aid?

This, I suspect, will be the UK’s hardline position as the argument on state aid reaches its crunch point this September.

Since Brussels is offering so few upfront reasons (cherries, as Mr Barnier would call them) to do a deal, then the downside costs of Mr Johnson refusing to eat a cake with so few cherries are relatively small. Or so the argument could yet run.

For now, that feels like a strong negotiating position in London, but how strong exactly will only be tested when one side calls the other’s bluff. Will Mr Johnson really risk the domestic consequences of a “no deal”, which are larger than the UK admits? And will the EU really allow one to happen? 

We’ll see soon enough. But first I’m off on leave. Thanks for all your interactions in these early editions of the Brexit Briefing. Next week my colleague in Brussels, Mehreen Khan, will bring you a perspective from her side of the Channel.

Brexit in numbers

Can you put a price on “freedom” from interference with Brussels, or what Mr Duncan Smith calls “true national independence”? 

Well the chemical industry has tried, estimating that it will cost £1bn for the UK to create its own UK regime for registering chemicals after Brexit, essentially duplicating the Reach database held by the European Chemicals Agency (ECHA) in Helsinki.

A UK-EU FTA deal might lead to a data-sharing agreement between the UK and the EU which would cut costs by 80 per cent, but no one is betting on that. Obtaining the testing data, or the rights to that data, is expensive — up to £300,000 for a single substance.

Industry warns that these are the kinds of costs that will see chemical manufacturers, importers and distributors adjusting their UK supply lines, since registering some chemicals will not be financially viable given the UK’s market share.

The impact this has on UK industry as it creates micro-fractures in supply chains for smaller downstream users is much harder to accurately predict — but it is undoubtedly worrying industry bosses.

Readers respond

Each week we’ll single out elements of two or three of your emails to give a flavour of the discussions. If you don’t want to be mentioned by name, then please make that clear in your email.

On the Brexit afterlife: It has been difficult to envisage from the outset how it would be possible for the UK to secure a mutually beneficial trading agreement from an aggrieved EU prior to leaving. However damaging the ludicrous Brexit decision proves to be, the UK would be extremely foolish, at this point, to accept intemperate EU demands in a panic attempt to secure a deal. Best to wait until EU pragmatism/self-interest returns post-exit, albeit both parties will be forced to suck up the damage their blind intransigence causes. Mark Teale

Peter says: Indeed. There are those who from the very outset predicted that it would be very difficult to reach a mutually beneficial outcome, given the politics at stake on both sides of the Channel (Mr Macron has elections, too!). Whatever the outcome this autumn, the rupture between the UK and the EU is a deep one and only once the dust settles will we see if the EU regrets not offering the UK more “cherries” to stay close.

And on Britain after Brexit: The “UK single market” is a new concept to me, and I suspect to most Brits. I understand that after Brexit the devolved administrations will — or should — have more autonomy on some matters that could affect trade and competition within the UK, now that certain powers have been repatriated. But are these potential differences between the rules of the four countries in the UK being hyped up? After all, the devolution of powers from the UK to its constituent parts is quite limited, for example on taxation. They are not comparable to the extensive powers member states used to have and that were barriers to trade in the EU single market. Francis Rawlinson, Ottignies, Belgium.

Peter says: I agree. The idea of a UK internal market will come as a new concept to most Brits after nearly 40 years following a common rule book based in Brussels. The difficulty with codifying the ground rules of a UK single market is that one part of this Union, Scotland, is governed by a Scottish Nationalist party determined to quit it. The natural asymmetries in the Union mean that England naturally dominates, which fuels many of the resentments that can be seized on by the SNP. As we are already starting to see, the reality of Brexit risks increasing these natural frictions.



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