Looking past the politics: Britain’s future under the EU withdrawal deal
UK politicians are hopelessly divided over the Withdrawal Agreement. But their furious debate overlooks the most essential question: if it is approved, what happens next? Matt Ross asks former Cabinet secretary Gus O’Donnell – and concludes that the deal would send Britain naked into trade negotiations
Four months after the Brexit referendum, former Cabinet secretary Gus O’Donnell told Global Government Forum that there was a “crying need for the government to lay down its big strategic vision,” adding that it was “essential that we get to a single voice for the government.”
More than two years down the line, prime minister Theresa May has just postponed the House of Commons vote on her deal, then survived a ‘no confidence’ vote backed by a majority of her own backbenchers: nobody is pretending that she has managed to unify her party around a defined position. And that lack of common purpose has for over two years prevented the minority government from setting out a “big strategic vision”: we know that May wants to reclaim control over “our borders, our money and our laws”, but what does she want to do with them? When the PM claimed that “Brexit means Brexit”, the slogan’s utter vacuity laid bare her inability to provide a sensible definition.
“To this day, we haven’t resolved the question of what kind of Brexit we want,” says Lord O’Donnell now. “Lots of people voted Leave with very different views of what they wanted, from free trade to protecting our industries – two diametrically opposed views, lumped together.”
Speaking to Global Government Forum last week, the former Cabinet secretary – the UK’s civil service chief from 2005 to 2011 – argued that the argument over Britain’s Brexit goals “should have been had before we triggered Article 50; and, even more so, before we voted in the referendum.”
That didn’t happen. And over the last 30 months, May’s inability to secure her party’s unified support for a single path through Brexit – along with its acceptance of the inevitable compromises and trade-offs that would entail – has led inevitably to the current deadlock between May and the Commons. “This is an impasse which was entirely predictable,” O’Donnell comments.
Today’s Brexit debate misses the point
Yet there is something odd about today’s impasse. The Withdrawal Agreement’s Brexiteer opponents protest that its ‘backstop’ provisions threaten the UK’s integrity and sovereignty. Its Remainer challengers hate the fact that British citizens would lose the benefits of EU membership. Its defenders seek to sell it as a sensible compromise and, above all, a way for each side to prevent the other from getting its way. But very few are talking about how things would pan out if the WA does eventually squeak through Parliament.
This is, in part, because the Withdrawal Agreement (WA) does not define the shape of the UK’s future relationship with the EU; indeed, its very ambiguity represents its key selling point in our fragmented Commons. But the WA is not an end point: it is, above all, a way to avoid no deal and enable talks to move onto the next stage. And we can already explore, through the EU’s trade talks arrangements and the goals set out in the WA’s accompanying Political Declaration, how those talks would pan out.
To assess the government’s proposed deal, we must step away from today’s fevered, inward-looking debates on Parliamentary arithmetic, internal party divisions and procedural tactics, and assess how talks on the future relationship would proceed over the years to come.
Painting the backdrop
In recent weeks, Global Government Forum has detailed the string of miscalculations and political battles that gave birth to the WA. And we’ve explained the WA’s ‘backstop provisions’, which provide the EU with an insurance policy guaranteeing that – even if the UK and EU fail to complete a trade deal within the agreed ‘implementation period’ – there is no danger of a physical border appearing between Northern Ireland and the Republic to its South.
These articles argued that Parliamentary opposition to May’s deal is probably softer than it appears; and since they first appeared a month ago, Parliament’s Brexiteers have indeed begun to reconcile themselves to the WA – as former special adviser Henry Newman has pointed out. So assuming the WA does pass the Commons, what happens next?
The WA provides for a ludicrously-named ‘transition period’ – known by May, with still less regard for dictionary definitions, as an ‘implementation period’ – during which the EU and UK will attempt to broker a trade deal; and until its expiry, the UK’s economic relationship with the EU will remain unchanged. This negotiation phase lasts until December 2020, with an option to extend it till December 2022. And at its conclusion, the UK and EU will either move smoothly into their new relationship; or, if negotiations have failed, the UK ends up in the ‘backstop’.
This would keep the UK aligned to the Customs Union and guard against the reintroduction of a hard Irish border, but it is a painful option – particularly for the UK. The country’s services industries – which comprise 80% of its economy – would find themselves trading on highly disadvantageous WTO terms; new regulatory boundaries and collapsed transport arrangements would hamper goods trade across the Irish Sea and English Channel; and the UK would find itself effectively unable to sign new trade deals with third parties. And the only way out of the backstop would be to conclude a trade deal with the EU.
So as well as an insurance policy for the Irish border, the backstop provides a powerful incentive for the UK to get on and agree a deal; and the country would have 21-45 months to do so, pursuing trade talks that have been foreshadowed in the Political Declaration (PD) attached to the WA.
Parsing the Political Declaration
It’s important to note, says O’Donnell, that the Political Declaration has no legal force. “It’s just a statement of intent,” he points out: a non-binding vision for how trade talks could develop. It does, however, provide a clear starting point – illustrating some of each side’s priorities and constraints, and thus sketching out a potential landing ground.
The PD envisages “comprehensive arrangements” on goods trade, including “a free trade areas with deep regulatory and customs cooperation.” Amar Breckenridge, a trade specialist with consultancy Frontier Economics – of which O’Donnell is chair – has explained that, when the PD is considered alongside the backstop’s customs arrangements, it’s clear that “the approach is to start with the current arrangements and work from there.”
On services, however, the intention is to start with WTO terms and build on them. This is a consequence of May’s ‘red line’ on ending the free movement of people: as Breckenridge says, “the movement of people is identified as a mode of services supply. And politically, the WTO plus approach for services is explained by the UK’s withdrawal from free movement provisions.”
To protect that red line, May envisages excluding UK businesses from the EU Single Market for services. This would be painful for Britain’s services-based economy: in Breckenridge’s assessment, “the economic difference between commitments on services that are close to Single Market ones and those that are more along the lines of, say, a Canada type free trade agreement, could be worth up to 30% of the UK’s annual exports to the EU.”
A poor starting point for UK plc
Speaking at the University of Liverpool last week, Sir Ivan Rogers – the UK’s former representative to the EU, and an acerbic and extremely well-informed commentator – noted that the PD’s content is a result of May “putting the ending of free movement of people well above all other objectives, and privileging as near frictionless trade in goods as she can get over the interests of UK services sectors.”
Given that the UK currently runs a substantial services trade surplus and a large goods trade deficit with the EU, Rogers added, May’s European negotiating partners were “unsurprised by the former but surprised – sometimes gleefully – by the latter, as it seems to point precisely to a deal skewed in their favour.”
So the PD envisages negotiations that start by giving the EU most of its goals on its strong point – goods exports – but offers very little to the UK’s crucial service industries. And this leaves the UK with little to offer the EU in order to squeeze out further concessions. “In terms of leverage, it’s tough for us,” says O’Donnell. “Services are particularly important to us, so we have quite a lot to lose.”
The obvious strategy for the EU, then, is to bank its advantage on goods, whilst balking on services aspects of the deal until time pressures force the UK government’s hand. “They don’t give us services and hold out, and it goes on longer and longer – and we’re in an area where it matters more to us than them, so they’ll quite happily kick the can down the road,” warns O’Donnell.
It’s European parliaments’ turn to get awkward
The other crucial dynamic shaping the trade talks will be the approval process; for whilst the WA only needs ratifying by the European Parliament, the trade deal will require the approval of every Member State’s legislature – plus, in some cases, their regional parliaments too. “This is the really complicated, difficult stuff; the bit that takes a long time,” comments O’Donnell, recalling how in 2016 regional leaders in Belgium’s Wallonia nearly derailed the EU-Canada trade deal.
It’s not just that every Member State will have a veto on the deal; where national leaders lack a strong legislative majority, recalcitrant parliamentarians could block deals agreed by their own governments – a risk illustrated by May’s own recent travails. “The Wallonians held up the deal to get something they wanted,” says O’Donnell. “That’s the way it will work. If people think this [WA approval] bit is hard, then the trade deal is much bigger, much harder.”
Ivan Rogers made similar points in Liverpool. “The solidarity of the club members will always be with each other,” he said, pointing to the EU’s solid support for Ireland over the border issue. “Just wait till the trade negotiations. The solidarity of the remaining Member States will be with the major fishing Member States, not with the UK. The solidarity will be with Spain, not the UK, when Madrid makes Gibralter-related demands in the trade negotiation endgame. The free trade talks will be tougher than anything we have seen to date.”
The same applies to the plans to negotiate “equivalence” arrangements governing financial services, Breckenridge noted: “Because of the importance to the UK of financial services, there is a possibility of wrangling over equivalence as a way of extracting bargaining leverage on other matters.”
Let’s get real on timescales
So the starting point in negotiations will be one that favours the EU’s economic interests over the UK’s. The ratification process permits any EU state to veto the deal unless comfortable stables are provided for its favourite hobby horses, from Gibralter to fishing. And the threat of tumbling into the backstop means the UK will be under far greater time pressure. It would be hard to design a process more likely to favour the EU’s interests over the UK’s.
This is not by chance: the talks framework – like the Article 50 negotiation process – was built to give the EU an in-built advantage. “You have to remember that we’re in this process that was designed by the EU, and Article 50 was set up to discourage people from leaving,” comments O’Donnell. “When we voted to leave and triggered Article 50, that’s what we were signing up for.”
Yet at every step on the path, the UK’s Brexiteers have been appalled when the EU uses the leverage provided it by the Article 50 process – with successive Brexit secretaries talking tough, before folding as the reality of their position dawns. As the UK embarks on the next, equally uneven set of talks, there is no reason to think that Brexiteers will be any happier to swallow their unappetising diet of forced compromises and sacrificed ambitions; these negotiations will not move quickly.
However, if the UK uses the same kind of brinksmanship in the trade talks as it has during the WA process, it will simply end up spending longer in the backstop sin bin. May can push Parliament’s WA vote into January, just weeks before the March 29 deadline, because the European Parliament’s support for the agreed deal is already assured. But the process of getting dozens of national parliaments to sign off a trade deal will take much, much longer.
As O’Donnell says, “the idea that we’re going to get through all of that in the ‘transition period’ is for the birds; it’s not going to happen.” So the UK will ask to extend the negotiation phase to 2022; indeed, O’Donnell sounds pretty confident that even 45 months won’t be long enough to negotiate and ratify the deal. “Canada took years and years, and that’s quite a small deal,” he points out. Come 2022, he hopes, both sides will agree to further “extend the transition period. When you look at things like the Greek crisis, the EU survives by kicking the can down the road.”
European Union / Fred Guerdin).
Escaping the sin bin
Other observers are less optimistic. For the EU’s leverage derives mainly from the backstop. If it chooses to play hardball, it will simply let the UK enter the backstop in December 2022, then wait until Britain’s services industries pressure the government into accepting a deal – any deal – that removes the EU’s foot from their windpipe, restoring some measure of privileged market access. The heft given to the EU’s bargaining position by the UK’s dependence on service industries will, Rogers warned last week, “be deployed in the years ahead and it will be used to enforce deals on issues like fisheries, on which again referendum campaign commitments will be abandoned in the face of reality.”
It’s pretty clear how the next four years will pan out, Rogers believes. In the Article 50 talks, the EU used the threat of no deal to force the UK into accepting the backstop arrangement. Over the coming period, it will use the backstop arrangement to force the UK into accepting concessions on the trade deal. “We already see in the Withdrawal Agreement the clear signs that, having succeeded with its negotiating plans in this phase, the EU will repeat the clock and cliff edge pressures in the run up to the next UK election,” says Rogers; that election is currently scheduled for May 2022, seven months before the end of the ‘implementation phase’.
As the trade talks proceed, the UK will finally have to decide what Brexit means. Should the government pursue close regulatory alignment with the EU, protecting exports to the UK’s biggest market, or retain the freedom to drop standards in pursuit of a US trade deal? Should it compromise on freedom of movement to seal a good deal on services? Some of these compromises will make no logical sense, making them harder still to swallow – but if Spain demands a say in Gibraltar’s governance before approving financial services equivalence arrangements, the City will find itself caught between the Rock and a hard place.
What chance a ‘single voice for government’?
It is almost impossible to imagine a minority Conservative administration dragging its backbenchers through these trade talks; May’s already lost two Brexit secretaries, and we haven’t even got there yet. Before making significant progress, Britain would need a government with a solid majority.
But however stable the government, under the WA it will enter a fixed – and highly disadvantageous – process as it gets stuck into trade talks with its Continental neighbours. Pushed forwards by the backstop, leant on by veto-armed Member States and eager to protect services exports, the government will soon have to give ground – sacrificing some of the Brexiteers’ many contradictory promises.
We will then – as we have throughout the Article 50 talks – hear calls from frustrated Brexiteers for the UK to just walk away. But it’s easy to make that case when you’re not the person responsible: former Brexit secretary David Davis and foreign secretary Boris Johnson talk a good game now – yet in office, they folded every step of the way. Everybody with an interest in understanding what ‘no deal’ involves has by now learned that it’s worse than almost any available deal; this week’s bout of ministerial no deal rhetoric will be as rapidly dismissed in Brussels as its previous threats to walk.
Back to today
There is a temptation among both Leave and Remain voters, as Brexit continues to dominate the news agenda – sucking resources and attention away from the UK’s other pressing problems – to wish the government would simply get on with it: to accept an ugly, sub-optimal deal so that Brexit will go away and we can get on with our lives. But that’s not what would happen.
Approval of the Article 50 deal would, instead, open the door on many years of painful, all-consuming trade talks, accompanied by waves of fury from Brexit campaigners and voters at each new UK concession. And the structure of those talks make it inevitable that there would be an awful lot of UK concessions – resulting in a trade deal heavily skewed in the EU’s favour.
Only when our MPs have examined and understood what Britain’s future looks like under the WA should they consider what to do over the coming weeks. And there are, says O’Donnell a couple of ways past today’s Commons impasse. “If it appears that Parliament can’t agree on any deal, then we’re stuck and we need to find ways out of it,” he comments. “We’ve given control back to our Parliament. If it fails to come up with anything, then either we leave with no deal – a disastrous option – or pursue the alternatives: a general election or referendum.”
So these are the options: the WA; no deal; general election; or referendum. Our Parliamentarians must now choose between them. And before choosing the deal, they had better make damn sure that they – and the British public – understand exactly what they’re letting themselves in for. Because once we get past March 29, there’s no way back. And at that point, today’s political fireworks and parliamentary calculations will start to look inexcusably myopic as the UK embarks on a still longer, more painful and more divisive set of negotiations with a strengthened EU – one that is no longer Britain’s ally, but its competitor.
About Matt Ross
Matt is Global Government Forum's Contributing Editor, providing direction and support on topics, products and audience interests across GGF’s editorial, events and research operations. He has been a journalist and editor since 1995, beginning in motoring and travel journalism – and combining the two in a 30-month, 30-country 4x4 expedition funded by magazine photo-journalism. Between 2002 and 2008 he was Features Editor of Haymarket news magazine Regeneration & Renewal, covering urban regeneration, economic growth and community development; and from 2008 to 2014 he was the Editor of UK magazine and website Civil Service World, then Editorial Director for Public Sector – both at political publishing house Dods. He has also worked as Director of Communications at think tank the Institute for Government.
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Given the mortifyingly inept nay ignorant handling of Brexit by the UK’s present Tory would-be government, one might think Gus O’Donnell _should_ be as acerbic as Ivan Rogers.
Your excellent and timely article will get a lot of airtime today via a tweet from the always excellent Chris Grey, so one tiny spelling difficulty might be disappeared – ascribe yes; ascerbic no.
“May can push Parliament’s WA vote into January, just six weeks before the March 29 deadline”
That would be eight to twelve weeks, not six. Brexit does not abolish February 🙂
May’s ‘red lines’, none of which were in the so-called EU Referendum, meant that the UK entered negotiations on Day 1 at a disadvantage. Her rigid and unwavering adherence to these have hampered the negotiations for the past three years. As an EU dual national, her ruthless refusal to acknowledge all that we bring to this country (including our taxes) coupled with her Party’s refusal to curb the anti-foreigner diatribes of the rightwing press have been truly disgraceful. I have been making the analogy with 1930s Germany (where my family comes from since the referendum. I have been shot down in flames and called a Nazi (ironic as I am Jewish and lost family in the Holocaust). I now feel that my observations have been 100% accurate. Alas.