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Brexit: Decisions

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Brexit: Decisions

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It would be easy to miss that the Brexit trade deal negotiations have entered what was supposed to be a do-or-die week, with Boris Johnson to speak directly with EU Commission chief von den Leyden. And as we’ll explain, the process has gone full circle. As we forecast back in 2018, “die,” as in no-deal, remains higher odds than conventional wisdom would have you believe.

But to the state of play first. Consistent with an account from RTE’s Tony Connelly last week, the EU is prepared to let the negotiations go down to the very wire. From Politico’s European report yesterday:

HAPPY BREXMAS: The European Parliament is preparing for an extra plenary session between Christmas and New Year’s Eve to give its consent to a possible post-Brexit trade deal with the U.K., according to several EU officials and diplomats. It is likely to be held on December 28, to give EU governments the opportunity to have the very last say, as foreseen by the bloc’s procedures, before the end of the U.K.’s Brexit transition period on December 31.

Unavoidable session: MEPs will be ready to vote on a potential agreement with the U.K. “at any time,” an official told Playbook. The extra session is “unavoidable” in case there is a deal to vote on, said another. We’re beyond the point when Council could provide a text for MEPs to vote on during their ordinary plenaries, Council Secretary-General Jeppe Tranholm-Mikkelsen told EU ambassadors on Friday, according to three diplomats present in the room.

The burden of the office: Some relevant MEPs have said they want to thoroughly study any deal and won’t be pressured into rubber-stamping it. But there’s a broadly shared view among Parliament’s political leadership, according to officials from several groups, that it won’t be a parliamentary recess that pushes the U.K. and EU into the abyss of no deal.

Barnier’s latest comment signals a lack of progress:

And in case you wondered, an extension isn’t an option:

Needless to say, the EU stance also confirms the views of David and PlutoniumKun (and forgive me for not tracking down who offered this observation first), that the EU would not be the one to put an end to negotiations (even though the UK press would manage to find a way to do in the event of a no-deal regardless). The day before this plan was leaked, Richard North spilled some pixels on what the ratification process would/should be, assuming a deal. The implication is the EU is willing to go very fudgy on process, and risk having a roadblock thrown by a holdout, as the Wallonia did with the Canadian trade pact in 2016. The assumption clearly is any problems could be sorted out, presumably via a combination of pressure and bribes.

But let’s go back to the main event, which is deal or no deal. The propensity of most commentators is to project Anglo business-world assumptions onto this process: “Of course there will be an agreement. The stakes are too high not to.” But they said the same thing about Greece in its 2015 bailout negotiations and there was no deal by the deadline of the end of June. As established readers will recall, the ECB yanked its emergency support for Greek banks, which led to the Greek banks going on what amounted to a bank holiday, with funds withdrawals limited to small amounts at ATMs. Food shortages were starting at the wholesale level when the Greek government capitulated weeks later and accepted worse terms than were previously on offer.

Let us not forget that the UK’s choices are now between a very skimpy deal, which would presumably include no tariffs and no quotas, but not much else. Even in that scenario, there would still be a great deal of economic disruption because the UK would still be subject to “non-tariff trade barriers,” as in other border frictions, like documentation requirements, VAT reporting/deposits, and for food products, physiosanitary checks.

There’s plenty of tearing of hair and rending of garments on Twitter:

More cheery news, first from Trans.Info early last week:

Richard Ballantyne, chief executive of the British Ports Association, has said that it „could be completely impossible” for the UK to complete customs checks if it has 3rd-country status with the EU.

Ballantyne made the comments during an appearance at a House of Lords EU goods sub-committee yesterday.

The BPA chief warned that the third-country checks entailed by a departure from the customs union could make it „completely impossible” for some ports to deal with in a practical and sensible manner:

„The Animal and Plant Health Agency effectively set specifications about the amounts of checks goods coming in from outside the EU should be subject to. Their regimes that mirror those third-country checks in a no-deal situation, as we may find ourselves in, effectively could be completely impossible for certain ports to accommodate with any practical, sensible approach.

….The intervention from the BPA comes roughly a week after the Road Haulage Association, National Audit Office, UK Warehousing Association and British Meat Processors Association all issued warnings about problems associated with the UK’s departure from the EU Single Market.

And from Chris Grey’s latest post:

So the situation we now find ourselves in did not arise by accident and it isn’t just something to do with the current phase of Brexit. It is the latest stage and the latest consequence of years of incompetence, if not worse. For, of course, the incompetence is inextricably linked to the dishonesty of the claims and promises made. To give just one example – but a major one – the years of lying about how the UK could leave the single market and customs union but still have ‘frictionless trade’ or something very close to it explains both why no realistic plan for the future was developed and why preparations for border controls were not begun until far too late….

A small round up of recent examples includes: shortage of warehouse space, lack of information for road hauliers(final guidelines are apparently due on 7 December!) alongside lack of awareness amongst truck drivers (£),  no regulatory equivalence for financial servicesin place (this is a separate issue to the negotiations), several trade agreements not yet rolled over, Felixstowe container port in chaos(partly because of pre-Brexit stockpiling), projected labour shortages across numerous sectors(including social care and – yes – fishing), and the dire lack of preparations for the border between Great Britain and Northern Irelandwith attendant risks of a “bonanza for organized crime”.

And remember, there’s no services deal for the City. The EU has already said it’s not giving UK firms “Covid ate our schedule” waivers. Other professionals are finding that efforts to operate in the EU without having operations there are hitting a wall. From Law Gazette earlier this month:

Thousands of England and Wales-qualified solicitors who invested in Irish qualifications in order to protect their EU practising rights after the end of the Brexit transition period appear to have wasted their money.

A review by the Law Society of Ireland concluded today that such solicitors will not be entitled to practising certificates unless they have a presence in the republic The news will come as a blow to the firms based in England and Wales who had rushed to register their lawyers in the wake of the UK voting to leave the EU…

A statement published by the society in Ireland said: ‘Irish qualified solicitors who are based in England and Wales and are seeking a practising certificate from the Society will not be entitled to a practising certificate. This will be the case whether they attempt to maintain certain practice rights in the EU post-Brexit or otherwise. Such solicitors will not be issued with a practising certificate by the Society unless they can demonstrate in the course of their applications that they practise (or intend to practise) in Ireland from a physical establishment in Ireland. Moreover, they must comply with all other relevant legal requirements, including having appropriate PII in place.’

Needless to say, with all sorts of pain about to start, you’d think the Government would feel pressured to alleviate it, since tariffs would unquestionably make this bad situation worse. It’s also often neglected (and we are guilty of this too) that the “deal” would include security provisions (over my pay grade, but I assume to include things like mutual access to databases about suspects). But the Tory press over the weekend had plenty of pieces pumping “No deal is better than a bad deal.”

Recall that on substance, there’s been only marginal progress on the big sticking points: level playing field, fisheries, and “governance,” which means dispute resolution. The fact that the Government tried to repudiate part of the Withdrawal Agreement via the Internal Markets Bill, which would have negated certain sections of the Northern Ireland Protocol, was a stunning demonstration of the UK’s bad faith. The fact that the House of Lords forcefully repudiated the bill does not negate the proof that the Government isn’t “agreement capable,” and the Government has plenty of room for to make mischief independent of Parliament.

Boris Johnson has lost his Svengali, Dominic Cummings, who was also all on board with a crash-out. However, the tabloids are reporting that Cummings was sacked not over Brexit but for insulting Johnson’s fiancée by calling her “Princess Nuts Nuts.” As a result, his ouster may not mean much for the conduct of Brexit. The Financial Times over the weekend argued that Johnson didn’t know his own mind, a grim prospect:

Are Mr Johnson and Lord Frost now ready to make compromises in the next few days to secure a trade deal with the EU — without having Mr Cummings’ favourite refrain “fuck ’em” ringing in their ears? Or will they double down to prove to Eurosceptics they are willing to embrace the hardest of all hard Brexits in the name of national sovereignty?

One senior official says: “To tell you the truth, we don’t know — and frankly, I don’t think the PM knows either.”

So here we are, after a long-ish transition period, and the basic conundrum remains. The two sides don’t have an overlap in their bargaining positions.

It might be possible to stitch up a compromise on fisheries, even though, as Richard North pointed out, any quota-monitoring system would be so costly that the UK would be better off to give the EU all the fish and pay the fisherman their pre-Brexit incomes instead.

However, level playing field is an existential issue for the EU. Contrary to the claims of Tory pols and columnists, the Canada trade deal did include those protections. The EU is not going to budge. The Tories have made this issue into a threat to their pet sovereignity, even though Canada had no such qualms. So it’s about to become the hill on which they will die.1

And bear in mind that this process is about as damaging to UK businesses as it can possibly be. Many are under or unprepared for Brexit. Having no good idea whether there will be a deal or not only adds to uncertainty, complexity, and cost.

And if there is a crash-out, the odds are high that the UK will be back to the EU, petitioning for a trade deal. The EU won’t have any reason to offer a better deal than is on the table now; as with Greece, it might impose tougher terms on some issues. And businesses on the both side of the pond would suffer from having to adapt to the no-deal regime, then in comparatively short order, changing their procedures again to reflect whatever agreement emerged.

2021 is shaping up to be a year to remember, but not in a good way.

_____

1 But they see this as “Charge of the Light Brigade” vainglory.

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