Richard North, 08/01/2020  

One of the more disturbing things about the Brexit debate is the extravagant vocabulary that is so often used. One of my pet hates is the tendency to dismiss even relatively restrained commentators as "hysterical" but my current cri de coeur is the suggestion that the EU is somehow motivated by "terror".

This we see in a recent article in the Johnson fanboy gazette, written by Jeremy Warner, under the heading: "Brexit is nearly done, but don't expect an easy ride on trade. The EU is terrified of regulatory divergence".

The idea that the EU, as a corporate body, is "terrified" of anything, or even can experience terror is absurd. There are only a few times in my life that I have experienced terror, and nothing the EU could go through gets to be anything like it. Yet Warner, who tends to be more level-headed than the majority of the Johnson fanboys, is front and centre in suggesting that it can.

If this is hyperbole, then it is misplaced, but what leads Warner to that conclusion starts with an observation that the feelgood mood following Johnson' election victory is colliding with harsh realities. There is, he says, going to be a comedown, and the first of the "awakenings" is likely to centre on trade.

In reaching a trade deal with the EU by the end of the year as promised, Warner makes the obvious point that the government will either have to compromise on scope for regulatory divergence, or accept that certain industries, including financial services, will be quite significantly harmed by whatever new arrangements are put in place.

But Warner also notes that Johnson has signalled the goal of absolute sovereignty and therefore regulatory autonomy. Yet he doesn't appear reconciled to the trade-offs such an approach will entail. Furthermore, he finds himself torn between the US and Europe.

Here is where it gets interesting, to say nothing of muddy. Driven by the need to keep his hardliners on side, Johnson is being pushed to sign off on free trade arrangements with the US before agreeing something similar with the EU, even though we're only being told that talks will be held in parallel.

There can be no question, however – which Warner acknowledges – that the relative importance of the two markets makes a settlement with the EU the more important of the two. Moreover, we see Warner pointing to inherent stresses between contrasting trade agreements, using Ukraine as an example.

Here, he says, the free trade deal with the EU turned out to be incompatible with existing arrangements with Russia. Ukraine's attempt to break free has not worked out well, he avers. I'm not that sure that Ukraine is that good an example, but the point is made that, over the next six months or so, there will be tensions between the different political imperatives, which "will inevitably involve difficult choices".

These, we are told, are already apparent in the government’s ambiguous response to the assassination of Qassim Soleimani. Does it side with a gung ho Trump or a more cautious Europe in dealing with the Iranian threat? Looming trade talks add a new dimension to this choice.

Warner thinks that Trump will prove a fickle, if not "treacherous" negotiating partner, complicated by his penchant for "fake trade deals" - designed to bolster his domestic standing but of little or no economic significance.

Yet another complication is France's digital sales tax (DST), referred to as the "GAFA Tax", an acronym for Google, Apple, Facebook, and Amazon. This is seen as a personal swipe against Trump who, after attacking the tech giants "as a liberal plague on humanity" is now treating them as a great American success story.

When it turns out that the French tax deliberately discriminates against US companies, this creates problems for the UK is planning a similar tax, in an attempt to charge companies on the sales they generate in the jurisdiction rather than the profits. This could have the unfortunate effect of being treated as a hostile act, lumping the UK with France, just when Johnson wants to present an independent, US-friendly face.

For all that, concerns might be a little overblown. The New York Times is reporting that the United States and France are racing to reach a compromise on the issue. Otherwise, the result could be hefty American tariffs on French wine, cheese, handbags, cookware and more.

The US government's objective is to eliminate the tax altogether and, should it succeed, this would leave UK plans stranded, with Johnson under pressure to follow suit. But if France escalates the dispute, the UK could find itself siding with France, its former EU partner, against the US – not the best position to be when so much is dependent on good relations.

Even then, the UK's troubles are far from over. So far, trade talks between the UK and the US have been focused on products currently covered by existing agreements the United States maintains with the European Union.

New areas will depend on a negotiating mandate which is soon to expire, while Trump will be hampered by the US presidential elections which will be held in November of this year. In an election year, and especially with the Democrats pushing the impeachment agenda, it is going to be difficult for the UK to keep the US administration focused on comprehensive trade talks.

Despite a preference for talks with the US, therefore, Johnson is likely to be forced to make his EU negotiations the priority, a stance which Warner also suggests is likely. But it is here that the Telegraph writer indulges his hyperbole, no doubt misled by the source he prefers to use - Charles Grant, director of the Centre for European Reform.

It is from this source that we get the legend that the EU is "terrified" of granting favoured access to its markets without any kind of commitment to stay true to European standards and regulations. In fact, there is no "terror" about it. Non-discrimination lies at the heart of the EU's external trade policy, and is a fundamental part of the WTO rules which govern international trade.

Thus, the EU cannot concede a special deal for the UK without also granting similar concessions to the rest of its trading partners. To do so, would unravel the Single Market, creating an existential threat. And, on that basis, as it has said many times before, it will do nothing that will damage the integrity of the Single Market.

Thus, if there is any "terror" to be experienced, it is in the mind of Johnson when he finally realises that his vaunted US talks are taking him nowhere and the EU has the whip hand. At the key time, just as the prime minister might be preparing to pit the US against the EU, Trump will be going through a messy election and will have no time to spare for the UK, nor any interest in Johnson's games.

As a result, Johnson, as the year runs out and he is under extreme pressure to finalise a deal with the EU, will find that he will have to take what is on offer, with the realisation that that is not very much. As long as he insists on regulatory autonomy, market access will be very limited leaving UK traders to run the full gauntlet of the Single Market's non-tariff barriers.

Against that prospect, the EU has nothing to fear. The UK will still need food and manufactured goods from the EU, and will not find it easy to obtain substitutes from other trading partners. Shifting trading patterns simply cannot be done with any speed, if severe disruption is to be avoided.

That is where Warner is taking us. Despite his hyperbole, he fully understands that, if the UK government sticks to its plans for regulatory autonomy and insists on allowing divergence, any trade deal "may be quite limited in scope".

Anything more, he says, "will take years of negotiation", making Brexit "a long road". This, he says, "we are about to find out". That may apply to the Telegraph fanboys, but we knew already, and have been under no illusions. Brexit is a very long way from being "done".

comments powered by Disqus

Log in

Sign THA

The Many, Not the Few