Brexit: limited options

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Pics: wikicommons, eu2017ee/flickr

The process of negotiating Britain’s exit from the European Union is getting no easier for the Tories as time goes on. Alan Gibson looks at the perpetual backing-down Theresa May and her ministers are being forced into, as well as the considerable pressures bearing down on Corbyn.

The government’s Brexit secretary David Davis hailed the transition deal signed with the EU’s Michel Barnier in March as a major breakthrough. But it didn’t come without the Tories backing down from a series of positions and promises it had made about what would be acceptable.

As the Financial Time said, “Monday’s announcement showed that the EU, without a great deal of cunning, had managed to call multiple bluffs from Brexiters about the transition period.”

Most important of these was free movement. From claiming it would not allow EU citizens entering the UK during the 21-month transition period the same rights as those already here, it finally agreed that it would.

And having promised Scottish fishers that he would secure a renegotiation of quotas during the final year of the transition, Davis and his team conceded to the EU’s demand that this could not be the case.

Given Theresa May & Co had wanted a two-year transition, the 21-month period is itself another concession, as is the fact that the UK will lose its role in any of the EU’s decision-making institutions during that time.

Such back-downs have become the norm for this divided government. They follow December’s notorious divorce talks that ended in a humiliating shambles for the Tories. Then, after foreign secretary Boris Johnson had told the EU it could “go whistle” for any divorce settlement cash, May handed over €40 billion and backed down over demands the UK greatly improved its stance towards EU citizens’ rights.

These talks also saw May and her team scurrying to come up with a classic fudge over what is becoming one of the major obstacles in the talks — the border between Northern Ireland and the Republic. This claimed the two sides could avoid a hard border — one with customs checks, passport controls and so on — by the UK’s “full alignment” with EU regulations.

Davis soon claimed the agreement had no legal bearing, implying the UK could ignore it; something that no doubt provoked the EU into demanding much greater clarity on what the UK meant, and insisting that without it the UK would not be able to progress to further talks.

The issue still hangs like a cloud over the next series of talks. The government has now come up with proposals whereby the UK could oversee customs checks on the mainland on behalf of the EU without the need for a hard border in Ireland. She has also pointed to the border between the US and Canada as an example of a possible model for Ireland. Both proposals have been rubbished, with Ireland’s prime minister Leo Varadkar reporting seeing “people in uniform with arms and dogs” on the Canadian border — “definitely not a solution we could possibly entertain”.

And May still faces a divided cabinet, and a divided party, over the EU; divisions which will have been sharpened by the latest round of concessions. Even worse, her effort to bring about harmony between the warring factions at the Chequers talks in February ended in disaster when, two days after announcing the package of demands the UK wants in the post-Brexit deal it finally signs with the EU, Donald Tusk, the European Council president, said they were “pure illusion” and warned of “negative economic consequences” resulting from the UK’s position.

Frictions

A draft of the EU’s guidelines for its own Brexit negotiators made clear they could accept no “pick and mix” approach from the UK, and must insist that “being outside the customs union and the single market will inevitably lead to frictions”. Among these will be the need for “checks and controls to uphold the integrity of the single market”.

Perhaps most worrying for the Tories and their friends in the City is the fact the guidelines make no reference to the UK’s aim to retain as much of the UK’s massive financial services relationship with the EU as possible. This follows on from EU negotiators already saying the EU could benefit from a smaller City of London. May made a point of reiterating the UK’s need for a free trade deal governing financial services in her Mansion House speech on 2 March, only to be told, by the French economy minister Bruno de Maire three days later, that this would not be possible.

That point has been reiterated in the EU’s briefing document — a so-called “annexe” to the talks — that says future relations would be based on “equivalence” arrangements; far less than the “mutual recognition” deal that May and her chanceller Philip Hammond have been calling for.

And meanwhile hardly a day goes by without business leaders, bankers, financiers and so on making it clear that the longer it takes for a post-Brexit deal to be finalised with the EU, the greater the damage to the UK economy. Certainly many welcomed Davis’s “breakthrough”, but only two days after it was signed EU finance chiefs told bankers to continue working towards a June deadline when applying for licences to operate in the UK. They echoed Barnier’s warning that “nothing is agreed until everything is agreed” — a hint that everything could end in tears at June’s negotiations about the UK’s post-EU relationship. Leading Tory Brexiter Jacob Rees Mogg has quoted the same warning when discussing the concessions made to secure Davis’s transition deal.

But the EU’s hardline stance is not the only problem facing the UK’s negotiators. They must also contend with, in the words of the FT’s Martin Wolf, the zombie ideas held by the hardline Brexiteers in the Tories’ ranks. Among these is the notion that the UK is in a stronger position that the EU because it imports more from the EU than it exports. But, as Wolf says, even in goods, UK exports to the EU are three times more important to the UK’s economy than vice versa (7.5 percent of gross domestic product against 2.5 percent). Even without the UK, the EU remains the second-largest economy in the world, with an economy almost six times bigger, at market prices, in 2016.

Another claim is that the UK can trade perfectly well without a Brexit deal, and under World Trade Organisation regulations. But 40 percent of the UK’s exports currently go to the EU under favourable trading arrangements. The idea that this could be replaced with what would be incredibly tough trading deals with India, the US, Australia and other suggested countries is pie in the sky. And yet minister for international trade Liam Fox and agriculture minister Michael Gove are among powerful government figures who take these and other zombie ideas seriously.

Finally, not everything is going well for the EU’s leaders either. First, Britain leaving the EU is going to leave a large gap in its finances, necessitating difficult talks with all 27 of its remaining states about upping their contributions. It also faces continuing tensions caused by the EU’s two most powerful nations, France and Germany, pushing for “reform” of the Eurozone. This would involve greater convergence between states of fiscal measures, such as taxation and public expenditure; measures that could have negative consequences for many of the EU’s smaller economies. And just to add to the problems, it now faces Donald Trump’s moves toward possible trade wars and ensuing damage to the whole trading bloc.

The recent inconclusive result of the Italian General Election, and the country’s shaky banking sector, is also a cause of great anxiety among EU leaders.


Take Your Pick

» Throughout the Brexit talks, five models of what a post-Brexit arrangement could look like are often bandied around.

1 The Norway model

Norway is a member of the European Economic Area (EEA) — the single market — along with the 28 current EU members, Liechtenstein and Iceland. In return for access to the single market, it contributes to the EU budget and must obey its rules, including free movement. But it does not have a say over the rules it must obey.

2 The Switzerland model

Switzerland has a free trade agreement with the EU and a number of agreements which give it access to the single market for most of its industries. But it does not have full access for its banking sector and other parts of the services sector, which together make up almost 80 percent of the UK economy. Its agreement also requires the free movement of people.

3 The Turkey model

Turkey is not part of the EEA or the European Free Trade Association but does — like tiny Andorra and San Marino — have a customs union with the EU. This means it faces no tariffs or quotas on industrial exports. The customs union does not apply to agricultural goods or services. Turkey also has no say on the tariffs it has to impose on goods it imports from non-EU countries, as it has to apply the EU’s common external tariff to those goods (and is not involved in setting it).

4 The Canada option

The Comprehensive Economic and Trade Agreement (Ceta) between the EU and Canada is not yet in force, although it has been in the making for seven years. It gives Canada preferential access to the EU single market without all the obligations that Norway and Switzerland face, eliminating most trade tariffs. However, some “sensitive” food items, including eggs and chicken, are not covered by it. Crucially, a Ceta-type deal would not give UK financial services the EU market access that they have now.

5 The Singapore and Hong Kong approach

Some advocates of Brexit have said the UK should adopt a unilateral free trade policy — dropping all tariffs and relying on the World Trade Organisation’s. For example, Hong Kong’s free trade policy means the Chinese special administrative region maintains no barriers on trade. This approach may have some appeal to Brexiteers whose ideology favours no trade restrictions. However, no tariffs of any kind could have a strongly negative effect on the UK’s agriculture and manufacturing sectors.

The default: World Trade Organisation (WTO) rules

WTO sets rules for international trade that apply to all members. There would be no free movement or financial contribution, and no obligation to apply EU laws, although traded goods would still have to meet EU standards. Some tariffs would be in place on trade with the EU, and trade in services would be restricted. If talks do not reach a deal before Brexit takes effect, trade rules would default to WTO rules. The UK and EU would be obliged to apply to each other the tariffs and other trade restrictions they apply to the rest of the world.


Jeremy Corbyn and Brexit: under pressure

Is Jeremy Corbyn’s shift from “constructive ambiguity” over Brexit to his recent call for a “new customs union” with the EU a positive or a negative move?

Certainly Corbyn is clear that there would be no scapegoating of migrants, divisions between genders and antipathy between regions resulting from any deal a Labour government would have with the EU. He also claims a new customs union enabling full access to the European markets could avoid a hard border between Northern Ireland and the Republic. It could also guarantee that the UK would have a role in future trade deals with countries outside the EU.

In addition, any deal with the EU would have to contain “protections, clarifications and exemptions” which would enable the UK government to pursue its own industrial policy. Clearly, Corbyn is referring to Labour’s plan for a National Investment Bank, and its manifesto promises to nationalise the railways, energy companies and a host of serves privatised by previous Tory and Labour governments. He is also referring to Labour’s plans to stop companies hiring agency labour from overseas in order to undercut UK wages and conditions.

But there are a number of problems, the first and most immediate being that the EU would be likely to give Corbyn’s proposal as short a shrift as it has to the Tories’. On a number of counts, the EU could not allow a third country, which is what the UK will become post-Brexit, any say in its trading arrangements. Nor would it agree to give the UK special “protections” and so on, particularly if this enabled it to pursue policies that run counter to its neoliberal project.

A second problem is Corbyn’s concession to the idea that migrant workers are somehow responsible for lower wages and conditions. To his credit, in his speech that launched the proposal, and following his remarks about imported labour, he does say “it’s not migrants who bring down wages; it’s employers who do that”. But he also goes on to say, “freedom of movement will end when we leave the EU”, and that “immigration policy will be based on fair rules and the reasonable management of migration”.

The pressure on Corbyn is increased by the fact that his political opponents in the Labour Party are coalescing around these issues which were central to the Remain campaign.

Socialist Review is absolutely opposed to all immigration controls, so it should be no surprise that we believe Corbyn is wrong to have made this concession to the Labour’s right wing, and particularly those Labour MPs in constituencies where the majority of people voted to leave in the EU referendum. But the concession reveals the enormous tensions within the party, now caught between a majority of members who voted to stay, a minority of them calling for a second referendum and another significant section who elected to leave.

Socialists opposed to immigration controls need to keep campaigning, absolutely against the rise in racism, much of it flowing from the EU referendum in the first place, and attempting to unite both remainers and leavers in the fight outside and inside parliament, to stop austerity and ultimately to bring down the Tories.