Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 9 December 2017

First Stage Reality and Brexiters

Now for the hard part, pronounced various media commentators after the first stage Brexit deal had been signed. The chances of No Deal have diminished, said others. It is strange watching the MSM sometimes. On political issues that involve expertise, like austerity and Brexit, it is generally an expert free zone. With Brexit you have to turn to the Financial Times and Economist who understand what is really going on, or other knowledgeable bloggers like Chris Grey. [1]

It is not difficult to discover how things really work in these strange days. You just need to see what the important facts are, and continue to apply them relentlessly despite what politicians say. The latest important fact that tells you all you need to know is that a Single Market and Customs Union needs a border to, as Martin Sandbu sets out, not just collect tariffs but also check compliance with rules of origin and standards. Therefore to avoid a border in Ireland, you need Northern Ireland to comply with all the tariffs, standards and regulations of the Single Market. The UK has now agreed, as I thought it would, that this must also apply to the UK as a whole.

This logic leads you inevitably to the conclusion that, after Brexit, the UK will to the first approximation [2] continue to obey all the rules of the Single Market and Customs Union. So it will be as if we are still in the EU, with the only difference being that we no longer have any say on what those rules are. Fintan O’Toole quotes Sherlock Holmes: eliminate the impossible and whatever remains, however improbable, must be the solution.

But, you may respond, all the UK have signed up to is that this is a default position, if they fail to find a technological fix for the border, or if they fail to conclude a trade agreement with the EU in stage 2, and what does alignment mean anyway? Here you need a second fact: there are no technological fixes that remove the need for some form of hard border. We also know two things from this first stage agreement: the UK desperately want a trade agreement with the EU and the EU will not allow any agreement that implies a hard border in Ireland. It therefore logically follows that, to a first approximation, any trade agreement will have to involve the UK staying in the Single Market and Customs Union.

Why then are the Brexiters not up in arms? It is partly because the agreement plays on their lack of realism, as I suggested two days ago. The UK government and Brexiters still pretend that they can, through some magical means, avoid a hard border. Given that belief, how can they object to this fall back position? And that will be the line that the UK takes from now into the indefinite future, and because the broadcast media mainly talks to politicians rather than experts that is the line the media will take as well, with some honorable exceptions like those noted above. In may come apart as the cabinet finally discusses what the trade deal might look like, which is why the threat of No Deal has not gone away. Or Brexiters like Gove may decide instead that as May will not be making these trade agreements, it is politically wiser to maintain unity and instead try to win the ultimate prize from Conservative party members.

Why is it important that this deceit continues? Because if everyone was honest, and respected the reality of the border issue, people would rightly ask whether our final destination (obeying the rules but with no say on the rules) is worth having. They would note that being to all intents and purposes part of the Customs Union means Mr. Fox cannot make new trade agreements. People might start asking MPs why are we doing this, and the line that we have to do this because the people voted for it would sound increasingly dumb.

Unless something amazing happens and the MSM do not allow this deceit to continue, we will end up with the softest of soft Brexits. If that is where the UK stays [3] there is a huge irony about all this. The Brexiters’ dream was to rid the UK of the shackles of the EU so it could become great again, but it is a legacy of empire that has brought this dream to an end. All the stuff about bringing back the glory of a once great trading nation will not happen. Instead we will still be acting under the rules of the EU, but because we are not part of it the UK will be largely ignored on the world stage. A rather large country, which nevertheless gets other countries (like Ireland!) to set its trade and associated rules for it, and which it is therefore not worth bothering with in the international arena. A Britain that can no longer pretend to be a world power, not as a result of the actions of some left wing government, but because of the delusions of Brexiters.

[1] To be fair to the broadcast media (as I always am), yesterday I did see interviews with ministers which raised the issue of what the implications of the border agreement are. But for whatever reason these interviewers allowed those ministers to bat away the question with waffle, and I strongly suspect the point will be forgotten in the days ahead.

[2] What do I mean by first approximation? For a start, we will not be part of the Customs Union and Single Market, but instead be part of bespoke versions of both. That may allow wiggle room, which in turn might just possibly allow something that could be called a deal on free movement, although this will probably just mean Free Movement to a first approximation. So a bit like Norway or Switzerland, but with rather less room for maneuver than those countries because both have borders with the EU. For more details see here.

[3] It will not be where it stays. First, there is the question of who May’s successor will be, and what they will do. If a soft Brexit goes ahead, the Brexiters will choose the right time (for them) to cry betrayal. It will only be a matter of time before they make a new attack, arguing that the UK should strike out for true independence. As I argue here, bigger things than just one failure have to happen before the UK rids itself of this particularly British form of plutocracy.  

27 comments:

  1. While I wholly agree that a kitten-soft Brexit is now the logical end point, I think everyone is now much too optimistic about the politics of this.

    For me, as long as the Conservatives are leading the process, political reality points more towards a worst-of-both-worlds "compromise" of almost Norway-level compliance with EU rules in most of the sectors the government had planned to use as FTA bargaining chips, coupled with only Canada-level market access for our key industries.

    I don't think the current Leave core of the Conservative party will ever accept that we may as well be (effectively) in the SM and CU. It would involve a spectacular recanting of everything they've said and believed for decades.

    I think they'd prefer to let our service exporters and cross-border manufacturing supply chains burn while continuing to promise eventual unicorns from doomed, multi-year trade negotiations. Their main aims will be to blame all bad outcomes on the next Labour government (and we know most of the press will go along with this line, while the BBC sits on the fence), while campaigning to overturn what limited deal we have achieved with the EU.

    They can make political hay out of this for at least 10 years, by which most of their current leaders will have retired to France.

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  2. I looked at the Guardian's digest of newspaper front pages as they reacted to the deal, and the Brexit tabloids were all fanfaring its success.

    This was not the case in the vox pops and phone ins that I listened to, where the Brexit public was not happy with the climb down.

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  3. I get the impression that many Brexiteers would not be bothered by the idea of a Customs Union as long as immigration was controlled. How is the Freedom of Movement act likely to be affected by this new agreement?

    Also, if the rest of the EU is committed to even greater unity isn't there some logic for those who oppose this for the "soft Brexit" option of free-trade with the EU but political independence from it ?

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  4. A rather large country, which nevertheless gets other countries (like Ireland!) to set its trade and associated rules for it, and which it is therefore not worth bothering with in the international arena.

    Being a successful Irish person (Emeritus Professor) I see the irony in this. Then again there is a belief in English exceptionalism (often amongst those whom have least reason to believe so) who think the Irish are lesser beings. My Scottish friends feel this as well, though I think they are considered a cut above the Irish.

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    1. This goes both ways. As an English child, I spent an almost entirely miserable nine years in Edinburgh.

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    2. This goes both ways. As an English child, I spent an almost entirely miserable nine years in Edinburgh.

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    3. Since when has believing that a nation might be free to decide its own laws and control its own borders been "Exceptionalism"? Was the 1916 Irish uprising a case of Irish Exceptionalism?

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  5. Like most people you see Brexit as a discrete process with an end whereas it is more in the nature of a turning in the road with a different direction of travel. What the result will be in forty years time no one can foresee, as most did not foresee what has happened to the EU.

    Michael Gove has indicated this and his comments have been interpreted as referring to the current process but these arrangements, as was the EU itself, are constructs and what has been made can be unmade. Once some sort of working agreement has been arrived at then the situation will continue to develop into the future; it is not set in stone for all time. It's my belief that the EU itself will have to, and will, change substantially and the question of the sustainability of the Euro will have to be addressed.Although I voted for Brexit I would not rule out at some dim and distant point in the future a basis on which we could rejoin "Europe", a "Europe" which would function on a completely different basis.

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    1. Sigh. A few points from an EU-27 citizen: The sustainability of the Euro is our business to deal with, and I don't think the UK should concern itself with that issue right now. And secondly, this condescending attitude of "we might rejoin if you change to our liking" epitomizes this entire Brexit farce beautifully.

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  6. "This logic leads you inevitably to the conclusion that, after Brexit, the UK will to the first approximation [2] continue to obey all the rules of the Single Market and Customs Union."

    Is this the arrangement Switzerland or non-EU EEA countries have with the EU? On a personal level I have found that sending items between the UK and Switzerland is expensive and bureaucratic compared with EU countries. Transport companies have to undertake time consuming customs checks, which is why only a very few large ones do the work. Contrast this with sending to a EU country which is quick, cheap and easy - with large numbers of small transporters able to do this. UK items being sent into the EU will face VAT and costly and time consuming customs inspections - I do not think this can be avoided unless the UK is willing to submit to EU customs area rules.

    I can understand why many people would vote Brexit if Goldman Sachs or Carney tells them that they shouldn't to protect The City. But I think ordinary people are going to be affected in ways that were not well articulated by the Remain side.

    NK.

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  7. An excellently thorough and logical analysis.
    But probably too logical for Brexit. And certainly for the sneering and duplicitous people who, with their cronies in the media, are running the Westminster system at the moment. We can be forgiven for assuming that they actually mean what they say about the Irish border. But there's scant evidence that they either know about it or care what happens - in any case, long after the people currently at the top are gone.
    And they certainly don't know much about the internal market or the customs union.
    So that's why the UK negotiator is now telling everyone that there is no binding agreement to do anything, that full alignment doesn't mean what it says, that the UK can have its cake and eat it...
    His EU partners will just sigh and move on. They've heard it all before. Mr super-Light, for whom black on one day is white on another. Yes, he's a useless partner to negotiate with - they know it, and realise that they can roll him over anytime, but they just want to get it over with now.
    This sort of thing makes a hard brexit more likely than a soft one. In spite of logic.
    For one, the EU has had enough. No-one could go through the referendum, hear the insults about the EU and its citizens, the sneering arrogance of Westminster magnified by the press, without finding it difficult to remain attached to cold, hard logic. Having dealt with a country that has walked away from 40 years of close cooperation, listened to people determined to wriggle out of their commitments, all they want is to close a deal and make it stick. They don't want to go through all the arguments all over again.
    So it's the Canada model, plus or minus. It always has been, from the moment the UK said it would leave the single market and the customs union.
    The UK government can't cope with anything more complex. It leads to too much political capital being spent, for no perceived gain. And the EU doesn't want to deal with anything more complex either. They don't want to be dragged any more into England's failure to solve the Irish question, the lies of the referendum campaign or the braying media. And they've run out of time within the EU system to do anything more.
    So we come back to the weakest link - the Irish border. With a Canada-style agreement, it will be solved by the clause that allows Northern Ireland to make specific provisions for north-south trade, aligning with the EU more than the UK. Together with more checks on all Ireland goods done at ports and airports in Britain. Because that already happens now - with plant and animal health for instance. It will be a fuzzy border. Just hard enough in places to do trade deals with America, or at least pretend to do them. And to avoid legal challenge from companies alleging unfair competition. But fuzzy enough to bring it closer to an all-Ireland solution for the Irish government not to block it.
    The time to negotiate anything more rational passed long ago. It's too late for the Westminster system to cope with that - the debate will fracture the government, so the Prime Minister will be kept chained to her post until the job is done. The EU will do nothing to upset that.
    Contrary to what some say, the majority in the House of Commons is much more on the hard side of Brexit. Almost all of the Conservative party and their allies, together with enough in the Labour party. Most of these people never understood the EU nor cared about it. In this upside-down world, it's the soft Brexit that's hard to do.
    Who would have thought that Ken Clarke et al, the Liberal Democrats, the Greens, the SNP and Plaid Cymru would be the only people that stand, for an entire country, between the chance to solve long-standing economic and social problems, and the prospect of long-term slow decline.

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  8. Freedom of movement - the contentious part of the single market - is not a matter of border controls but of work permits and NI numbers. It is therefore not obvious that a soft border commits us to be in the single market in all but name. Of course the 27 can insist on this - but that is a matter of negotiation rather than necessity.

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    1. How does the EU prevent dodgy meat imports from a USA trade deal from entering via the UK and Ireland without a hard border?

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  9. It amazes me that even I, not an academic, can see where we’re headed but Brexiteers can’t.

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  10. Well if you are right the UK becoming a backwater will mean that at least the Tory party will be unable to cause shit for other nations; only their poor pleb subjects will still suffer unless they are ejected from power permanently. Fingers crossed for that happy day!

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  11. 'They would note that being to all intents and purposes part of the Customs Union means Mr. Fox cannot make new trade agreements. '

    Why not? 'Regulatory alignment' need not mean a common tariff against the outside world. If you think this is what the EU has in mind, you could be right but it's pure speculation

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  12. Your ‘reality’ based analysis is seriously flawed as it relies on three very dubious assumptions.

    First, you take it as read that ‘our say’ is, or ever has been, a good thing;. Seriously, where is your evidence for this? There are endless examples where successive UK governments have done nothing but obstruct or water down meaningful regulation and reform in the EU. From Tax justice, to vehicle emissions, the working-week, pesticides, medicines, climate targets, City regulation and arms controls, ‘our’ voice has ALWAYS been malign.

    A particularly disgusting example of this being the British and French governments rail-roading the EU – against the opposition of the other 24 states - into dropping its arms embargo on the Syrian Rebels – when ‘we’ knew that these rebels had long since been over-taken by jihadis (Al-Nuzra aka Al Qaeda)

    Shutting ‘us’ up on the ‘World stage’ will be a very good thing.

    The second is that any or all of the advantages of trade that you tell us we are jeapodising will ever be adequately re-distributed inside the single-market with its completely set-in-stone free-movement of capital, excessive financialisation and corporate capture of all the significant institutions. Don’t forget that, thanks to David Cameron’s pre-referendum deal, we were voting to remain in an EU with even less meaningful regulation of the City. Doing something significant to address this within the EU would require a pan-European movement that could simultaneously address the combined effect of the numerous treaties and compacts against the vested interests of the City of London, Frankfurt and Paris. Outside it will take just one election.

    Finally – and probably most significantly - all of your talk of (marginal) trade benefits make the assumption that they won't be all wiped out by another global financial crisis in the coming two decades. This is, to say the least, rather optimistic (I’d say completely preposterous), but as far as I can see, neither you or your FT and Economist experts have considered this at all (I’d be happy to be contradicted on this). We know how the key EU governments and institutions would be likely to react next time – more austerity leeches and flat our corruption. Having the tools available to insulate ourselves when it comes will be essential - bank-nationalisation and immediate capital controls will give us at least a chance of rebuilding – the latter is completely impossible within the EU.

    Until you address these your claims to a ‘reality’ based approach I think will continue to be misguided.

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    1. If the UK's influence has been so malign, what do you imagine a UK without the moderating influence of other EU countries will be?

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    2. I think many of us share your sentiments. and much of the population. Somewhere along the line, and it became particularly clear from the 1990s, the EU became hijacked by neo-liberalism and the financial elite. LIke the Bank of England, the ECB is littered with the cosmopolitan elite - MIT graduates and Goldman Sachs alumni. Many European institutions lost their 'Europeanness'.

      Actually Brtain's exit might be a good thing for the EU. During the Kohl- Mitterand years Britain continuously scuppered processes towards EU integration. The EU's rapid expansion eastwards was probably Britain's biggest coup. Ironically, it was this, and the huge inward migration that followed, that ultimately forced Britain out of the EU.

      The new members have also been a problem for the EU. But I think they are so dependent on German capital they will have to fall in line. Britain is no longer in the way. Perhaps at last the EU can start the processes towards fiscal and other integration, and the project gets back on track.


      NK.

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    3. @Ruth

      I suspect that what Adrian is saying is that the UK's influence won't really matter after Brexit, so the UK can be as malign as it wants to be but it will have little effect. So the loss of the moderating influence of other EU countries will be neither here nor there. Within the EU though, the structure of membership rights meant the UK's obstructionism could actually work and its malign influence had a mechanism with which to be magnified on the global stage (take the example of the Syrian rebels - had the UK not been in the EU, then it alone would have dropped the arms embargo on the Syrian rebels, while France may not have felt emboldened to push the EU to do the same in the face of the opposition of every other member state ===> end result is that there may well still have been an EU embargo on arms to Syrian rebels which meant the jihadis who hijacked the Syrian rebel movement would have been less well armed over the years).

      JH

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  13. I think the most interesting aspect of last week's deal was Mrs May's willingness to offend the hard Bexiteers in the Tory party, and the fact that the Brexit press was willing to applaud the deal (see the Daily Mail front page). This would have been unthinkable a few months ago.
    I suspect that what has changed is that the opinion pools are now much more favourable to Labour. So the hard Brexiteers fear that if they try to dump Mrs May in favour of Boris Johnson (or their hero Rees-Mogg) there is a risk that Tory moderates might find some backbone and precipitate an election. Better to climb down over Europe than risk Corbyn as PM.

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  14. she said today in parliament that she still held the view that no deal is better than a bad deal.

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  15. Great analysis. One thought that struck me that further supports your analysis is that most politicians and many papers find it convenient to blame the EU for everythig. If we stay in the CU and SM then they bave lost nothing. Since the effects of brexit do not effect MPs financies directly its an MPs win win. MPC..

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  16. With respect to note 3, there is little or no prospect of a bespoke EU-UK FTA being agreed before 2022 given empirical experience of EU-Canada deal and complexities involved. Moreover, why would the EU agree to a UKFTA on terms less advantageous to its members than continuing UK adherence to SM and CU rules? Won't the UK have to continue paying contributions while such 'transitional' arrangements continue?

    A storm, indeed, is brewing, the intensity of which will grow the more its sources are subject to denial by MSM and the may government.

    On MSM, suspect that problem is more usually insufficient understanding rather than conspiracy or political bias.

    Even top notch commentators, such as Andrew Marr, seem to pull their punches or allow conservative and labour front bench interviewees to get way with hazy contradictory answers.

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  17. "This logic leads you inevitably to the conclusion that, after Brexit, the UK will to the first approximation [2] continue to obey all the rules of the Single Market and Customs Union. So it will be as if we are still in the EU, with the only difference being that we no longer have any say on what those rules are."

    Not only will the UK no longer have any say, but it won't even be able to observe those rules being made. A recent politico article noted that in response to David Davis claiming that the recently agreed Joint Report is not binding, a draft summit declaration was redrafted to make it clear that the UK will remain in the single market and customs union (with the four freedoms) for the duration of the transition period and as one unnamed official noted the UK will not be represented in any EU body/agency, “neither as a member nor as an observer,”.

    The UK will have more obligations than Turkey and Norway combined but even less say than Norway. At the end of the transition it would seem that it would be in the EU's interest to offer to make the transition terms permanent as the new trade deal (why would any EU27 member state be interested in any other kind of deal between the EU and UK? It would be a dream come true - the UK in the single market and customs union but no longer obstructing integration or constantly complaining).

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  18. Looking at this from the Brussels end (I am a Commission official), the only person who seems to understand the dynamics of the process is Mr Grey. His blog posts, though barely hiding his contempt, are usually spot on in terms of the technicalities.

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  19. The deal reached last week, as you note, implies the softest of Brexits if you read the fine print. But I also find it hard to believe this is politically sustainable in the UK. Ending up de facto members of the CU and SM, without any role in rule setting, would not play out well domestically, even if the best (least worst) option. If we get to that point, the lunacy of this will become so apparent, even the Brexit ultras will have a hard time explaining it away. So I think the Conservative party will have to push for a better deal, and the EU will resist, for good reasons. I don't see this ending very happily.

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