An Injury-Time Winner? Maybe, but Brexit is still a lose-lose game

Anton Muscatelli| 18 October 2019

© 2017 European Union

Against expectations, EU negotiators and the UK government have arrived at a revised Brexit deal. Is this last-minute draft deal likely to be a winner for the Prime Minister? This could occur through a successful vote in the House of Commons before 31 October or a successful election campaign fought on the basis of ratification of this deal.

The deal did catch some commentators by surprise. It contained a major U-turn from the UK side and some concessions from both parties. Although the majority of the structure of the previous withdrawal agreement remains in place, there are significant changes.

The major U-turn was from the UK government. Boris Johnson had said that he would not accept a regulatory and customs border in the Irish Sea. That statement has now been reneged on. In terms of regulation, Northern Ireland (NI) will remain aligned on agri-food products and industrial goods with the EU unless it opts out (see below). Maintaining NI in the single market was conceded early in the negotiation round. On the issue of customs the U-turn was completed at the end of the negotiations: although de jure Northern Ireland is part of the UK customs union, de facto it remains in a customs partnership with the EU applying the EU’s tariffs and procedures. This ensures that customs and regulatory checks will only occur when goods move across the Irish Sea.

There are some minor sweeteners in there. There are some exemptions on EU tariffs and controls which apply for individual goods moving from Great Britain to NI, and these exemptions might be extended to some goods trade if both the EU and the UK agree. This will of course depend on the future framework discussions, and the EU would not agree to anything which would impair the integrity of the single market. But let’s be clear: unless the terms of the deal are revoked by the Stormont assembly, Northern Ireland remains firmly tethered to the European single market and is tied (if not part) of the EU customs union.

It’s not surprising that the DUP has, as yet, not accepted the terms of the deal. It goes against their attempt to place a unionist veto on the backstop and it creates a border in the Irish Sea.

There were two clear concessions from the EU side, who until now had said they would not significantly re-open the withdrawal agreement negotiated with Theresa May. But re-open it they did. The first concession was on the customs partnership with Northern Ireland. The second, much more significant, concession was the agreement that the Northern Ireland Assembly could, unilaterally, bring the above arrangement to an end, triggering a further negotiation post-Brexit to protect open borders in Ireland and the Good Friday Agreement. The EU had said that the backstop could not be time-limited. In a narrow sense the backstop as an insurance policy is gone. The current version of the Ireland arrangements which apply immediately, could be time-limited. But the EU (and the Republic of Ireland’s) calculation is that there is no way the DUP could muster a simple majority in Stormont to terminate the arrangement. The key to exit the arrangement is firmly buried in the maze of Northern Irish politics, and what’s more we know a majority of the electorate and the business community in the North would never terminate such a favourable arrangement.

The other major change relates to the political declaration and the level playing field conditions which the EU would require as part of any zero tariff and no quotas free trade agreement (FTA). Here there is something for both parties: by abandoning reference to the withdrawal agreement being a bridge to a closer relationship with the EU, especially on regulation, the UK reserves its right to implement a major divergence with the EU. On the other hand, the reference to level-playing field conditions suggests that this will be a very hard negotiation: the discussions on the FTA will be very fraught as the EU will not wish to concede a very favourable trade deal if the UK decides, say, to deviate markedly on regulations in financial markets, or in areas such as environmental and food standards.

So what are the chances of this deal being accepted by all parties? Most observers expected the EU Council to endorse it, as it did. The House of Commons vote is on a knife-edge, especially if the DUP don’t suddenly perform a spectacular U-turn of their own and vote for the deal. It’s not straightforward either for some ERG members: the legal text will require the ERG to swallow some of their objections to the earlier withdrawal agreement. It also puts pressure on the opposition parties. The direction of travel in the political declaration is towards a much harder Brexit in contrast to the Theresa May deal which potentially envisaged a much closer future relationship with the EU. It would be strange with the promises around future regulation expunged from the deal to see rebel Labour MPs voting for this deal without any amendments.

But a bigger problem for the opposition parties is that, even if the deal is voted down in the Commons on issues of principle (eg because it’s a route to a harder Brexit than the May deal, and given all the serious economic losses that will cause, as calculated recently by the EU in a Changing Europe team), the opposition will need to unite around an alternative strategy. Some of the opposition want a confirmatory vote for the deal against a remain alternative. Others want a softer Brexit, and may try to amend the political declaration. Others want to cancel Brexit. There are shades of all different opinions. Agreeing on concerted action will not be easy. It was much easier to oppose no deal.

What happens if the Commons vote the deal down? Boris Johnson, having pivoted away from no-deal, will be able to campaign in an election on the basis that he brought back a deal, and can turn to the electorate to say ‘if you give me a working majority we will leave the EU and these are the terms.’ Little does it matter that the FTA is still to be negotiated and that will mean Brexit will not be ‘done’ for some time to come, and that the withdrawal agreement period may not be sufficient to negotiate such an FTA. In the current maelstrom of politics, the certainty of moving effortlessly to a new state with different uncertainty may yet allow the production of good electoral slogans.

However, this last minute deal may also present the Prime Minister with one electoral problem. The deal will be roundly condemned by the Brexit Party which might fight the election as the only ‘no deal’ party, if the Conservatives are committed to selling the negotiated deal to the electorate. The electoral arithmetic then becomes more complex. Unless the opposition parties are able to devise and execute a united pre-electoral strategy on Brexit, this is the broad field on which the election will be fought: the full spectrum of choices around different forms of Brexit and the benefits of reversing the decision and Remain. Plus ça change.

For those of us who consistently argued (and still hold the position) that a hard Brexit is economically damaging and lose-lose for the UK and the EU this is not a good place to be. But to flip a well-known phrase: it’s not about the economics, it’s all about the politics, stupid.

 

Anton Muscatelli| Twitter

University of Glasgow

Prof Sir Anton Muscatelli FRSE FRSA FAcSS is Principal and Vice-Chancellor of the University of Glasgow and Chair of the First Minister of Scotland’s Standing Council on Europe. An economist, his research interests include monetary economics, fiscal policy, finance and macroeconomics.