Chaotic Incompetence Not Enough to Halt Brexit

Kirsty Hughes | 16 November 2017

© 2017 European Union

The UK government looks increasingly in disarray as a chaotic Brexit unfolds. The EU27 want to see a much bigger financial offer from the UK to start trade talks. Businesses are ever more urgently demanding clarity on a transition period if jobs, investment and headquarters are not to move out of the UK in increasing numbers. Meanwhile, the government has yet to clarify what its goals are for the future UK-EU27 relationship as Tory backbenchers threaten rebellion over different parts of the EU Withdrawal Bill.

In the face of these challenges, Theresa May looks ever more fragile, her nominal premiership a mere fig leaf drawn over the mounting cabinet infighting. But that doesn’t mean Brexit (or ‘hard’ Brexit) is on the ropes. No one would be surprised if May’s government imploded in the face of the next scandal or as the damaging fallout of Brexit mounts.

But, equally, getting to the next stage in the talks is not as hard as it looks. The EU27 have been ratcheting up the pressure – demanding a much better financial offer from the UK, if talks on trade and transition are to be launched from the mid-December EU summit. But there are some promising recent indicators for May, and her band of Brexiteers, even so.

Labour MPs abstained this week, rather than vote against the crucial first clause of the EU Withdrawal Bill that repeals the European Communities Act 1972 on exit day. Then the head of the European People’s Party in the European Parliament, Manfred Weber, came out of a Downing Street meeting saying he was now more optimistic of progress before the December summit. He was followed by Scotland’s First Minister, Nicola Sturgeon, making surprisingly conciliatory noises, after a No 10 meeting with May. Sturgeon is looking ever keener to find a compromise on the ‘power grab’ of devolved powers in the Withdrawal Bill rather than recommend Holyrood refuses legislative consent.

So, as the December summit looms, May has been given a tiny bit of breathing space – if she chooses to use it.

Money, for now, remains central to the Brexit talks moving on. Whether May will make a big and clear enough new offer to unlock the next stage of negotiations is unclear. But she may well. A big payment to the EU might be expected to be highly neuralgic to the core Brexiteers in the cabinet. But, in fact, if money can stop Brexit going off the rails, then Johnson, Gove and co. are quite likely to go along with it.

From transition and trade to an autumn 2018 deal?

If ‘sufficient progress’ is achieved on the EU’s top three divorce issues – EU citizens, money and Northern Ireland – and the EU27 agree to discuss trade and transition, their positions will be tough.

On transition, Barnier and others, including in the European Parliament, have already made clear that the only feasible transition, in the short time left before March 2019, is one that extends all the EU’s laws, directives, regulatory and judicial structures. In essence, it will be almost as if the UK is a temporary member of the EU for two years but without a voice or vote (having formally left). In Brussels, a long transition is seen as difficult under Article 50. So while Labour – and some businesses – are arguing for a longer, perhaps four-year transition, this may well not be on offer (unless there is some way to put the possibility of extending the transition into the exit deal).

On trade, Brussels has been clear for several months that essentially there are two possible trade models for a future UK-EU27 deal (other than a WTO one) – Norway or Canada. May has rejected both of these. She has no intention of going down the ‘soft’ Brexit route. But for now Labour is not supporting staying in the European Economic Area and customs union either, even though the SNP does (and despite occasional positive noises on customs union from Keir Starmer), meaning opposition pressure on her is much reduced as a result. Nor would staying in the/a customs union alone solve all border problems for goods trade (as Turkey knows).

But the talks to agree an outline framework of a future trade deal – to be followed by several more years talks after Brexit – will be tough. But while a Canada-style trade deal will be almost as bad for UK-EU services trade as a WTO outcome, for goods it is better than a WTO deal – though much worse than staying in the EU. The question is whether the UK government can face up to that being the best deal it can get.

Transition versus a trade deal – time to relocate to the EU27?

There is another key question of how businesses respond by early 2018, if a Canada-style deal becomes the most likely framework for future UK-EU27 trade.

If there is greater clarity after the mid-December EU summit that a two-year transition period is likely and that the trade deal aimed at is a Canada-style deal (together with parallel deals on defence, security and foreign policy) then, for business, the mooted benefits of a transition may be more than cancelled out by the barriers a Canada-style deal will inevitably put in place.

In other words, while a two-year transition might give businesses more time to decide whether to move jobs, investment and production to the EU27, the likelihood of major barriers to services trade, and significant non-tariff barriers for goods trade, might mean businesses trigger contingency plans and shift investments from early 2018. How much such decisions impact on politics, the economy and public opinion will be key in determining whether and how May can manage domestic politics and EU negotiations.

Can a deal be done?

In parallel to these talks on trade and transition, and as business decisions are taken and economic challenges mount, the EU withdrawal bill, trade bill, customs and agriculture bills amongst others will be struggling to get through the Commons and Lords.

For a weak prime minister with a fractious and divided cabinet – facing a divided country where opinion is for now tipping somewhat (but only a little) back to ‘Remain’ – this looks fairly nightmarish. A chaotic Brexit will doubtless continue to unfold, assuming the government remains in power.

But Theresa May still has the substantial protection of Labour continuing to back the Brexit process – and not, so far, backing a ‘soft’ Brexit of a Norway or Norway plus customs union model, let alone calling for a second EU referendum. So it is quite possible that the EU Withdrawal Bill will eventually pass, however amended. And there is an open question as to whether Labour would actually vote against a final exit deal next autumn.

Before that, the key question remains: Can a UK-EU27 exit deal be done? The real challenge on the EU27’s three key divorce issues – EU citizens, money and Northern Ireland – will quite likely become Northern Ireland.

There is no way an open border can be maintained between Ireland and Northern Ireland outside the EU’s single market and customs union. The crunch question is how this is resolved: Will Northern Ireland stay a de facto part of the EU (with a border in the Irish Sea), or will there be a fudge over the introduction of some border controls? A no-deal outcome is the worst possible outcome for Ireland – it would create the hardest border amidst a major political stand-off between the UK and EU27. But where the Northern Ireland challenges will end up remains for now quite uncertain.

The other challenge in getting to an exit deal will be agreeing on an outline trade framework. A Canada-style trade deal would lead to substantial drops in UK-EU trade in both goods and services. If this is too much for the UK government and Tory Brexiters to swallow, then the only alternative would be to go for the even worse outcome of trading on WTO rules. How chaotic this would be would, in part, depend on whether the UK and EU27, even so, agreed an exit deal on the three issues and transition while agreeing not to have talks over a future trade deal.

If the UK and EU27 agreed an exit deal including an intention to trade on WTO terms, this would quite likely not pass in the Commons – it would certainly be close. Labour and other opposition parties would surely vote against, although what the DUP would do is another unknown. But if May agrees an exit deal including an outline trade framework based on a Canada-style deal, what would Labour do?

Corbyn has insisted he wants a ‘jobs-first’ Brexit without ever defining exactly what that means. But in the absence of a shift in Labour’s position to supporting a Norway/EEA outcome, or at least supporting staying in a customs union with the EU, then Brussels’ emphasis on a Canada-style free trade deal, in fact, makes it clear that there is no ‘jobs-first’ other trade deal on offer. This puts Labour on the spot. If May produces an exit deal including a Canada-style trade framework, the SNP and Lib Dems can be expected to vote against. But Labour may not. And some Tory rebels may not.

It is a long way still to next autumn and a possible UK-EU27 exit deal. One of the UK’s weakest and most shambolic governments has the task of managing a hugely damaging Brexit process domestically and in tough talks with the EU27. Yet, in the absence of more serious political opposition, it is still quite possible that the Tories (whether led by May or someone else) could still push it all through. Chaotic incompetence may not be enough to halt Brexit.

Kirsty HughesKirsty Hughes | Twitter

Scottish Centre on European Relations

Dr Kirsty Hughes is Director of the Scottish Centre on European Relations. She is a researcher, writer and commentator on European politics and policy, and she previously worked for a number of leading European think tanks.