Oxford For Europe
13 March 2021
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Despite all the screamingly obvious evidence to the contrary, most of us hoped that by some miracle Brexit would turn out well. We still live in hope, but the chances are diminishing by the day. Some of what is happening was foreseeable, and some goes even further than the worst predictions of “project fear”
“Trading businesses are working through the various stages of grief: some are really angry, others are in denial hoping that the worst barriers can still be bargained away. The ones that are doing best are those that have accepted that slower, more expensive and less flexible trade is just how it’s going to have to be.”
Shane Brennan, Cold Chain Federation
“I hope they will shake off any remaining ill will towards us for leaving, and instead build a friendly relationship, between sovereign equals. Brussels needs to shake off its remaining ill-will and treat Brexit Britain as an equal. We are already seeing the benefits of gaining control of our own affairs”
“Everyone is saying, OK, hold it right here, as long as they are not even doing what they have committed to do we cannot dream of any more flexibility. We have already gone to the edge.”
Turning distrust into an art form
The accusation of vaccine nationalism which has been made against the UK by the President of the European Council, Charles Michel, now retracted, is just the latest episode in a catalogue of conflict and misfortune which we have had to live through since the 1st of January. The Prime Minister responded angrily, and the accusation may indeed be untrue. However it is yet another symptom of the atmosphere of distrust and competition which has existed between the UK and the EU since the signing of the Trade and Co-operation Agreement (TCA) in December.
The last weeks are not ones we will remember with great fondness. Within two days of Lord Frost joining the Cabinet, the UK announced its second flagrant breach in six months of international law. The pretext was that, predictably enough, the TCA had plunged Northern Ireland into chaos. Customs checks on products entering Northern Ireland from Great Britain were being neglected because of fairly unsubtle threats of violence. The DUP had in effect declared war on the Northern Ireland Protocol of the 2019 Withdrawal Agreement. The EU was already complaining that the British government was failing to fulfil its obligations in respect of the protocol which, warts and all, both sides had signed in apparent good faith.
Back to the ECJ – ouch!
And then to crown it all HMG announced unilaterally that it would extend the grace period for tighter implementation, scheduled to come into force on 1st April, by 6 months. The government did not know whether this was something which might have been conceded by the EU anyway, and given time it should have known what the response would be. The European side responded: ‘This also constitutes a clear departure from the constructive approach that has prevailed up until now, thereby undermining both the work of the Joint Committee and the mutual trust necessary for solution-oriented cooperation’, and has now confirmed that it will be taking legal action in response. And guess where that will be heard? In the European Court of Justice. Yes indeed, when this government turned leaving the jurisdiction of the ECJ into a guiding principle, and told its more rabid pro-Brexit supporters that it had succeeded, that was a lie. In matters pertaining to Northern Ireland the ECJ is still the final arbiter and the UK government is bound by its rulings. In what may well turn out to be just one of many bitter disputes between the UK and EU, this government will find itself without a valid defence in a court which it may well try to say it does not recognise – remember that that was normal practice for IRA members who found themselves in the dock. That will cut no ice in international opinion, it will alienate allies like the Americans, and it will make British condemnation of breaches of international law, such as by the Chinese, sound very hollow indeed.
The European Parliament and Masterly Inactivity
At the same time, and perhaps even more seriously, the European Parliament has postponed ratification of the TCA, without setting a date for doing so. Ultimately, if the agreement remains un-ratified beyond the deadline of end of April, then a possible consequence is a de facto no-deal outcome. And for those who think this means that there will be an escape from the painful trading conditions of the past three months, no it will not: what it will mean is that these would be compounded by tariffs of up to 40% on British exports, and the need for a trade border in the island of Ireland – with all that that implies for security. It certainly would not mitigate in any way the real harm which is being experienced by business, the cultural sector or the City. Just to give some examples, this week’s figures from the ONS show a drop of 41% (£5.6 bn) in UK exports to the EU in January – only a small part of which is due to previous stockpiling. The haulage industry has estimated at 68% drop in the exports they handle, with two thirds of lorries crossing empty to the EU. The government response has been simply to say that there is only a 5% reduction in the number of lorries and to draw the mischievous conclusion that trade has hardly dropped, something for which it has been pulled up by the UK Statistics Authority. Another example: an estimated £1.3 trillion movement of financial services trade away from the City of London. Outside the UK, everybody sees what is happening, just look at the New York Times. Why doesn’t the British public?
There has been some speculation throughout that Johnson and Frost, like the ERG, would actually welcome a no deal outcome, even though by now they must realise that it would be not far removed from a return to an economic Stone Age. And that, of course, in the midst of a catastrophic pandemic.
These politicians seem to struggle to understand the EU approach. Do EU customs officials, they ask, really have to be such jobsworths about plant and vegetable products being brought into the Single Market, or indeed even clods of soil attached to vehicle wheels? Those same politicians understand what is meant by red lines and points of principle when they are on their own side, but not when they are on the other. They fail to see the connection between last year’s UK Agriculture Act, which deliberately opened the door to a lowering of agricultural standards, and the response of the EU. If you will make a point of principle out of divergence then that is the response that you must expect. And of course if you believe the UK government’s protestations, they want divergence solely for its own sake, as a way of asserting sovereignty, rather than as a means to bring in lower standards. Given the track record of honesty of this cabinet, those protestations are not plausible.
In the real world inhabited by people like you and me, and indeed by its many victims, Brexit is very much a live issue. However in the minds of Tory politicians it is “done”. Hence perhaps it is no surprise that in last week’s budget there was actually hardly any mention of Brexit. The nearest thing was the promise to establish free ports, which the government has wrongly said is possible only because of having left the European Union. Actually there have been free ports in the UK, and they were abandoned as unprofitable in 2012. Other EU countries still have them. There is no evidence that they bring greater prosperity to local communities. In reality, like many of the sequelae of Brexit, they exist at least in part to facilitate trade which you and I might find somewhat shady.
And this exemplifies the problem. It is that the Brexit philosophy makes a supposition that somehow UK PLC can be commercially more successful when “unshackled from the constraints of Brussels”. If in fact this were the case it would be by undercutting our erstwhile EU partners. It would be astonishing if they were to welcome that or see it as other than a hostile act, and they are bound to do everything in their power to make it difficult for the UK. As events of the last three months have shown all too clearly, their power to do so is considerable. Lord Frost recently wrote in the Telegraph an article that had fewer paragraphs than it had lies and contradictions. It is elegantly dissected by OfE’s good friend Prof Chris Grey. Frost talks about “sovereign equals”. We may debate the question of sovereignty, but equality is a fantasy. A community of 65 million people with a GDP of £2 trillion (and falling) is not equal to one of 450 million with a GDP of £11 trillion. We are witnessing a ratcheting up of rhetoric between the two, and a trade war seems to be coming. A trade war between the USA and China was unwise and mutually damaging, and that was one in which both sides were of roughly equal economic power. In any UK/EU trade war that most certainly is not the case. The catastrophic harm done to British businesses over the past few weeks demonstrates all too clearly our reliance on the EU, our much larger neighbour.
There has been a clear change in direction since the Gove-Frost switch on 1st March. What a sad day when Michael Gove can start to look like the voice of reason.
You ain’t seen nothing yet!
And in terms of economic harm, worse is to come. So far we have been witnessing the catastrophic effects of non-tariff barriers, but in practice they exist only on one side, UK to EU trade. The UK government has not yet enforced import restrictions and will not be doing so until July 1 at the earliest. This is not through principle or kindness, but solely because, unlike the EU side, the British government, the driver of Brexit, did not in fact make adequate preparations for it. This means that in the name of “sovereignty” UK manufacturers have been at a competitive disadvantage both at home and abroad vis-à-vis their European competitors, and the estimated loss of revenue to the UK exchequer from this alone is of the order of £1 billion. That is obviously unsustainable in the long term. Yet from the point of view of the person in the street in the UK, the arrival of import controls will feel like a double blow. There will be less choice and higher prices in the shops, while the taxpayer will need to stump up the cost of the estimated 50,000 extra customs officials who will be required. And of course the government is creating a smugglers’ charter. Lose-lose is to put it mildly.
Not really a trump card
Confronted with the reality that they have totally miscalculated and have tried to correct their error by behaving illegally, David Frost and his colleagues will inevitably pull out their trump card, namely that the EU threatened to implement article 16 of the Northern Ireland protocol on 29th January. That was indeed an error of judgement. But it remains that they didn’t do it and even if they had it would not have been illegal. More importantly, the EU commission was prepared to admit its error and apologise after the event. When was the last time you saw a British cabinet minister do the same?
Pigs might fly
Please also keep an eye out for our regular series of meetings featuring brilliant speakers. The next one, featuring Layla Moran MP and Ian Dunt, is on 24th March, please follow this link.
Footnote, 13 March 2021: Today, far from stepping back from the brink, the government has chosen to raise the stakes further by turning what was unilateral postponement into a permanent abrogation of some parts of the Northern Ireland Protocol. The only possible interpretation is that it did not know what it was signing in 2019. It seems very difficult to see now how the European Parliament can ratify the trade and cooperation agreement. Will any renegotiation or any meeting of minds be possible? Watch this space.
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One thought on “57. No Way to Start a Trade War”
Don’t forget the damage this government is about to do with its newest policing legislation