Martyn Rady is Masaryk Professor of Central European History at University College London.
As the Irishman said, ‘I wouldn’t be starting from here.’ Instead of deciding at the outset what Britain’s future relationship to the EU would be, other than the empty ‘Brexit is Brexit’, the UK has negotiated Micawber-style. It has ‘waited for something to turn up’ while piling on debts to Brussels—£40 billion at the last count plus a good deal more should the UK decide to pay for ‘market access’. The Government could have said in June 2016 that it wanted to remain in the European Economic Area or join EFTA, and used the narrow vote for Leave as justification for a half-way house. But that would have split the Conservatives and not answered calls for a halt to immigration, so it was deemed a political non-starter.
Bereft of any clear idea as to what it wanted, the Government drifted and let the EU set the agenda – divorce bill before trade talks, and premature discussion of the Irish border and citizens’ rights before trade talks, too. And now, it is into a ‘messy Brexit’, which will require item by item negotiation over the future commercial relationship. Already the EU negotiators have ruled out any special arrangements for the service sector, stating that the City will deal with the EU just like any other non-EU country, based on regulatory equivalence. Meanwhile President Macron has confirmed that the UK will have ‘no differentiated access to financial services’. If it wants anything more, then it will have to pay and submit to the EU courts. Since Theresa May has already ruled this out, an impasse prevails.
Maybe the Government can save something for manufacturing industry. The issue here will be regulatory convergence. Everything marketed in the EU has to bear the CE (Conformité Européenne) stamp, which means for pillow cases that they have to adhere to 40 separate regulations. At present, companies can self-certify, but there is no guarantee that the same regime will apply after Brexit. The new arrangements will be thrown, alongside tariffs, into the negotiating pool. The only way to obtain friction-free movement for manufacturers will be a further contribution to the EU budget. Norway (population: five million) pays just under a billion a year for this, so the eventual UK sum is likely to be many times that.
Given their complexity, negotiations will have to go beyond the ‘two-year transition’, with sectoral agreements on cars and aerospace implemented in slow stages alongside agreements on access charges. Political changes in both the EU and UK will further delay resolution. But whatever the timeline, the overall deal will be a poor one for the UK. To their credit, the Commission and Council have never hidden their ambition to leave the UK worse off outside than inside.
Time is short and the prospect of a delayed, messy and damaging Brexit looms increasingly large. Perhaps there is a plot worked out by a Remainer Cabal to achieve ‘Brexit in name only’. But if not, the Government needs to get a grip on negotiations and to signal now that its approach has changed. The bumbling troika of Davis, Fox and Johnson should be dismissed (along with Hammond) and replaced by some hard men and women. They should signal that the UK will trade with the EU on WTO terms and invite sector-by-sector concessions. This is a tough call since the lazy Fox has so far done nothing to make sure that the UK preserves the benefits within the WTO that the EU has negotiated around the world.
There are, however, three aces that a new team can play, which taken together will force the EU into rapid compliance.
First, the UK should state that it will trade mostly tariff-free, and lower Corporation Tax to five or ten per cent—certainly below Ireland’s 12.5 per cent. It might additionally grant the same sorts of tax exemptions that makes Luxembourg so attractive to multi-nationals. When Hammond merely hinted at this last year, the EU reaction was one of furious alarm, with much talk from Schäuble and Tusk of a ‘race to the bottom’ (left-wing speak for competition and the market). A business-friendly UK will leech jobs and companies from Europe, more than making up for the tax cut. Plenty of firms will choose to be just brass-plated in the UK if they can pay their corporation tax here instead of in Ireland or Luxembourg.
Secondly, UK negotiators should say there will be no customs posts on the Ulster border. Since the UK will be trading mostly tariff-free there will be no need for them and the facts of logistics make it unlikely that the open border will provide a route to the mainland for agricultural produce (on which some tariffs will have to remain given that the EU unfairly subsidises its farmers). So it will be the Republic of Ireland and the EU that will be putting up the customs posts, to stop the flow of cheap UK imports. In view of their previous posturing, will they dare?
Thirdly, the UK should make it clear that once it has assumed its new global – as opposed to narrowly European – role, its strategic imperatives will shift. It will leave NATO, which is preoccupied with European defence against Russia, and seek a new bilateral partnership with the United States, while developing the already-existing ‘Five Eyes’ intelligence pooling with Australia, New Zealand, Canada and the United States. After America, NATO has only two serious members—Britain and France, which both spend about two per cent of their GDP on defence. Germany spends proportionally only half of what France does. Unsurprisingly, of Germany’s 42 Eurofighter Typhoons, all but eight were at the last count grounded, while most of its combat vehicles were deemed unfit for service.
With the UK leaving NATO, the member states of the EU will face the prospect of having to fork out for the military defence they have so far left others to pay. Their defence budgets will have to double and they will have to develop intelligence capacities of their own. UK negotiators should make it clear that, once outside the EU, there will be no residual strategic reason why British boys should die for the Polish or Baltic borders or why the UK should prioritise tanks for combat on the North European Plain over a navy to guard its global seaways.
Recent talk by Michel Barnier of sanctions and grounding aircraft indicates that the EU is willing to talk tough. Time is moving on, but it is not too late for the UK to respond with equal clarity and menace. In fact, it is probably now the only way forward.