A bit more Brexit brinkmanship is probable before – shazam! – resolution early next year

LONDON CORRESPONDENT:   Is order about to emerge suddenly from the confusion of the Brexit negotiations?

The proposal made by British Prime Minister Theresa May in July (the so-called Chequers plan) has been melting down over the northern summer.  Initial cabinet resignations were followed by polling showing two-thirds of Conservative party members opposed.

An even larger proportion of the public slate the government’s handling of Brexit.

Gloomy resignation to a mediocre outcome is growing.  The government would be in worse shape if it were not for opposition Labour party, which has shown a remarkable ability to tear itself apart over the definition of anti-semitism, and the even more remarkable ability of its leader to be photographed with a wreath at a memorial to the murderers of Israeli athletes at the 1972 Munich Olympics.

In intent, the Chequers plan is half in – half out, with the UK retaining access to the EU’s single market but only for manufactured goods and agricultural products.  It would apply the EU rules in these areas and both parties would benefit from tariff-free and frictionless trade.

The UK would continue to adhere to some other EU rules, principally some of those on the free movement of labour, but would not make financial contributions.

As an exercise in splitting the difference between two incompatible points of view, it has some merit.  In particular, it offers the least immediate disruption for incumbent businesses, in return for not deviating from EU regulations.

The mystery for the outside observer is why the EU hasn’t shown the slightest enthusiasm for the plan, which would maintain the UK as a protected market on EU terms and which provides the clearest opportunity for keeping the UK in the EU’s political orbit.

The short answer is that the EU leadership fears the consequences for EU unity of letting Britain pick and choose from the EU menu and, worse, the risk that this might be a success.  They may also reckon – probably rightly – that under any plausible deal, EU producers will continue to have decent access to current markets.

But observers should not underestimate the leadership’s belief in uniformity and in the superiority of the common rules they have made from the centre. Diversity is not really part of the EU mission.

The alternative to the Chequers plan put forward by May’s Conservative party opponents is something called Canada Plus – a supercharged version of the the EU’s recently-negotiated trade agreement with Canada.  In this model, trade would be subject to normal third-country customs procedures but ideally would not be subject to significant new barriers (eg, tariffs). A detailed statement is to be published  before the Conservative party conference at end-September, presumably in the hope of burying the Chequers plan.

Rebel Conservative MPs say that Michel Barnier, the European Commission chief negotiator, favours Canada Plus.  If true, there would appear to be few obstacles (apart from the current Cabinet position of course) to a purposeful negotiation.

More likely, Barnier would be happy for a standard trade agreement on the lines of the Canada deal, but on less favourable terms than the rebels might be hoping for.

In the post-Brexit environment, the UK’s optimal economic strategy would be to keep its borders open to imports from the EU, and then piling on competitive pressure through even freer trade with the rest of the world.

Barnier, however, is more insulated from consumer pressures.  He might want to restrict current imports from the UK to reward producer interests or to send a signal to other potential leavers.

The UK’s negotiating chips are the £40 billion in alimony it has agreed in principle to pay the EU and its willingness (so far, very limited) to declare its sovereignty has been compromised and play the ‘no-deal’ card (which would mean trade on WTO terms).

With this balance of forces, a little more drama and brinksmanship seems likely during the rest of 2018.  Then, at some time in early 2019, the problem should reach the desk of Europe’s uber grown up (aka Angela Merkel) whom one might think would briskly dictate an outcome which looks something like – the Canada trade agreement.

 

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