Brexit ho – is a deal in sight?

On again, off again.  Then, after British PM Boris Johnson’s statement that there was no point in continuing negotiations without movement from the EU, there are signals that a trade and economic deal might be possible in the next few weeks.

We shall see.  But it’s a good moment to pay tribute to the skill of the negotiators and their principals.

The Europeans think their negotiators are world class; the talks so far seem to bear this out.  Starting from the untenable demand for UK subordination and tribute (which they bluffed former British PM Theresa May into accepting), they have made changes so skilfully and grudgingly that any deal is still likely to be in their favour.

But equal praise is due to the British side, particularly for Boris Johnson in forcing a clear and logical policy on his weak political machinery and divided party and country – and then finding advisers like Dominic Cummings and negotiators like Lord Frost to flesh out and execute the strategy. 

As best as one can tell from the reporting, the basis of the deal would be an extensive free trade agreement – that is the sort of FTA you might expect between two friendly well-integrated economic jurisdictions.

The outstanding points aren’t being sold as deal breakers – but they are significant.

The first is the European demand for surrender of some British fishing rights.  This looks like a question of sovereignty, not money.  If there is no economic solution like transferable rights or royalties, Boris and his team will have to decide whether they can justify a loss of sovereignty in the absence of any equalizing concession on the part of the EU.

The second is Europe’s demand for special market rules to ‘ensure fair competition’.  This translates to rules based on the EU’s particular regulatory framework and market model, with disputes to be resolved in institutions favourable to the EU.

This could pose a threat to British interests because in the worst case it could permit the EU to harass and restrict British politicians seeking to diverge from the increasingly-regulated European economy.  It can be assumed that Britain is unlikely to receive the same influence in the other direction.

Johnson – one hopes – will be scrutinising the detail and weighing the merits.  

From an economic perspective, the case for no deal remains as strong as it was.  Britain would avoid costly concessions, have an incentive to adopt better economic policy settings and pressure would be put on British businesses to adapt (as indeed they have been doing through the Covid epidemic).  

On the other hand, a deal in the current parameters looks politically saleable and it might postpone economic restructuring.  The latter is never easy; while NZ’s farming industry did not disappear when Britain joined the EU and shut out its products, the adaptation was long and painful.

Looking across the Channel, the EU states have no rational economic basis to reject a deal but they have done a great job convincing the world, and perhaps even themselves, that it might be politically harmful to their unity.

Meetings are scheduled to try to wrap things up by early November.  But as both parties can say with a straight face that their bottom line has not been met, another last minute job could be on the cards.

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