Rocky Road Seen Ahead for UK After Brexit

Some analysts believe British Prime Minister Boris Johnson is using brinksmanship in a bid to gain last-minute concessions.

The Houses of Parliament and Big Ben. (AP file photo/Matt Dunham)

(CN) — The Great Divorce between the United Kingdom and the European Union has been messy and agonizing, and it could get even messier as the two sides struggle to come up with a long-term divorce settlement over such critical areas as trade, law, security, border controls and fishing boundaries.

At the end of January, the United Kingdom finally left the EU after more than three years of emotional debate over the pros and cons of Brexit. It was a political fight that split the U.K. and continues to cleave the nation.

As hard as the divorce was, a potentially messier phase has begun: The U.K. and the EU are in negotiations over establishing the terms of their relationship with the goal of signing a free trade agreement.

But the talks are not going well, raising the prospect the two sides will not resolve differences by a Dec. 31 deadline and may end up in a combative relationship for years to come as Brits squabble with Europeans over tariffs, food and environmental standards, whose court rulings are more valid, whether to share police information, who can and cannot fish in British waters, and so much else.

Despite interruptions in talks caused by the coronavirus pandemic, British Prime Minister Boris Johnson, a right-wing champion of Brexit, is pushing a go-it-alone approach and his government is rebuffing Europe’s call to extend the U.K.’s transition out of the bloc for one or two more years and allow more time to craft a trade agreement beneficial to both sides.

“Extending would simply prolong negotiations, create even more uncertainty, leave us liable to pay more to the EU in future, and keep us bound by evolving EU laws at a time when we need to control our own affairs. In short, it is not in the UK’s interest to extend,” said David Frost, the lead British negotiator, in April. The U.K.’s position has not changed since.

As it stands, without an extension of the transition or the signing of a trade agreement, the U.K. will no longer be bound by EU laws and rules on Jan. 1, 2021, and trade relations between Europe and Britain will fall under World Trade Organization rules.

This is called the no-deal scenario and it looks like an increasingly realistic, though many say improbable, scenario. Already, many U.K. businesses are preparing for a rockier relationship with Europe and the possibility that trade barriers will be erected.

The Aston University, in Birmingham, England released a study on Monday showing that many smaller U.K. exporters are diverting their trade away from the EU in anticipation of a collapse in Brexit talks and the imposition of tariffs by Europe.

It looked at 340,000 export transactions by 26,000 U.K. firms over a five-year period ending in 2018 and found many small firms are switching to new markets. They are moving about $13 billion of annual trade toward old British colonies in the Commonwealth, such as Australia and New Zealand, and to Russia, China, India and South Africa, countries with growing wealthy classes. To a lesser degree, more British exports are headed to rich countries like the United States, Japan and South Korea. It also found the exports of bigger companies are not decreasing to the EU.

“This evidence suggests that U.K. exporters are jumping before they’re pushed: finding alternative markets worldwide for their products even before we know the outcome of the current U.K.-EU trade negotiations and any potential new barriers,” said Jun Du, an economist at the Aston Business School.

The study found industries at the most risk of facing tariffs in the EU are the most keen to find new markets. Those include suppliers of food and drink, chemicals, textiles and transport manufacturing, the study said.

Another study, by the London-based think tank New Financial, found 332 firms had relocated at least part of their financial business away from London, long a global financial capital with $12 trillion in banking assets.

Dublin, which remains in the EU as Ireland’s capital, is benefiting the most from the move away from London, the think tank found. EU clients make up about 20% of London’s financial institutions’ clients and many of those clients may pull out of London, according to Bruegel, a Brussels-based economic think tank.

For now, the EU remains Britain’s biggest trading partner, with about $805 billion in trade. About 45% of the U.K.’s exports go to the EU while 53% of its imports come from the bloc.

Pro-Brexit politicians like Johnson say breaking away from the EU will allow the U.K. to open up new trade routes around the globe and become more competitive outside of the EU’s regime of standards, laws, rules and limits on state aid.

But many economists are skeptical that the U.K. will be better off outside the EU and critics say Brexit is leading the U.K. down a path of further deregulation and lowering of standards.

While the U.K. is in trade talks with the EU, it is conducting parallel trade negotiations with the United States. To get a deal, the U.K. is considering slashing tariffs on U.S. agricultural goods and lowering food standards to accommodate American practices, such as cleaning chicken with chlorine and injecting cows and pigs with growth hormones. Chlorinated chicken and growth hormones are banned in the EU.

Since they began this year, trade talks between the U.K. and EU have been rocky.

The EU is seeking to get Britain to abide by its rules and laws in a sweeping trade agreement that would allow the U.K. to pretty much carry on as it has been. But the U.K. is resisting being pulled into the EU regime and becoming a “rule taker,” saying the purpose of Brexit was to allow it to be free to decide its own laws, rules and standards.

It’s asking for side deals on specific areas, such as separating an agreement on goods from fishing rights. But the EU charges the U.K. of wanting to cherry-pick.

The EU fears the U.K. is becoming a major competitor right off its shores and it doesn’t want the U.K. to have full access to its single market, the largest economy in the world, while it is also undercutting EU standards, companies and rules. For this reason, the EU is seeking to get the U.K. to adopt by the same playbook as the rest of the EU.

“I would remind you that the United Kingdom is leaving the internal market and the customs union … it’s not us leaving the United Kingdom,” Michel Barnier, the EU’s chief negotiator, told a German radio news program recently. “A third country, the United Kingdom, will not dictate the conditions of access to our market for British goods, services, data or for workers and businesses. … We remain sovereign. This is my mandate.”

He described the British position with a German expression: “You cannot dance at the same time at two weddings. This is the attitude of the British: leaving the European Union, but they want to keep all the advantages. More realism is needed.”

The two sides are at odds over many of the same issues that fueled Brexit and made it so emotional and politically difficult from the outset.

One such area is fishing — a tiny part of overall trade but one with critical strategic and emotional leverage. During the Brexit referendum in 2016, regaining control over British waters became a winning argument for those campaigning for Brexit.

European vessels do a lot of fishing in British waters, but the U.K. appears determined to end that easy access for outside fishing boats. Its negotiators say the U.K. will not budge and will assert sovereignty over its maritime areas. But Britain’s fishing industry relies on sales in the EU and a tough stance may wind up seeing tariffs slapped on British seafood.

Northern Ireland has resurfaced as a contentious issue again, too. After months of acrimony and seemingly insoluble complexities over how to keep the once-volatile border between Ireland and Northern Ireland free of customs checks after Brexit, Johnson engineered the U.K.’s withdrawal from the EU by guaranteeing that customs checks would take place between Northern Ireland and the rest of the U.K. But Europeans are concerned that Johnson is not going to carry out this protocol. Recently, the EU was incensed that the U.K. refused to allow an EU office to be established in Belfast to monitor the customs arrangement.

Negotiations are continuing this week and a high-level meeting between Johnson and EU leaders is expected later in June.

Despite the tough talk from both sides, many experts expect they will make sure the separation does not lead to a dramatic rupture in relations.

“Much of the rhetoric may focus on the drama of what extensions are needed and by when they must be requested, coupled with fears or warnings of a new ‘no-deal’ situation,” wrote Rebecca Christie, a visiting fellow at the Bruegel think tank. Despite all the political rhetoric, she said there is “little doubt that ultimately there will be an agreement … preventing a cliff edge.”

But others see the Great Divorce potentially ending up over a cliff.

“The U.K. government seems to believe that by running down the clock, it will be able to secure concessions from a ‘weak and divided’ EU at the last minute,” said Jannike Wachowiak, a policy analyst at the European Policy Center in Brussels.

Wachowiak said Johnson is praised in conservative British circles for his reputation for brinkmanship in getting the EU to sign a Brexit withdrawal deal that was then passed by the House of Commons, but she wondered if this strategy will work now that the EU and the U.K. are discussing sensitive long-term arrangements.

“The U.K. wrongly believes that EU unity will not last when faced with a final deadline and the threat of no deal,” she wrote in a recent paper. “This kind of thinking underestimates the EU’s willingness to protect the integrity of the Single Market, and the European project as a whole. It is true that the EU wants a deal, but certainly not at any cost, and only provided that fundamental demands, such as sufficient level playing field provisions and guarantees on governance and fundamental rights, are met.”

She added: “Johnson’s brinkmanship increases the risk of no deal. … A divided EU will settle on the lowest common denominator as a last resort, thus increasing the chance of a no deal by default.”

Courthouse News reporter Cain Burdeau is based in the European Union. 

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