Look at all we have lost

Nov 19, 2018
Sunday Business Post, 18 November 2018

The withdrawal agreement for the UK's exit from the EU may have the the recommendation of the EU Commission but only has a grudging, resignation plagued endorsement by the British cabinet.  Irrespective of whether it is voted in, or left to wither on the diplomatic vine, or even if it prompts changes of leadership or changes of government, one thing is certain.  It is the most coherent statement to date of just how much worse off we all are following the Brexit referendum.


The Taoiseach is quite right in his assertion that the withdrawal agreement represents progress from the mere political statements of intent arrived at in December 2017.  Yet in common with the declarations a year ago, it does not have the force of law, at least not yet.  Whether British or European, we are all still worse off than we were on 28 March 2017, the day before the formal notification by the UK that it was to leave the EU. 


Many of the politicians speaking in the House of Commons on Thursday in reaction to the withdrawal agreement have claimed that it is unacceptable.  Labour, the DUP, the SNP and backbenchers of various hues can identify their own reasons for dissent, even if some of the parliamentarians seem not to have actually read the agreement.  Either that or what was on display in Parliament was a breath-taking ability to assimilate over 500 complex pages of legalese overnight.  Their claims are valid, but their rationale is not correct.  It is the outcome of the Brexit referendum which is unacceptable, not the withdrawal agreement.


Let's look at what the withdrawal agreement takes away.  It removes the right of the UK to have any say or give any political direction to the EU in exchange for retaining the rights and benefits of EU membership until December 2020.  The UK’s position within the EU, albeit for a limited period, will be analogous to the treatment of its provinces by Rome when it was at the height of its empire.  The provinces could rule themselves, as long as they paid tribute and left the big decisions to the Emperor.  Nothing more clearly reflects the political damage done by the referendum outcome that this arrangement is the least bad option, both for the UK and the EU. 


The transition period provides time for frenzied attempts to be made at arriving at a future trading arrangement.  Those attempts will be frenzied because the UK can't begin to enter negotiations with other putative trading partners until the extension period expires, being 31 December 2020 at the earliest.  That's one of the obligations of being in a customs union with the EU.  It is a certainty that no meaningful trade talks will begin between the UK and any other trading nation until after 29 March 2019 or, if the withdrawal agreement survives, 31 December 2020. 


Trade negotiations take time.  The EU has been trying to forge a new trading relationship between itself and the US called the Transatlantic Trade and Investment Partnership.  Those negotiations commenced in 2013 with a US administration which perhaps was more benignly disposed to international trade conventions than is currently the case.  After five years, there may have been some progress but there are no agreements.  This experience suggests that after the transition period expires, the restricted form of customs union which the UK could have with the EU via the backstop might be the best arrangement the UK will have with any other trading partner for several years beyond that.


The backstop arrangement featured prominently in the Westminster debates this week, and indeed in the resignation letters of the ministers who resigned.  From a UK perspective, no matter how unpalatable the transition period might look, the backstop arrangement is even worse.  It is something which would have to be avoided, not least because if it were ever to take effect, the UK cannot unilaterally pull out of it. 


The backstop, which is a default trading arrangement between the EU and the UK should all else fail, is designed to eliminate the requirement for a hard border on the island of Ireland.  Should it ever come to pass, the backstop trading relationship between the UK and the EU will be comparable with the relationship which currently exists between Turkey and the EU.  If you think that arrangement might result in frictionless trade, take a look at what happens at the border between Turkey and Bulgaria.  Free movement of goods doesn’t necessarily mean free movement of lorries.


The political events of this week mean that for business, little enough has improved.  With or without the withdrawal agreement in its current form, businesses must continue with their Brexit preparations.  Withdrawal agreement or not; the ability to provide frictionless cross-border transactions from the UK to the EU will be at least diminished after 31 December 2020 and possibly even after 29 March 2019. 


While the worst concerns on the free movement of goods will be ameliorated if the withdrawal agreement is ratified, we will still only have clarity up to 31 December 2020.  Beyond that, we will either be dealing with an extension to the transition, or a new trading environment, or a backstop environment.  And if the backstop happens, difficulties with goods shipments will remain because of the standards imposed by the single market rules.


Whatever the political outcome, this week’s withdrawal agreement does give some grounds for hope.  In particular the greater level of flexibility which has been demonstrated by the EU in relation to the backstop and the ongoing commitment to avoid a hard border are encouraging. But there is still little good news on Brexit for anyone this week.  Instead we have been reminded in the starkest terms of all the difficulties it has created and what we have all lost.


Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland