Brexit disarray finally brings UK business out fighting

Writing about Brexit as a trade journalist has already settled into a predictable pattern.

  1. Watch the UK propose something quixotic (a cherry-picked sectoral customs union, a high-tech borderless border in Ireland, a UK-EU bilateral trade deal being “one of the easiest in human history”)
  2. Write a piece saying “With the best will in the world, I don’t see how this will work”
  3. Wait between six and twelve months for the idea to be dropped and another one to emerge
  4. Return to 1

It becomes a bit repetitive, but it’s steady work.

The latest project to reach stage 3 is the UK’s plan to replace the EU’s 40-odd bilateral trade agreements with third countries before it leaves the EU in March 2019. This was part of its intention to no longer be in a customs union with the EU during a transition period originally intended to be slightly less than two years, but now (another bright idea now approaching stage 3) likely to be longer.

On Friday, getting his capitulation in ahead of the EU’s adoption of its new negotiating principles this week, David Davis, the Brexit secretary of state, in effect accepted this would not happen. Instead, the UK will have to go to the EU to ask to remain within the existing bilaterals, assuming that the legal questions can be squared away, handing Brussels yet another source of leverage in the talks.

Negotiating new agreements with dozens of countries, even simply attempting to replicate the existing deals, was always going to be a huge stretch. What has been striking is how far the UK ever was from achieving it. Conversations with officials in both Brussels and London, and business lobbyists and others following the process, suggest that UK ministers and civil servants frequently struggled to grasp the issues involved, let alone to advocate effectively for the British position.

It was always clear that one of the critical issues in replicating the deals, would be ensuring cumulation in rules of origin such that current supply chains including the UK, the EU27 and the third countries could continue. This would very likely have required the EU’s support. But multiple officials have confirmed that such a request was never seriously made. The UK either assumed that supply chains did not need such generous rules of origin — wrongly, especially in the case of the car industry — or it failed to grasp the importance of the issue at all. Or, perhaps, some have suggested, it was so in awe of the EU negotiating machine that it assumed it would get a “no” and never asked.

As recently as October, Mark Price, who had been a UK trade minister until the previous month, triumphantly tweeted that all third countries had agreed to roll over deals with the UK. This was true only in an extremely general sense. Even since that point, businesses and business associations report meetings with UK civil servants at which they appeared at a loss about how the rules of origin issues would be addressed, or even the importance of them at all.

There remains a technical question about how to keep the UK within the EU agreements even though it will not be a member state after March 2019. The most likely solution seems to be the “Guernsey model”, so christened by George Peretz QC, the London public law barrister who came up with it. Guernsey, a British “Crown dependency”, is not part of the UK but is subject to UK agreements with third countries under international law; the UK could have the same relationship with the EU.

The applicability of this principle to the EU can be debated. But if in practice the UK and EU jointly go to each of the EU’s existing bilateral deal partners and request that they accept the UK remaining inside the agreement, they are likely to get a “yes”. A lot of issues can be fudged in trade with sufficient political goodwill and a general agreement not to rock the boat. There will be plenty of time for the third countries to negotiate a better deal with an isolated and demoralised UK in years to come.

Apart from the UK government’s unpreparedness, another theme that has emerged is businesses increasingly willing to speak up and demand a closer trading relationship with the EU than the government wants to give. The CBI’s recent call for the UK to stay permanently within the customs union was the starkest example, but as deadlines approach, voices across the business community have become louder.

Matt Griffith of Bristol-based Business West, one of the country’s largest chambers of commerce, says bluntly: “Our exporting members have been increasingly nervous by the lack of a clear articulation from the UK government of a basic timetable or plan for these post-Brexit EU FTA arrangements.”

Companies with pan-EU supply chains remain deeply concerned about where rules of origin requirements will end up. “These are significant markets for many of our firms and March 2019 is still looming large,” Mr Griffith says. “The fact that the government appears to have been barking up the wrong tree for 19 months doesn’t fill outside observers with confidence.”

Many businesses privately say they were burnt by backing the overblown “Project Fear” predictions of a big immediate economic shock from Brexit from Remain during the referendum campaign. They have muted their public interventions since. But the looming deadlines, and some substantive issues on which companies have detailed criticisms, have now caused them to increase their pressure on government.

The four-stage process outlined at the beginning is likely to speed up as March 2019 approaches. Two pointers have emerged from the debate over third-country deals. One, the UK government will very rapidly have to raise its game if it is to engage meaningfully with the debate on final trading arrangements. Two, businesses are likely to be harrying it on a much more persistent basis than hitherto.

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Brexit disarray finally brings UK business out fighting

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