Brexit: Where do we go from here?

Another day, another ‘no breakthrough on the backstop‘ story. At the eleventh hour, a dose of reality seems to be setting in over the question of the Northern Ireland Brexit backstop. The DUP’s leader admitted that the backstop isn’t a backstop if it is time limited. The EU has been saying this for months and there are signs that the government has accepted it too, even if it doesn’t want to say so in public.

Where does that leave us? Pretty much where we were in December 2017. The government made incompatible promises and something had to give. Backbenchers, think tanks and, to their shame, some government ministers have come up with all sorts of suggestions as to how the UK could be outside the Single Market and Customs Union without needing border checks. All have been shot down by trade experts but, like post-nuclear cockroaches, still refuse to die. As former UK government trade expert David Henig remarked:

I see “informal transition period” is the new “Article 24 trade agreement” which replaced “managed no deal” coming after “WTO rules won’t permit EU product checks” and “10 year transition period”

It’s almost like there’s a deliberate attempt to mislead people about no-deal

— David Henig (@DavidHenigUK) March 1, 2019

There is something infantile about all this. It’s like children who know they have to tidy their rooms but come out with all sorts of bizarre excuses as to why they can’t do it just yet.  The government’s indulgence of this petulant behaviour has wasted valuable time and demeaned the UK in the eyes of the world. Had it acknowledged the reality of its position early on, it might have had a more productive discussion with the EU.

For the simple fact is that there are no unpoliced trade borders anywhere in the world. The only place where goods move freely across borders is within the EU, thanks to the joint operation of the Single Market and Customs Union. As soon as a country is outside either one, there must be border checks.

Therefore, to avoid a land border in Ireland, the backstop aims to keep Northern Ireland within the EU’s legal framework, regardless of what trade relationship is eventually agreed between the EU and the UK. It keeps Northern Ireland in a customs union with the EU and in the single market for the purposes of goods trade. It is a similar arrangement to that which Jersey and the Isle of Man currently have with the EU.

The only major change between now and this time last year is that the backstop now keeps the rest of the UK in a customs union with the EU too. An important point, which sometimes gets lost in the debate, is that the Northern Ireland backstop and the backstop for the rest of the UK are different. One is a subset of the other, as this chart by William Bain explains. The backstop would therefore avoid a customs border between Great Britain and Northern Ireland but there would still be a regulatory border. In the absence of any other agreement, Northern Ireland stays more integrated with the EU than the rest of the UK.

It is extremely unlikely that this, or any other major element of the Withdrawal Agreement, will change. The idea that, if we only negotiate harder, the EU will cave in, is fanciful. As former Australian trade negotiator Dmitry Grozoubinski pointed out in a recent Twitter thread, there appears to be very little political pressure on politicians in the EU to change their stance.

Are there any signs of disunity within the EU? Are there any signs of popular dissent? Where are the demonstrations saying ‘Be nice to the Brits’ or ‘Avoid the Horror of No Deal’? Are newspaper op-eds calling for a softer stance? Have any EU opposition politicians decided they can make political capital by making an issue of Brexit?

The answer to all these questions is ‘no’ or ‘not very much’. Outside Ireland, there is very little discussion of Brexit in the rest of the EU. People seem fairly relaxed about it. Many are sad about the UK’s departure but they don’t see it as enough of a problem to make an issue of it with their politicians. Why, then, do we assume that the EU’s negotiators will capitulate at the last-minute when there is no significant political pressure on them to do so?

None of this is likely to be much different after an extension to Article 50. There might be some tweaks to the Withdrawal Agreement but the backstop will stay. Whether it takes the decision now or a few months from now, the UK therefore has the same three options: agree the Withdrawal Agreement and proceed to the next stage of the negotiations, withdraw Article 50 and stay in the EU or leave with no deal.

Once Parliament passes the Withdrawal Agreement the government then has to make some decisions about what sort of relationship it wants with the EU. The Withdrawal Agreement will not settle the question of Northern Ireland and its importance to the Brexit process. In fact, the decision on how far we are prepared to see Northern Ireland’s relationship with the EU diverge from that of the rest of the UK is crucial to the next stage of the negotiations. Until we are clear about that, we can’t go much further.

The only ways to exit the backstop will be either for the entire UK to stay in a customs union and close regulatory alignment on goods, which would probably mean staying in the single market, or to accept that Northern Ireland will have a different relationship with the EU. The Brexit options we spent so much time discussing immediately after the referendum, such as a Canada-style free trade agreement or a closer relationship like Switzerland’s or Ukraine’s, only become possible by leaving Northern Ireland effectively within the EU. Is leaving the EU’s institutions and the freedom to do trade deals more important than keeping the whole of the UK in a single relationship with the EU? Opinions will differ but it’s a conversation we haven’t really had. If anyone thinks that the trouble and strife of Brexit will disappear after the Withdrawal Agreement, I have news for you. It won’t. We still haven’t discussed, let alone answered, major questions about the future shape of this country and its place in the world.

That said, we can begin to see what the likely choices will be.

There are only four all-UK options:

1. Stay in the EU.
2. The Venezuela Option – Quitting with no deal would leave us with a similar relationship to the EU as that of Venezuela.  Apart from those countries not under some sort of EU sanctions, it is the only country that has no trading agreements with the EU. Having severed its relationships with the Andean Community and Mercosur, it also has acrimonious relationships with its near neighbours. As a proxy for a No Deal Brexit, then, Venezuela is as close as you can get.
3. The EU-Minus Option – a customs union and staying in the Single Market. This is sometimes called the Norway-Plus Option, as it implies the relationship Norway currently has, plus a customs union. That makes it sound quite good when really it isn’t. It is, essentially, staying in the EU but with no real say over subsequent rules and trade deals. The EU’s rules on the free movement of people would still apply. I thought about calling it the ‘Why Bother Option’ but ‘EU-Minus’ pretty much sums it up. (HT to Dmitry Grozoubinski for that one.) However unsatisfactory it looks, if we don’t want different arrangements for Northern Ireland, this is probably where we will end up.
4. The Jersey Option – a customs union and staying in the single market for goods. This would be similar to the arrangement the Crown Dependencies have with the EU and the one the backstop proposes for Northern Ireland. It was first suggested by Sam Lowe and John Springford at the Centre for European Reform. Other advocates include Martin Sandbu in the FT, Alasdair Smith of Sussex University and former European Commission economic adviser Philippe Legrain. This all depends, though, on whether the EU is prepared to split the Single Market between goods and services for the whole UK. So far, the signs haven’t been encouraging.

The Jersey Option is the furthest out the UK can go from the EU without separate arrangements for Northern Ireland being necessary. Given the backstop, Options 3 and 4 are the only ones available to Northern Ireland once the Withdrawal Agreement is signed.

The subsequent options, then, are for Great Britain only:

1. The Turkey Plus Option – This is the default option under the Withdrawal Agreement. If no subsequent deal is done, this is where we end up. It would be a customs union only agreement but a better than the one Turkey currently has.
2. The Norway Option – staying in the Single Market but outside a customs union. Would mean continuing free movement.
3. The Swiss Option – a series of bespoke deals. Unlikely because the EU doesn’t like Switzerland’s  current arrangement and would probably not want to replicate it anywhere else. Anyone still advocating this model should read Ciaran the Euro Courier who regularly tweets about his nightmares at the Swiss border. Furthermore, like the Norway Option, it would mean keeping free movement which is one of the government’s reddest lines.
4. The Ukraine Option – a Deep and Comprehensive Free Trade Area similar to the Ukraine’s arrangement. This would still leave the UK subject to some ECJ jurisdiction so it is likely to be unacceptable to Brexit hardliners.
5. The Canada Option – the free trade agreement that most Brexiters seem to want.

The outcome of the Brexit negotiation is likely to be similar to one of these models. It may not be exactly the same but it will be close. The decision tree looks something like this.

 

These decisions, though, are about more than just trade. If Northern Ireland is left permanently in a different relationship with the EU, that will upset a lot of people on the Unionist side, and not just those in the DUP. They worry that handing over some jurisdiction over Northern Ireland, no matter how small, will be the first step to its complete separation from the UK. It is early days yet but might people come to see the logical conclusion of such an arrangement as a united Ireland? Might Scotland, with its Remain majority, ask for a similar deal? Could this be the thin end of a wedge which eventually breaks up not just the United Kingdom but Great Britain too?

The implications of these questions have been barely discussed because the government has been trying to pretend that border checks are not an issue and that the post-Brexit future will be an all-UK one. If that is to be, though, the options are very limited.

So while we are ostensibly talking about trade, we will actually be making decisions about the future size and shape of the UK. Whatever path we take there will be risks and trade offs. As Fintan O’Toole said, Brexit is Britain’s reckoning with itself. It may even force us to decide whether we still want to be a United Kingdom at all. We should have been having these discussions over the past three years. Instead we have been throwing tantrums and pretending the questions will somehow go away. As the cold light of Brexit dawns, the dreams and fairy tales will disappear. There aren’t any unicorns coming to the rescue. We have some hard decisions to make.