Brexit: associating with failure

11/01/2021

Although we are already hearing multiple tales of woe from truckers and others trying to make sense of Johnson's "comprehensive Canada-style free trade deal between the UK and the EU", it is generally acknowledged that these are just the start. Much worse is to come.

And yet, this is the very same deal, of which Johnson on Christmas Eve was saying that it meant "certainty" for businesses, "because there will be no palisade of tariffs on 1 Jan, and there will be no non-tariff barriers to trade".

Instead, Johnson assured the country, "there will be a giant free trade zone of which we will at once be a member", with the deal offering "a new stability and a new certainty".

For all that, as we are only ten days into the new year, it was a little unfair for Andrew Marr on his show yesterday to ask Keir Starmer whether there was "any aspect of the Brexit deal" that, as prime minister, he "would reopen, revisit and try to renegotiate".

Simply, even for those of us who have spent some time studying the deal, it is far too early to assess the full measure of the train-wreck bequeathed to us by Johnson, distinguishing between early teething troubles, which will settle down with time, and those issues which represent fundamental change, to the detriment of businesses and, ultimately, the whole of the United Kingdom.

It was probably incautious of Starmer, therefore, to rule out any possibility of a "major renegotiation". After four years of negotiation, he said, "we've arrived at a Treaty and now we’ve got to make that Treaty work".

He asserted that the deal was "thin" and wasn't what the government promised, but he argued that it was better than no deal. Thus, he said, we needed "to make it work". If a Labour government comes in at the next election, he said, "we will inherit that treaty and the British people will expect us to make it work and the EU 27 will expect us to make it work. And I enter it in that spirit".

We need hardly to be reminded, though, that we are only just over a year into the electoral cycle and there is potentially the best part of four years to go before we have another general election – less if the fixed-term Act is abolished a Johnson reverts to tradition timing and we have an election in May 2024.

But even with the passage of just over three years, that will be more than enough time to assess the workings of the TCA, and its more egregious weaknesses. By 2024, therefore, it would be possible to come up with some ideas of where changes are most necessary, and to devise a plan on which to base a renegotiation.

It is not as if such a stratagem is without precedent. On 1 January 1973, Ted Heath took as into the Common Market and, by February 1974 – only just over a year later – Wilson narrowly won a general election on a pledge to renegotiate our terms of entry.

This pledge survived the October election, which Wilson called to strengthen his position, and we ended up with the referendum in 1975 on the EEC, less than 30 months after we had joined.

On that basis, it would be perfectly reasonable for Starmer to have told Marr that he would keep the functioning of Johnson's TCA under review and then to assess its defects before the next election, with a view to considering whether it was in the best interest of the nation to call for a renegotiation.

In so doing, he need not have committed himself to action, but he would at least have left his options open. As it is, having voted for the treaty in the first place and now pledging to "make it work" if elected, Starmer is effectively taking joint ownership of the TCA. If he inherits it after the election, warts and all, he becomes sole proprietor and takes full responsibility for it.

On reflection, to call this "incautious" is perhaps too kind. Already, we know enough of this treaty to surmise that its effects are going to be devastating. We will not so much be working with it, as suffering from it and, by the elapse of four years, one can easily imagine a build-up of pressure for "reform".

Starmer, though, has made no secret of his desire to put "Europe" to bed and concentrate on domestic issues. But, if he thinks that the treaty is going to settle down into a working arrangement and "Brexit" is going disappear from the political agenda, then he is making a serious misjudgement.

Specifically, although Covid-19 is dominating the agenda at the moment, we must assume that even with this inept government, the vaccination programme will be the end of the year be exerting some effect. By the late spring of 2022, it is not unreasonable to expect that the worst will be over.

By May 2024, although memories will be fresh and the economic impact will still be with us, there is a reasonable scenario that allows us to expect that coronavirus will be behind us and a post-epidemic normality (whatever that is) will be beginning to assert itself.

Nature, of course, is always ready with surprises, and it remains possible that we could still be struggling with an epidemic, the virus having undergone further, significant mutations. In that case, Johnson's TCA – however bad it turns out to be – might be the least of our problems.

Taking a reasonably optimistic view of the progression of the epidemic though, we see a scenario that, as the impact of Covid-19 diminishes, the awareness of the TCA will increase – commensurate with the cumulative effect of its adverse impacts.

And it is here that Starmer's judgement is probably at its least sound. Assuming that his party comes into office in 2024 (his words to Marr), he has set himself an impossible task: "to make sure that the treaty works". He says:

I think pretending to the British public that somehow after four years of negotiation the Treaty that’s just been secured is going to be up for grabs and that the EU are going to start saying let’s start all over again. That is not realistic, that is not going to happen.

However, his problems will come well before any election, when – in fairly short order – it becomes increasingly evident that Johnson has not just delivered a "thin" treaty, but one which is largely unworkable.

The Northern Ireland situation may stabilise, but it is not going to get much better. The "wet" border is a political reality and, as the full range of checks take effect, trade flows between the province and the mainland will remain difficult and costs will escalate. The pressure will bring the two parts of the island together, and the drive for political unity is bound to intensify, accelerating the beak-up of the union.

As regards our overall relationship with the EU, the rules of origin are here to stay, and will have profound, long-term effects. It brings to an end the "distribution hub" model of business – buying-in cheap goods from low-labour countries and selling them throughout the Single Market, at a substantial mark-up. That alone will have a significant impact on the profitability of British commerce.

At the borders, the full SPS regime has yet fully to take effect, but we will start seeing some of the impact this coming week and in the weeks following. By the time the penny has dropped, it will finally be understood that the entry price of British goods – expressed in terms of delay and additional costs – has rendered British trade uncompetitive. It will shrink to a fraction of its former level, a fate which is already apparent with the fishing industry.

We have yet to see the impact of the failure to negotiate a mutual recognition agreement on conformity assessment, although the idiot Johnson states that "the concepts of uniformity and harmonisation are banished in favour of mutual respect and mutual recognition and free trade".

This is not to be, and once the French and other customs start insisting on conformity with EU law being demonstrated at the borders, the flow of manufactured will slow to a glacial pace and costs will escalate. The effect is likely to be permanent, as British exporters will be unable to guarantee either costs or delivery times.

Services, of course, are largely history and while the "equivalence" issue on financial services has yet to be settled, we have no reason to expect a favourable outcome. Again, we must anticipate drastic shrinkage of trade.

Yet these are only the headline issues. Many more will emerge in the weeks and months to come, some of which we will not have expected and which will come as an unpleasant surprise.

But all this will point in one direction – an increasingly urgent need to renegotiate a deal which has the potential to do massive damage to the UK's economy, the effect of which will be to interrupt our recovery from the Covid-19 epidemic.

This, most likely, will put Starmer on the back foot. The longer he tries to ignore the damage and the attempts to make the unworkable work, the more he will be associated with Johnson's failure. It is not entirely untoward to suppose that, if the Tories have the sense to ditch Johnson before 2024, this could cost Starmer the election – irony indeed to see a Labour leader broken on the wheel of "Europe".

Also published on Turbulent Times.