brexit

The prime minister clearly hoped that her Chequers package could at least be sold to the warring factions in her own party. The swift resignations of her Foreign and Brexit secretaries soon put paid to that. The European Research Group (ERC) of hard-Brexiteers, led by Jacob Rees Mogg (JCM), were emboldened to openly rebel. The government then went on to accept amendments from him that seemingly contradicted the principles on which its and her own package was based.

That, in turn, prompted 12 Conservative Remainer MP’s to table an amendment of their own requiring the government to consider staying in the customs union if no EU agreement had not been reached by the end of January 2019 – their initial promise to give ‘a fair wind’ to the new approach blown away by May’s apparent craven capitulation.  It was defeated by a mere three votes, and then only after four Labour MP’s, including Frank Field, defied their own party’s three-line whip to vote with the government.

May’s decision, on the surface, puzzling.  She had earlier – at least according to some reports – advised Conservative Remainers to hold fire on their amendment and to wait for the EU to knock-back her then-forthcoming Chequers offer. She could have then told Parliament that the only way that to avoid either NI/Ireland border infrastructure or an Irish Sea border, as well as the maximum economic disruption of a disorderly exit, would be to accept, in effect, the UK staying in a CU equivalent to the existing one beyond the already-agreed two-year transition or implementation period slated to end in December 2020, where no tariffs or quotas or intrusive border ‘rules of origin’ checks would be needed, or levied, or conducted on goods travelling between the EU and UK. The UK would continue to levy, collect, and remit the EU’s applicable Common External Tariff (CET) on all goods imported into the UK from the rest of the world (ROW).

Such a position with government support could have been expected to pass Parliament given Labour Party support for the UK to remain a customs union.

Although Mrs. May had previously provided the Trade Secretary, Liam Fox, with personal assurances about his ability to sign independent trade deals with the ROW, that does not explain why the prime minister felt that it was necessary to capitulate to JRM and his ERG band of fundamentalist Brexiteers. Their two ‘wrecking’ amendments, covering VAT and the EU collection of tariffs on behalf of the UK, would have almost certainly been rejected by the Commons, had her government not accepted them.

Most likely, her motivation was to persuade potential rebels to desist from depositing enough letters of no confidence in her to trigger a summer leadership contest. Yet, by accepting JRM’s amendments, she served to strengthen their position and stiffen their intransigence against the Chequers package. Such appeasement has and will continue to undermine her future political negotiating positions, both internally with her party and externally with the EU, making her ouster as Conservative party leader and prime minister more likely than less.

Putting that political misstep aside, the yawning core contradiction at the heart of the entire Brexit process was inescapably and openly laid bare by Chequers: the economic damage that it entails can only be mitigated by the UK retaining as much of the tangible benefits of EU customs union and single market membership that it can. But that in return requires the UK to accept some of the obligations of EU membership along with an accompanying loss of domestic UK control over their content and of their future development: making the UK a rule-taker without representation.

If the point of leaving was to wrest wholly in practice and effect any EU direct control of ‘our money, laws, and borders’ back to Westminister, such a Brexit-in-Name only (BINO), as it is called by its detractors, seems, in logic at least, pointless: the UK might as well not leave. But that would be contrary to the June 2016 referendum result. On the other hand, exiting with no deal to trade on World trade Organisation (WTO) rules, as extolled by the ERG, would result in the most economically most damaging, and politically (and quite possibly socially) calamitous consequences: a conclusion disputed, or brushed away, only by most fervent Brexiteers.

As Parliament went into its summer recess, individual members of the ERC group – that could number between 60 and 100 MP’s in total – swore that they will vote against any future withdrawal deal aligned to the July Brexit White Paper, which fleshed out the Chequers package. The Labour party, on its part, confirmed that it will continue to oppose such a deal because it would not meet the – albeit unrealizable (short of continuing de facto CU and SM membership) – six ‘Starmer’ tests. And, the Conservative Remainers, alienated by May accepting the ERC amendments, were once again cast outside the government tent.

If the Labour Party and the ERG stick to their existing guns, any deal based on the white paper package will be rejected by Parliament later this autumn, thus shortening the political odds on a UK ‘no deal’ exit, occurring by default. That outcome is far from certain, however: a season is a very, very, long time in politics.

Neither a responsible government nor opposition could engineer, or even countenance, a no deal exit; that is unless they simply washed their hands of its known anticipated consequences on the national interest. Even if they did, many of the potential political ramifications or fall-out from such an outcome, either by design or default, are too unappealing, or too uncertain, for both main parties to stake their future electoral prospects on.

The looming prospect of ‘no deal’ itself could cause the EU, however, to modify or fudge its own previously declared red lines to accommodate a compromise deal with the May government that could then possibly garner the grudging acquiescence of Parliament. It is to that prospect, we turn.

The european dimension

The facilitated customs arrangement (FCA) provides the cornerstone of the UK negotiating position. It is designed to avoid the need for the NI backstop included in the draft withdrawal treaty. The other main pillar on which May’s package rests is UK regulatory alignment with the EU, but only to the extent necessary for the UK to continue to benefit from frictionless trade in goods with the EU27 and with no border infrastructure to be placed between the two Irelands.

That pitch jars with the mood-music coming from, not only from Barnier and the European Commission, but also from key political leaders, that has hitherto maintained the steady tune that the four freedoms of the single market – goods, services, capital, and people – are both inviolable and indivisible.

But as summer simmered in early August, some suggestions of a possible softening of the EU’s absolute position began to emerge. Thee separate treatment of goods and services could perhaps be countenanced, subject to the adoption of interpretation and enforcement mechanisms that would give the final say to its own institutions, most particularly the ECJ.

The EU and UK red-lines could both be blurred or fudged, by, for example, providing the European Free Trade Association (EFTA) court a similar role in deciding disputes that it currently  commands in the existing European Economic Association (EEA) governance structure.  That arrangement already involves Norway, for example, opting out of membership of the customs union, and the acceptance of some associated frictions in the free movement of goods.

Freedom of movement is the main elephant in the room for the UK, and some tweaking of its application could be creatively presented by both parties as part of a movement to a negotiated and  comprehensive replacement arrangements.

That the EU might be prepared to row back on its own stated negotiation red lines should not come as that much of a surprise. A no deal exit would cause one of its members, the Republic of Ireland, almost as much – or even – greater economic harm than it would wreck on the departing UK, whose domestic manufacturing and farming sectors would bear the brunt of the pain both immediately and longer-term. The EU’s other 26 members would also suffer some economic loss, most marked for the Benelux countries geographically closest to the UK.

A chaotic UK exit would put in jeopardy both the £40bn divorce payment and the residence rights of EU nationals working in the UK. At its most existential, the diplomatic credentials and reputation of the EU with the ROW would be soiled, perhaps permanently. The UK exit is a particular situation; at the end of the day: needs must.

Yet it is difficult to discern why the EU should allow the UK – a state that has chosen to leave its ‘club’ and become a non-member third-party –  the benefit of the  special customs arrangement represented by the FCA, while allowing the UK also to continue to benefit from FTA’s agreed between the EU and the ROW.

In particular, the proposed dual tariff structure of the FCA provides an inherent incentive to fraud and smuggling that along with its other added complexities and inefficiencies makes the prospect of its 27 remaining members suffering consequential trading and revenue, almost inevitable. That makes its adoption most unlikely as, https://www.asocialdemocraticfuture.org/2018-brexit-white-paper/, pointed out.

In that light, the EU should also do itself, as well as the UK, a favour by putting the FCA out of its misery as soon it can, without precipitating Mrs May out of office, although that might mean waiting until after the Conservative Party conference in October.

Brussels could then push the UK to maintain an equivalent CU with the EU until such time that a replacement FTA can be mutually agreed and put in place, as a ‘price’ for offering the UK some measure of flexibility on FOM. Of course, no real economic price would be paid by the UK by accepting de facto continuing membership of the CU. Its manufacturing businesses would benefit from the greater certainty of the maintenance of frictionless trade for a longer period; it is only the illusionary prospect of securing substantive new trade deals in goods outside the EU in the short-term that would be lost.

The real issue is whether the resulting political price for the government – and for Mrs May in particular – would be too high.

The domestic political dimension.

Any variant of the Chequers package is sure to be rejected by a sizeable segment of Conservative ERG members. But they set their face against the Brexit White Paper even in its July pristine published state. They, therefore, have already shot their bolt:  no deal is their unshakeable article of almost religious faith, whatever happens.

Mrs May can be expected to stand firm behind her Chequers banner and now face down their messianic zeal for a disorderly exit, relying on the silent majority of her more Brexit-agnostic MP’s to carry her through.

But if she does, could the ERG unseat her in the autumn? Possible but unlikely. Not only are the majority of Conservative MP’s not wedded to a hard-Brexit outcome, which even if they were, would not pass Parliament, but a new hard-Brexiteer Conservative leader would face another general election.   That precise same prospect is likely to deter Conservative MP’s from exposing both their party’s Brexit record and their divisions to a leadership contest and then to a volatile electorate.

That electorate could well vote in a ‘hard-left’ Labour government led by the populist Jeremy Corbyn, and trust it to negotiate a vague soft-Brexit aligned to Starmer’s six principles under a jobs and prosperity banner. A new Labour  government can be expected to seek an extended Article 50 timetable – a need that Labour would make clear during the election had been generated  by Tory incompetence and extremism.

Even if the Conservatives won, the ensuing chaos and economic damage caused by a disorderly exit would quite likely render it a short-lived victory that then made the party subsequently unelectable for a generation.

It is possible that the Conservatives,  if a leadership contest was forced onto Mrs May, would elect a compromise candidate, such as Jeremy Hunt or Sajid Javid, promising a harder line with Brussels in the negotiation,  but with no deal as the backstop rather than the desired destination. This assumes that the constituency members, who would decide such an election, would be amenable to any whiff of Brexit compromise. The deep Tory divisions would still be exposed by such a contest.

Some suggestion has been made that such a ‘compromise’ leader could oversee a UK exit according to a vague and skeleton withdrawal agreement and its accompanying political declaration minimally acceptable to the EU, before exiting in March, but then backtrack to a more hard-Brexit arrangement, presented as ‘what the people voted for in 2016’.

The EU, however, can be expected to include provisions within the withdrawal divorce treaty that would make that difficult. Nor could it be expected that Parliament would be fooled by such duplicity.

Turning to the Labour party, it might hope that a parliamentary vote rejecting any final package based on Chequers would also precipitate an election bringing it then to power. An election fought ‘on what happens next for Brexit’, however, is just as likely to expose Labour’s own Brexit fault-lines.  Its outcome could well prove to be another stalemate that second time around could also induce a splintering of existing party alignments. Its current leadership could well decide, in that light, that betting on the altar of Brexit the once-in the-lifetime opportunity to implement the socialist transformative programme, which is its main preoccupation, was not justified by the odds.

Some on the left, most notably Paul Mason, How Labour could unite the country have argued that Labour should complement its opposition to the Chequers package by publishing the single market and migration approach that, after getting the Article 50 exit date extended beyond March 2019,  as the new elected government it would progress with Brussels.  Labour should also promise the electorate  a second referendum on the final deal that it was then able to secure with the EU27.

This presupposes, of course, that Labour voting against the variant of Chequers package that is offered to Parliament would result in a general election and that sufficient time was left to extend Article 50. It is questionable whether a Corbyn-led government would wish to be distracted from its domestic transformative programme by such a second referendum and its connected complexities and uncertainties.

It is certainly unlikely that either the May government or the present Parliament will concede a second referendum.  Indeed, the cross-cutting complexities of the Brexit permutations are not amenable to a vote between binary alternatives, underscoring that the 2016 referendum was inappropriate in the first place: there was no precipitating new overarching ‘new destiny’ issue; party political management reasons rather led to it.

A second referendum offering Brexit multiple-options would be problematic in content – for example, see the permutations offered in https://infacts.org/theres-more-than-one-way-to-count-a-three-way-peoples-vote/  – and could well be indeterminate  in result, notwithstanding that this time round it would be billed the ‘People’s vote’. There is no simple solution to the complex problem of Brexit. Pretending otherwise is likely to cause more problems than solution.

Anything short of an astounding vote to Remain, would simply lay the ground for Leaver demands for yet another and a third vote, compounding divisions within and between the constituent countries of the UK to an even more dangerous tipping point.

A second referendum only really makes sense when framed between leaving with no deal, and extending Article 50 and staying in: leaving with no deal with its resulting economic and social damage, in that case could well come into ‘new destiny’ territory.  If the majority voted for no deal at least they would be doing so with their eyes wide open, taking, perhaps, the heroic assumption that the consequences of the choices are communicated clearly and transparently the second time round.

But, as argued above, defaulting to ‘no deal’ option should be avoided by a responsible government and opposition.

Can Parliament agree on a ‘least bad’ option?

It is both possible and mutually desirable for both the EU and UK  to negotiate a withdrawal treaty and accompanying political declaration exit that could be conceivably be accepted by the UK Parliament.

The UK would accept an equivalent CU and connected continuing harmonization to EU rules concerning goods infinitely after its formal exit from the EU, at least until alternative trading arrangements are thrashed out and finalised.

Such a Mark 2 Chequers agreement would resolve the NI backstop for the foreseeable future and preserve the continuing vital not-to-be-lost benefit of frictionless trade in goods to both parties.

From the EU standpoint, it would provide comfort that the UK would continue to align and conform to EU rules.  In return for the UK jettisoning the unworkable FCA, the EU could offer some wriggle space to the UK on FOM.  It could also allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU. In the meantime the UK could negotiate and enter into new service agreements with the ROW.

The prime minister could thus offer this the as the ‘pragmatic’ and ‘principled’ best available deal that will allow the UK to actually leave the EU at minimum net economic cost, while providing scope within a realistic timescale for Britain to progressively to identify and to reap the most advantage from its altered future relationship with Europe.

The ERG and other hard-Brexiteers, of course, would indict that to stay in the CU and SM indefinitely would make the UK a ‘vassal-state’ that will prevent it venturing out onto a world stage again as a buccaneering and proud free trading nation winning new trade deals on its own account. Their bawl that this would constitute a grass betrayal of the June 2016 democratic decision to leave the EU can already be heard.  They are going to continue to shout that whatever happens, short of securing their desired no deal exit. That outcome – like the continuing CU and partial SM membership arrangement proposed here, was not on the 2016 ballot paper, when 52% of those who voted, simply expressed to leave the EU in preference to remaining.

The sensible majority in Parliament – across the parties –  should simply rely on the facts to demolish the deluded and national interest-damaging hard-Brexit position. The actual prospect of independent deals – at least of the  significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, is to put it kindly, dim and distant, whose horizon has always extended way beyond January 2021.

Paul Krugman analysis on why existing customs union is better than relying on alternative free trade deals, provides a concise expert summary of that common-sense reality. It already is reflected in the government’s own economic analyses of the expected impact of different Brexit alternatives. Other studies have highlighted the particular adverse impact on jobs and incomes across areas most dependent on manufacturing industry, often located in either Labour-voting or marginal constituencies,  most notably in the North-east, as described in more detail in previous posts, such as https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/.

Of course, for Parliament to exercise its collective wisdom, the Labour leadership would need to be prepared at least to refrain from impose a three-line whip against such a Chequers Mark 2 withdrawal deal.

This it might do insofar that the government will have saved them the trouble of negotiating a deal with the EU that could and would not differ materially very much from what Labour could negotiate with Brussels. Voting it down to precipitate an election that would inevitably be dominated  by ‘what next for Brexit’ would very likely come across as self-serving; and rejecting a CU that would accord with current Labour party policy, which the majority of Labour MP’s are united in supporting – a unity that could shatter if attention shifted to the single market.

Other similar political calculations could also come into play.  Tory hard-Brexiteers  might well be joined by some ‘Lexiteer’ Labour MP’s; perhaps  some hard-Remain Labour MP’s committed to nothing short of a cancellation of Brexit or at least a second referendum could even join them in the ‘noes’ lobby, providing a potential silver lining to both Mrs May and Jeremy Corbyn, by isolating their respective hard-Brexit and Remainer detractors and plotters.

The prime minister could claim that she had delivered Brexit in accordance with the referendum mandate, while Labour could claim that they have secured a result far more worker and jobs-friendly than otherwise would have been the case.  Both leaderships would be served the national interest, while avoiding an election that risked the future break-up of their respective parties.

The balance of political risk would remain with Mrs May and her party. She would still have to withstand the venomous and destabilising attacks of the thwarted hard-Brexiteers who no doubt would strive to incite a rightwards-drifting rump membership to exert pressure on their MPs to ditch the prime minister.

If, on the other hand, she allowed the negotiations to drift to a point where a ‘no deal’ exit beckoned, the pressure for a second referendum to be called in time for such an outcome to be avoided, could become unstoppable.