23 May 2022
Peter Holmes is a Fellow of the UK Trade Policy Observatory and Emeritus Reader in Economics at the University of Sussex Business School
UK trade with Europe has significantly fallen off (see UKTPO BP 63 for an early assessment). UK GDP has fallen by 4%. If we cancel the Northern Ireland Protocol (NIP) – which is all the talk at the moment – the economic consequences of Brexit will get worse and let’s not even think about the political consequences. Is any of this fixable? Yes, if we look ahead to 2025 when the Brexit agreement with the EU—formally known as the EU-UK Trade and Cooperation Agreement (TCA) —is up for its 5-yearly review. UK stakeholders, including political parties planning their manifestoes ahead of the next UK general election in 2024, should consider their Brexit positions now – but it’s not a case of leave or remain, rather a case of ‘tweak the Brexit agreement to something that better suits us’.
The hard Brexit that the British Government chose in 2019 has been exactly that – hard. But unnecessarily so.
Currently, Prime Minister Boris Johnson is contemplating unilaterally cancelling the Northern Ireland Protocol (NIP), which is part of the 2019 ‘hard Brexit’ deal. The basic issue with the NIP arises from the unavoidable fact that the choice of a hard Brexit created the need for either North-South border controls, dividing the Irish all-island economy, or East-West border controls, dividing Great Britain and Northern Ireland.
But the problem is not so much the existence of the border itself—there has to be a border somewhere, by virtue of the very fact that the UK left the EU—as the need for physical checks on goods at the border, wherever that is. And it’s what the physical border checks symbolise and the slowing effect they have on trade that is the real issue.
There is a way to minimise or even get rid of the physical border checks without cancelling the NIP. This seems to have been forgotten in the very polarised and politicised Brexit public debate. In a nutshell, the more the UK aligns with EU rules, the fewer checks there have to be at any border, including between Dover and Calais.
In 2025, there is an opportunity to revisit the very shallow Free Trade Agreement agreed in 2020 under Article FINPROV.3: “Review of the TCA” which states:
“The Parties shall jointly review the implementation of this Agreement and supplementing agreements and any matters related thereto five years after the entry into force of this Agreement and every five years thereafter. “
Ahead of this review, the UK needs to make a careful evaluation now about what divergence from EU rules could really profit the UK and also where agreeing to align with the EU brings no costs. Once we’ve done that we will be in a good position to enter the 5 yearly review and negotiate improvements to the Brexit agreement that will suit the UK better.
‘Negotiate’ is an important word here. The review provision opens an opportunity for a UK Government willing to negotiate in good faith. The key to the discussion is that the EU has relaxed its ‘all or nothing’ approach to market access. For instance, it has offered an SPS (food safety) deal without agreeing to the whole ‘EU acquis’ (the set of rules that constitute the entire body of European Union law). It has made it clear that the amount of risk-based checks at the border is going to be proportional to the degree of divergence of UK rules.
The UK will not be able to simply cherry pick which rules to keep and which not, as it wishes, but there is clearly scope for a trade-off: the more tightly the UK agrees to stick to align itself with EU rules, the less friction there will be. Any commitment would, in principle, be made for the next 5 years at a time.
Because of the UK general election upcoming in 2024, such negotiations would have to be with a new UK Government that had pre-committed itself to signing and complying with a new deal and was willing to abandon the idea that any commitment to alignment with EU rules was an unacceptable loss of sovereignty.
Even before the 5-yearly review comes up, the TCA provides for ongoing negotiations in a range of areas. We are bound by reality to engage in ongoing discussions about day-to-day business such as Northern Ireland or Euro-tunnel border controls. The 2019 Political Declaration, which accompanied the Withdrawal Agreement and the NIP, proposed a deep Free Trade Agreement with a close relationship including cooperation with EU regulatory agencies and more generally a commitment to a “level playing field. Unfortunately, these non-binding commitments were largely repudiated by Boris Johnson’s Government after the election. Indeed, looking at this Government’s draft text of a free trade agreement in the run-up to the TCA, we can see that the UK had asked for an FTA that would have granted the UK generous market access to the EU with very few obligations; for example, mutual recognition of conformity assessment and rules of origin allowing simple assembly plants to benefit from tariff-free access to the EU. When the EU said no, the UK just accepted this. The review provides a chance to revisit this. There was very little preservation of the single market in services beyond the UK and EU’s GATS commitments. The TCA review provisions allow for discussions on non-financial services.
Moreover, in the formal Brexit Withdrawal Agreement the UK has also agreed that in order to preserve the Good Friday Agreement, and no border on the island of Ireland, there would be a NIP requiring Northern Ireland (NI) to stay regulatorily aligned with the EU, while Great Britain (GB) was wholly free to diverge, thus necessitating GB-NI border checks, a point recognised in official Whitehall documents but denied by the Prime Minister.
The TCA signed on Dec 24th 2020 provides a framework for potential future negotiations, without modification of the overall Brexit agreement or even the prospect of rejoining. It allows discussions on a range of areas including “regulatory cooperation”, closer alignment of rules on aerospace, UK participation in EU R&D programmes, and alignment of the UK emission control systems with that of the EU. The latter is particularly important because it could secure exemption of UK exports from eventual Border Carbon Adjustment Measures by the EU including the paperwork needed to show equivalence with EU rules.
Clearly a negotiation is a negotiation. The EU will demand more alignment than the UK might wish to cede, but this is not a zero-sum activity. The EU has also relaxed its firm “No cherry picking” principle, but by how much remains to be seen.
What the EU would offer in any negotiation would depend on how serious the UK side appears to be. Thus the government that emerges from the 2024 election would have to credibly commit to open serious negotiation. The record of past accession negotiations indicates that the UK would have most success if it unilaterally made some commitments, e.g. via its participation in European standards bodies such as CEN and CENELEC to align with the EU where this was economically rational rather than to hold out for “sovereignty” or “bargaining chips.” The policy outlined here would not mean rejoining the EU or even the European Economic Area, therefore no political party that currently plans its manifesto would need to commit to that, though such options might still be open in the future The proposal here would reduce the costs of a hard Brexit including the Northern Ireland situation, improve trust with our neighbours and leave further choices open.
Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory. This blog summarises the arguments in a paper written by the author published by the Progressive Economy Forum, whose support is gratefully acknowledged. See Peter Holmes ‘Reviewing the TCA: How to Salvage Something from the Wreckage of Brexit‘.
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Brexit is not safe with a Labour government led by those who sought to reverse it in the last parliament.