Brexit: Confrontation

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The stunning news about the Trumps contracting Covid-19 has pre-empted many other stories. But let’s not neglect an important Brexit development yesterday: that of the EU formally launching legal action against the UK for not removing the offensive sections of its Internal Market bill, which has passed the House but has not yet been approved by Lords. Recall that the some Government ministers have admitted that the Internal Market bill violated the Withdrawal Agreement, signed by the Johnson government. As we explained mid-September:

It is hard to fathom how the EU and UK can extricate themselves from the Brexit mess that Boris Johnson has engineered, particularly given that EU leaders had lots of antipathy for Johnson even before he became Prime Minister. They seem more inclined to throw him an anchor rather than a bone.

For those of you who tuned out of this melodrama and missed the latest episode, the land border in Ireland was the Achilles heel of Brexit. The Good Friday Agreement is a tricky set of compromises and fudges that has been a tremendous success in practice. No one wants to touch this third rail except the ideologues in power in Great Britain. Even US Congresscritters have cleared their throats and said the UK can kiss its US trade deal goodbye if it messes with the GFA.

Yet Boris Johnson is proceeding to advance a bill through Parliament that would negate commitments he agreed to in the Withdrawal Agreement, the very same deal he touted as a great win for the UK when he pushed it through shortly after moving into No. 10. Johnson is blowing up the Ireland compromise he’d agreed to, of having Northern Ireland subject to EU restrictions on state aid, which for businesses that operated in Northern Ireland and Great Britain, would wind up applying to all of their UK activities. Johnson also wants to nix the Exit Declarations that Northern Ireland businesses would have to file for shipments into Great Britain. Johnson, when called out on the issue at the time of the vote on the Withdrawal Agreement, handwaved them away as “light touch checks“.The Government admitted then it had no idea how much compliance would cost Northern Ireland businesses.

And in blowing up that arrangement, Johnson risks blowing up getting any sort of EU trade deal by year end. We are back to a Brexit Groundhog Day tape loop, a digitally enhanced version of the “no deal Brexit” scenario. And there has been so much talk of “hard Brexit” and crash-outs that the general public has become inured to what it might mean. Admittedly, with Covid having already killed air travel, that’s one sector out of the Brexit line of fire. But even with all of the extra prep time, there’s plenty of UK downside. Goldman not only argues that the hit would be much larger than for Covid, but that it would also be possible to identify the magnitude of botched Brexit damage.

Mind you, EU legal action against states is a far more measured affair than, say, the US Federal government suing states. The EU had cleared its throat and said the UK needed to remove the offending sections from the Internal Markets bill by the end of September. Since that hasn’t happened, the European Commission, in its capacity as “the guardian of the treaties,” sent a letter to the UK asking for it to ‘splain itself. The key bits of President van der Leyen’s short statement:

As you know, we had invited our British friends to remove the problematic parts of their draft Internal Market Bill by the end of September.

This draft Bill is – by its very nature – a breach of the obligation of good faith laid down in the Withdrawal Agreement (Article 5).

Moreover, if adopted as is, it will be in full contradiction to the Protocol on Ireland / Northern Ireland.

The deadline lapsed yesterday.

The problematic provisions have not been removed.

Therefore, this morning, the Commission has decided to send a letter of formal notice to the UK government.

This is the first step in an infringement procedure.

The letter invites the UK government to send its observations within a month.

Now some of you may be saying, “This is silly. The UK will be done with the transition period in a few months and it can tell the EU to sod off.” That’s not correct.

The UK and EU had agreed to a dispute resolution mechanism for disputes under the Withdrawal Agreement, although that isn’t the route the EU chose to pursue.

Instead, the EU availed itself of the fact that the UK agreed that the European Court of Justice retains jurisdiction over the Withdrawal Agreement during the Transition Period. And as President von der Leyen set forth, the EU’s position is that the UK breached what in an US commercial contract would be the “good faith and fair dealing” requirement that is implicit in all contracts…and is explicit in the Withdrawal Agreement.

And if you read Article 87 of the Withdrawal Agreement, the Commission can file a case against the UK for a breach of the Withdrawal Agreement for up to four years after the end of the Transition Period, and the ECJ has jurisdiction over those cases:

If the European Commission considers that the United Kingdom has failed to fulfil an obligation under the Treaties or under Part Four of this Agreement before the end of the transition period, the European Commission may, within 4 years after the end of the transition period, bring the matter before the Court of Justice of the European Union in accordance with the requirements laid down in Article 258 TFEU or the second subparagraph of Article 108(2) TFEU, as the case may be. The Court of Justice of the European Union shall have jurisdiction over such cases.

Article 89 says UK courts will enforce rulings under Articles 86 and 87.

Richard North believes the EU is likely to launch other actions:

If the Bill becomes law, the UK could be in breach of the substantive provisions of the Protocol: Article 5 (3) & (4) and Article 10 on custom legislation and State aid, including amongst other things, the direct effect of the Withdrawal Agreement (Article 4). This, presumably could be subject of a further action, invoking the dispute procedure in the Agreement.

And don’t assume this will get wound up before December 31 absent a massive UK climbdown:

With all this in motion, no wonder the other omens are not looking good:

Even before the Internal Market bill gambit, we had observed that the normally-fabulously-uncommitted-to-anything-other-than-himself Johnson had so dug himself in on a super-hard Brexit that it was difficult to see how he’d back himself out of that corner if he found it necessary. And a short timeframe makes that even more difficult.

Chris Grey, in his new Brexit Blog post, points out that the Leave campaign and later the Tory government had promised, in effect, that the UK would remain in the Single Market, even though that was revealed under Theresa May to be cakeism:

It beggars belief that the government should now be contemplating, not as its worst scenario but as its best and indeed preferred scenario, the thinnest of trade arrangements with the EU….Britain has been driven by the implacable extremism of the Brexit Ultras to a situation where the only future relationship options are distance or dislocation.

Grey comes out more or less where we do, that the Government’s choice to play hardball for domestic consumption, compounded by the Internal Market bill show of bad faith, has made it well nigh impossible to salvage the negotiation, even it the Government was merely posturing:

The IMB now goes to the House of Lords, where no doubt it will be mauled, but as trailed in my last two posts the government has delayed the timetable for this. Taken together with the terms of the EU’s legal action, this means that there is a tiny window in which the trade talks can proceed without the Bill actually becoming law. That creates a theoretical possibility that the illegal clauses might be dropped in the light of a deal being done, according to Simon Coveney, Ireland’s Minister for Foreign Affairs, and others. Thus by the middle of October, conceivably, there might be a trade deal and an end to the threatened international law breach.

But massive damage to trust has already been done, with the result that the issue of enforcement for the governance mechanism for any trade deal has now taken centre stage in the future terms negotiations. The obvious concern is that the Johnson will once again sign a rushed deal with implementation details to be filled out later, perhaps especially tempting given the ongoing coronavirus crisis, only to backtrack later when it comes to putting what was agreed into practice as has happened with the IMB. Shamefully, thanks to the behaviour of Johnson’s government, our country is no longer trusted to behave honestly.

Johnson may get his comeuppance, but too late to relieve the negotiation deadlock:

Meanwhile, wishful thinking abounds. Via Tony Connelly in RTE:

Meanwhile, Tánaiste Leo Varadkar has said he expects Britain and the European Union to clinch a tariff-free and quota-free trade deal, in an interview published by online news site The Currency.

“I still think there will be a deal. It will be no quotas, no tariffs, some form of minimum standards and control on state aid and fishing,” Mr Varadkar was quoted as saying.

Erm, while in theory anything is possible, even this sort of bare-bones pact looks to have lottery-ticket odds. The EU is not relenting on state aid. They are not letting the UK undercut the EU. And the UK has made so much noise about this issue that it’s hard to see how they could retreat.

And while a compromise would seem to be far more likely on fish, enforcement of any resource-sharing deal would be nightmarishly complicated and costly.

And as Gertrude Stein said of Oakland, “There’s no there there.” While an agreement waiving tariffs and quotas is clearly better than none, it does not prevent a hard customs border. And I’m not sure about the no quotas part being possible, since those would presumably still apply through EU deals with other third countries like South Korea. In addition, “bare minimum” deals in key sectors almost certainly require more bells and whistles than “no tariffs, no quotas”:

And whaddabout financial services?

Needless to say, we expected these talks to end badly. There was never any bargaining overlap between the Leave position and the steps on Barnier’s ladder. But as I so often say, it would be better if I were wrong.

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