Brexit: Running the Clock Down

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On Monday, the Brexit negotiations entered a two-week, supposedly intensive, supposedly very hush-hush phase intended to achieve significant progress. That’s because the gaps between the UK and EU positions are so large that any thing other that a very bare-bones deal would require serious horse-trading.

However, pretty much everyone except readers of the UK press realizes that the odds are close to nil of anything more than such a minimal agreement that it would be functionally only a bit better than a crash-out. No well informed commentator expects the UK to escape having hard borders with the EU, which in turn creates what economists like to call “non-tariff trade barriers” which can really gum up the works.

Remember that participants in talks have strong incentives to play up the notion that the parties are making progress, since a sense of momentum can lead to progress. However, despite some cheery spin, the more substantive accounts underscore that large gaps on fundamental issues like “level playing field” remain. And worse, a new story from the well-connected Tony Connelly of RTE indicates that the differences on another core issue, fishing rights, are if anything widening.

Reuters reported significant progress on “social security rights” and also said the EU had agreed to a longer negotiating runway by allowing them to go until mid-November, as opposed to the earlier end of October cutoff. However, the article also pointed out the biggest issues were still unresolved:

There was no breakthrough in last week’s negotiations on the three most contentious issues – fisheries, fair competition guarantees and ways to settle future disputes – but the prospects of an overall accord looked brighter.

“We seem to be getting closer and closer to a deal, even though the no-deal rhetoric in public might suggest the opposite,” said one of the two sources, both of whom were briefed by the executive European Commission, which is negotiating with Britain on behalf of the 27-nation EU.

Contrast the Reuters account with Bloomberg’s take:

The European Union has no plans to offer concessions to Boris Johnson before next week’s Brexit deadline, betting that the U.K. prime minister won’t make good on threats to walk away from trade negotiations if he doesn’t get what he wants.

The bloc is ready to let U.K. talks drag on into November or December, and even take a chance on Johnson pulling the plug on the deliberations rather than compromise on its red lines, according to a senior EU diplomat. The high-stakes strategy was confirmed by a second EU official…

EU officials say there has been little progress recently and they weren’t impressed by the five compromise text proposals the U.K. submitted last week….

EU officials said they are pessimistic about the chances of a deal because the disagreements between the two sides are about points of principle. For progress to be made, they said, the U.K. will need to change positions rather than necessarily intensify negotiations.

This should come as no surprise to anyone who has been paying attention. Indeed, these leaks amount to the EU saying, “Yes, we’ve never been kidding. Our red lines are our red lines. If anyone is going to give ground, it has to be the UK.”

Bloomberg further claims that Johnson isn’t budging on timetable, and intends to announce in two weeks that there will be no deal if there hasn’t been “significant progress” by then.

One part of the Bloomberg account that seemed surprising was that EU officials supposedly want Johnson to come talk to them:

To break the deadlock, the EU wants Johnson to become more personally involved in the process. There is consternation in European capitals that the prime minister has been largely absent from negotiations so far….

His video call with European Commission President Ursula von der Leyen on Saturday was the first since June and French President Emmanuel Macron is the only major leader he has spoken to since negotiations started in March. One EU official said Johnson would have to hold talks with German Chancellor Angela Merkel before a deal could be done.

The U.K. rejects the idea that it’s up to Johnson to deal with EU capitals, preferring to leave talks to his negotiating team.

This makes no sense. Recall that when Theresa May tried meeting the leaders of various EU countries, it was tolerated even though it was viewed as a breach of protocol. The UK was and is negotiating with the EU, not with heads of state one on one. On top of that, Johnson is loathed in the EU, so having him make the rounds isn’t likely to improve the negotiating dynamics.

So assuming Bloomberg has this right, what is up? Is it that the series of ministers sent to Brussels to represent the UK have all been so hopeless and perhaps unmoored that they have fallen back on getting Johnson as the only formal supervising sort-of adult involved? Is it that some EU leaders (maybe only Merkel, most of the EU seems not to want to spend a lot of cycles on Brexit) feel the need to sit down with Johnson if nothing else so they can tell themselves they did everything they could to prevent a crash-out or super hard Brexit? Or is it that European President von der Leyen wants to syndicate a Brexit negotiation failure?

Tony Connelly is the bearer of more sobering Brexit tidings. Fisheries, once seen as an issue where sensible minds would find a compromise, is looking even more intractable. From RTE:

Fisheries officials from eight coastal member states yesterday agreed unanimously that the EU’s chief negotiator Michel Barnier should take a tougher line in the talks, which are entering a critical phase.

Under the terms of the future relationship negotiations, there can be no overall free trade agreement unless there has been a deal on fisheries.

The UK wants a much greater share of fish quotas from stocks which straddle British and EU waters, and to be able to reduce the level of access European vessels enjoy in British waters.

The EU has sought to maintain as far as possible the quota share and access rights which evolved through the Common Fisheries Policy (CFP)….

Following the ninth round of trade negotiations in Brussels last week, the UK’s chief negotiator David Frost also said: “On fisheries the gap between us is unfortunately very large and, without further realism and flexibility from the EU, risks being impossible to bridge. These issues are fundamental to our future status as an independent country.”…

Sources close to the issue say coastal states are coordinating their position and taking a hard line.

“We don’t see why there should be any concessions,” says one source familiar with developments.

Note the eight coastal states include France and Germany, so they aren’t about to be muscled by other EU nations.

However, the UK would be able to claim something of a victory if it at least got to a “no tariffs” agreement. Consider some of the alternatives, per Automotive News:

Toyota and Nissan will ask for reimbursement from Britain if the UK government fails to agree on a trade deal with the European Union, the Nikkei financial daily reported on Monday.

The Japanese automakers are bracing for a 10 percent tariff on cars exported from the UK to the EU and are demanding that the government pay extra costs, the Nikkei reported on Monday.

British Prime Minister Boris Johnson said on Sunday that he did not particularly wish for a Brexit transition period to end without a new trade deal in place but that Britain could live with such an outcome….

Toyota builds the Corolla and the related Suzuki Swace compact cars at its plant in Burnaston, central England. It also produces engines at a factory in Wales.

Nissan operates Britain’s biggest car factory in Sunderland, northeast England. The plant’s production includes the Qashqai, Juke and Leaf. Honda also builds the Civic in Swindon, near London, but the company is closing the factory next year.

The plant would be “unsustainable” if Britain leaves the EU without a trade deal, Nissan said in June.

Europe and the UK’s car industries last month said a disorderly Brexit would cost the sector 110 billion euros ($130 billion) in lost trade over the next five years.

Ireland’s foreign minister Simon Coveney effectively confirmed the Tony Connelly account. From Reuters:

Ireland’s Foreign Minister Simon Coveney on Wednesday warned that it was difficult to envisage a landing zone for agreement on fisheries, a key stumbling block in trade talks between Britain and the European Union.

The current British position “creates a very difficult negotiation and a landing zone that is quite hard to envisage, quite frankly, for now”, Coveney told a parliamentary committee.

Now it is possible that our reading is unduly downbeat and the EU side has it right, that Boris Johnson will blink. With Brexit now polling as unpopular, one would think he could sell a softer deal to Parliament and quell a revolt by the Ultras, but I am not on top of the party split. Either way, expect more theatrics before year end.

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