by Frank Schnittger
Thu Jul 28th, 2016 at 03:56:41 PM EST
A reader who wishes to remain anonymous writes (By email):
Is it yet clear what the process for British Exit is and what is to be negotiated?" UK politicians seem to depict a different view of what is involved than the EU Commission. I think the answer is important and is not being given enough attention in the UK.
Cecila Malmstrom (EU Commissioner for Trade) has stated that the process is two stage and sequential. First UK leaves completely to third country status and WTO rules. Then, UK can begin to negotiate its future relationship, i.e. the terms of access to the single market is what some, but not all, Tory politicians think is necessary. [UK can either negotiate that break cleanly within two years of A50 or it happens at the end of that unless extended by unanimous agreement.]
Paragraphs 3 and 4 of the official statement following the 29th June meeting of the 27 seems to support this view though the statement is not intended to clarify that Malmstrom view.
Again delusion sets in amongst the Tories when they think UK is going to control movement but have full access with all the existing benefits. [I am aware that Switzerland has failed to come up with such a deal and is running out of time to resolve its position following the Feb 2014 Swiss referendum].
- Once the [A50] notification has been received, the European Council will adopt guidelines for the negotiations of an agreement with the UK. In the further process the European Commission and the European Parliament will play their full role in accordance with the Treaties.
- In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms. [My emphasis]
Liam Fox [UK International Trade Secretary] has described Malmstrom's view as "bizarre, stupid, preposterous and ridiculous" according to the Guardian.
It would be interesting to find out if Juncker, Tusk and Michel Barnier take the same position as Malmstrom. But I don't think I am in a position to ask them. Perhaps you are or know someone who can?
Until Article 50 was adopted as part of the Lisbon Treaty there was no procedure for any member state to leave the EU and the European project was seen as an irreversible process towards "an ever closer Union", albeit with some members perhaps proceeding more rapidly than others. This is what the UK bought into in 1972, whether it's citizens realised it or not. It is also worth noting that there is no tradition of popular referenda in the UK prior to accession to the EU, so it can be argued that EU membership has occasioned greater accountability to the UK people, not less.
As you are aware, there is currently no precedent for Article 50 being invoked, so we are all in virgin territory, so to speak. Article 50 merely sets out the bare bones of a process and these things are always open to interpretation - something ultimately only resolvable by reference to the European Court of Justice, if it remains in dispute.
It is not uncommon for complex negotiations to begin with "talks about talks" to establish the precise procedure and format for such talks.
I think you can take it that Malmstrom's and Fox's comments are part of the normal jockeying for position that often precedes such talks, as both sides seek to set the agenda and influence the process to be followed. Ideally Prime Minister Theresa May would like to have the outcome of those talks predetermined before Article 50 is ever invoked, so she knows exactly what she's getting, and prepare accordingly.
Malmstrom is articulating the polar opposite view - first leave, and then we will start again from scratch to determine the precise shape of the UK's relationship with the EU as a third party - a process that could take many years and with a very uncertain outcome. I can well understand why Liam Fox is outraged.
If you were to take Malmstrom's position literally, it is difficult to see what there is to discuss for two years after Article 50 is invoked. Indeed the UK could just say that it wants to leave immediately and the European Council could agree and ratify that decision by weighted majority vote at its next meeting. The UK would then have the same status as any other country which is part of the WTO or EEA (take your pick) but which does not have a bilateral trade deal with the EU.
But that would be counter to what I believe to be the spirit behind Article 50. The whole purpose of the article is to provide a time limited space where all these things can be trashed out in advance so that everyone knows where they will stand once the maximum period of 2 years has elapsed - thus limiting the period of uncertainty, but also providing for a reasonable period of time for the post Brexit relationship to be defined and agreed.
Whatever about pre-talks jockeying for position, or talks about talks, the EU has, however, perhaps to the dismay of some in Britain, spoken with one voice on one issue: If the UK is serious about leaving the EU, the only process for doing so is as defined in Article 50, and no substantive talks can take place beforehand. There will be no back door or back channel "informal" agreements reached beforehand. The reason is clear: the EU wants to limit the length of the period of uncertainty to a maximum of 2 years.
This is understandable, but it also places the UK at a severe disadvantage. It has to enter the 2 year period with no certainty as to the outcome might be, and if no agreement reached, it is out of the EU with no bilateral deal or special access to the Single Market whatsoever other than as provided for under WTO or EEA rules. Any extension of the two year period, or deal reached thereafter, is subject to unanimous, not weighted majority, agreement by the EU Council, and the UK is then at the mercy of any member state with a grudge against it - cf. Spain and Gibraltar...
It is therefore in the UK's interest to progress the negotiations as expeditiously as possible, especially once Article 50 is invoked, and to try and get as much informal consensus as possible both within the UK and within the EU even before that clock starts ticking. However there is no incentive for EU leaders to agree anything before Article 50 is triggered, and so I expect progress to be very limited before then.
Significantly, Theresa May has already visited Berlin and Paris in a bid to reach some informal understandings and to buy time before Article 50 is invoked, but it is noticeable that there has been no queue of EU leaders beating a path down Downing Street to make things easier for her to steer the discussion. The only exception to this to date has been the Irish Taoiseach, Enda Kenny, who has special concerns in relation to the Northern Ireland Peace Process, the common travel area between Ireland and the UK, and the very high level of bilateral trade between the two countries.
Everyone else is keeping their powder dry... except Jean-Claude Juncker, the UK bête noire, who has appointed his toughest negotiator, Michel Barnier to head up the EU side of the talks. Expect Theresa May to try to appeal to Merkel and Hollande over the heads of the direct negotiators in an attempt to get a better deal. However she may well get a cold shoulder. Hollande is in a very weak position to make any concessions, and Merkel is sensitive to suggestions that Germany will now be even more dominant within the EU.
Any final decisions will have to be made by the European Council as a whole, where many Prime Ministers are under pressure from nationalist and separatist movements within their own borders. This is one decision that Merkel will not be able to make on her own. No doubt May will cultivate other friendly voices, besides Ireland, to be sympathetic to her side. But insofar as the EU is in an existential crisis as a consequence of Brexit, no pro-EU leader can afford to make the leaving process easy for the UK.
Most difficult negotiations end up with a display of brinkmanship on both sides. Little progress is made for many months and then there is a flurry of activity as the deadline approaches. It is in the UK's interest to drive the process along as quickly as possible, because otherwise they will become hostages to any member with an outstanding issue with the UK or the EU, even issues not related to Brexit per se.
Boris Johnson has already indicated that he expects the negotiations to end in a trade-off between some access to the Single market, and some controls on EU immigration into the UK. Will he get a sympathetic hearing from committed Eurocrats for whom the "four freedoms" are the founding articles of faith of the Union? Will he even get a sympathetic hearing from otherwise friendly eastern European member states whose citizens are the primary intended target of the immigration controls? A points based immigration quota system as suggested by Brexiteers will only exacerbate the "brain drain" characteristics of that migration from those member states point of view.
Much has been made of the Brexiteers' claim that the EU needs the UK more than the UK needs the EU - on the grounds that the UK runs a trade deficit with the EU. This is patent nonsense and nationalist cant. The percentage of EU exports that go to the UK is far less than UK exports to the EU. The German car industry may be important, but it has many other markets to target, and the UK has to get its vehicles from somewhere. Even if Merkel tried to steam-roll a German exporters friendly deal through the Council, she might well not succeed. Many member states are not as dependent on exports to the UK, and will extract a heavy price from Germany if it wants to give the UK a special deal.
Part of the problem for the UK is that it's principle exports - financial services - are also the easiest to relocate elsewhere. I would be surprised if there is a single major financial services player in the City which is not now urgently preparing contingency plans to relocate large parts of their business to Frankfurt, Paris, Dublin, or wherever. And why would the EU want to put a stop to that process? In contrast it is hard to think of any substantial businesses which are now thinking of urgently re-locating from the EU27 to the UK. The traffic will be almost all one way.
Krugman has stated that he finds it hard to see why the Brexit vote will be damaging to the UK economy in the short term. He sees the most damaging aspects of Brexit as being mainly long term. But as a former manager in a global business I find it hard to believe that almost every major business is not now urgently reviewing its investment plans in the UK. Even those not directly dependent on access to the Single Market will be worried about declining consumer confidence and spending and the effect of other businesses delaying or cutting back on investment decisions.
Sure, some deals already in train will proceed, perhaps bolstered by the devaluation of the Pound. But that is about buying existing assets on the cheap, not necessarily creating new ones. EU firms now heavily dependent on exports to the UK will also be looking to diversify their target markets - forced to do so in any case by £ devaluation if not by the prospect of tariffs per se.
So as you can see, I am not an optimist that this will end well for the UK. Virtually all negotiations end up with some face-saving formula which appears to give most people at least some of what they wanted. But the UK is not starting from a good place, and the marvellous future of freedom to trade with the rest of the world envisaged by the Brexiteers is likely to lead to a great deal of disillusion. Why isn't the UK doing this already in any case? The EU is not stopping it.
I'm not even sure Theresa May is committed to getting a good deal. She put all the Brexiteers in charge of the negotiations so she can blame them for any failure. But this is also the exact opposite of what was required to coax the EU into being generous. Why on earth would the EU want to reward their chief tormentors? Relationships still matter in the world of diplomacy, and mutual respect and trust is vital to a successful negotiation. I am not privy to the inner thoughts of Juncker, Tusk and Michel Barnier, but they are now all key players in the game and everything they say has to be viewed in that context. Expect lots of game-playing for the foreseeable future!
And as you say in the UK: Good luck with that!