The UK government claimed its Internal Market Bill was necessary to avoid "a border down the Irish sea" and a potential food blockade between Britain and N. Ireland, although its terms did not actually deal with that issue - a point brought into sharp focus when Ed Miliband challenged the Prime Minister, Boris Johnson, across the floor of the House of Commons, to show him which provisions of the Bill dealt with a claimed risk of a food blockade of N. Ireland. Boris Johnson declined the offer of Mr. Miliband's speaking time to clarify the issue.
The EU, for its part, initiated infringement proceedings against the UK, before the ECJ, as provided for in the Withdrawal Agreement, and sought an early declaration on the legality of the measure given the urgency of the matter. It did not, however, walk away from the trade negotiations, aspects of which were said to be making continuing progress.
It was in this context that the outcome of the 15/16 October Summit of the European Council came as something of a shock. Riven on many other issues, and chiefly about the implementation of the June 2020 budget and Covid-19 recovery plan agreement, the European Council was desperate to show a united face on Brexit, and particularly on what President Macron described as "the outrage" of the UK proposing to break a treaty it had only so recently agreed, signed, and ratified.
Consequently the Council agreed by consensus that the provisions of the WTO should not apply to a "rogue state" and that a 10% tariff on all imports from the UK should apply from January 2021 if no trade agreement had been agreed by then, subject to the ECJ finding that the Internal Markets bill and subsequent UK legislation represented a material contravention of the "good faith" and substantive provisions of the Withdrawal Agreement.
Proponents of the measure pointed out that a 10% tariff was in fact much less than the 50% WTO tariff that would apply to some EU exports to the UK under WTO rules, such as, for example, Irish beef exports to the UK, which represented over 50% of all Irish beef exports. They also pointed out that the 10% tariff did little more than cancel out the competitive advantage UK exporters had achieved through the devaluation of Sterling.
They further pointed out that the WTO was effectively a moribund institution, without a Director General, and without a disputes resolution process following the refusal of the Trump administration to appoint judges to the WTO trade disputes resolution court and to agree on a new Director General.
Reaction in the UK was outraged however, as Brexiteers had always assumed they could fall back on WTO terms, come what may. Quite why they thought the EU should comply with all their Treaty obligations while the UK reneged on theirs, is less than clear. Prime Minister, Boris Johnson, immediately announced a 10% retaliatory tariff and noted that, as the UK had a trade deficit in goods with the EU, this would hurt the EU more than it hurt the UK. Tabloid reaction in the UK was gleeful, with many popular newspapers stating that the PM had "wrong-footed" the EU and shown that the UK was not going to be bullied by "the evil empire".
Behind the scenes, however, negotiations were said to be making progress on the outstanding issues of fisheries, state aid, human rights, and the Northern Ireland protocol and some official expressed optimism that these would be resolved long before any tariffs would ever have to come into effect. The European Council declaration had, they said, injected some much needed urgency into the process.
At a political level, relations continued to deteriorate however, with an increasingly hostile tone in exchanges between EU and UK politicians as the Internal Markets Bill and other legislation breaching the Withdrawal Agreement made its passage through parliament. The European Parliament, for its part, called on the Commission to suspend negotiations until such time as the UK Government halted the parliamentary process, on the grounds that merely proposing such legislation breached the "good faith" provisions of the Withdrawal Agreement and that threats of illegal action should not be allowed to become bargaining chips in the negotiations.
Critics of the EU pointed out that a harsh reaction to the UK measures was about the only thing the EU could agree on at that time, with the COvid-19 pandemic still ravaging the continent, fraying relationships, and causing rising tensions over the continued failure of the EU to implement effective counter-measures, including the June 2020 budget and pandemic recovery agreement.
Nevertheless, it was still widely expected that a trade deal would ultimately be agreed, in time for agreement in principle at the December EU Council summit. Behind the scenes, however, the negotiations were once again deadlocked, with both sides accusing the other of intransigence. Michel Barnier, in particular, became the subject of UK ire, with many claiming he had "an animus" against the UK.
Against this backdrop, his letting it be known, unofficially, that he would be retiring on the 1st. January 2021 may not have been helpful, encouraging UK negotiators to believe that a less doctrinaire EU approach might become apparent after that date. Some thought he would be under huge pressure to get a deal done as the crowning achievement of his political life. In reality, he was operating within the terms of the negotiating mandate he had been given, and was conscious that any deal he agreed would still have to be ratified by 27 member states many of who had vital national interests at stake in the negotiations.
Whatever the reasons, the failure to agree a deal before the December summit still shocked the markets, with most expecting that the relatively minor differences still outstanding at that stage would have been long resolved. Some blamed the Johnson/Gove/Cummings obsession with "last minute negotiations", long overnight sessions, and cliff hanger climaxes as being responsible for the impasse and speculated that the strategy might be to "wear down" the aging EU chief negotiator.
On the EU side the obsession with legal clarity often seemed to obstruct the "constructive ambiguity" of the solutions presented by the UK side. Given the way in which the UK government was already overturning some provisions of the Withdrawal Agreement, there seemed to be an absolute obsession on the EU side that every detail had to be nailed down with total clarity before anything could be agreed.
The reaction of EU leaders at the December summit to the failure to agree a deal was one of consternation and utter frustration. Under huge pressure from every side over their continuing failure to manage the pandemic and its economic effects more effectively, they were determined to take decisive action in response to the UK's continued breach of the Withdrawal Agreement. The ECJ's timely declaration that the UK's Internal Market and other legislation was in breach of the Withdrawal Agreement provided them with the legal cover they needed.
Announcing a 20% tariff on all imports from the UK, they noted that the earlier 10% tariff proposal had already been eroded by Sterling devaluation, and that the extra revenue was needed to compensate farmers and businesses due to be impacted severely by the UK's retaliatory tariffs. As an olive branch, they offered the UK a 90-day extension of the transition period to enable ratification of any agreement provided one was reached by the end of 2020. Otherwise the tariffs would apply from January 1st.
By all accounts this decision elicited alarm and despondency within the UK government. Although the public response was one of invoking the "Dunkirk" and "Battle of Britain" spirit, there was a growing realisation that a deal of some sorts had to be done before January 1st. For one thing, the UK was not ready to implement a comprehensive tariff regime at that point. Striking an uncharacteristically conciliatory tone, Boris Johnson announced that the UK would not be retaliating to the "inflammatory and provocative" EU 20% tariff decision, and would continue to seek an agreement "in the best interests of all".
There was huge UK frustration when the EU negotiation team refused to meet over Christmas to resolve the impasse. Pointed references to Barnier's age and impending retirement were not eschewed, and the "laziness" of EU negotiators compared to their UK counterparts was noted by some observers apparently oblivious to the fact that the negotiations had been ongoing for over 4 years, with most of the substantive texts being prepared by the EU side.
However, when the negotiating teams did meet, on 27th. December, progress was swift, and an agreement was wrapped early in the morning of December 29th. Its provisions, widely seen as a capitulation by the UK, included a 75-day extension of the transition period to enable both sides to ratify the deal. Emergency virtual meetings of the UK cabinet and EU Council agreed the deal and transition period extension and the public reaction was overwhelming favourable in all capitals with many government spokespersons talking up the deal as a sensible compromise between competing aspirations.
Industry, and the haulage industry, in particular, breathed a sigh of relief that tariffs would not, after all apply from the morning of January 1st. and the prospect of long queues and delays was avoided, at least for the time being. There was much bi-partisan praise for the Johnson government "finally having come to its senses” (Labour) and having had the resolution to fight to the end for "the very best deal possible" (Conservatives) and many noted that the "spirit of Christmas" had finally entered the negotiations.
Quite why the Johnson administration waited until January 28th. To recall parliament to debate and ratify the deal remains a mystery, because the national consensus in favour of the deal seemed to dissolve in the intervening period. Many hard line Brexiteers responded to what they deemed to be Remainer taunts of having agreed a deal much worse that full EU membership with threats to amend the ratifying legislation before Parliament. In particular, there was opposition to repealing the Internal Markets Act as required under the EU UK Trade Agreement Bill 2021.
EU governments, noting that once again the UK seemed to be dragging out the process of ratifying the deal until the last minute were also reluctant to present the Agreement to their parliaments in advance of the UK debating and ratifying it. Fears were expressed that any prior EU ratification of the deal would only set the stage for the UK parliament again trying to renegotiate the deal. Once again it became a case of who would move first.
Alone among the 27 EU member states, Ireland announced that it would hold a national referendum on the Agreement as it could be deemed to modify the Good Friday Agreement which had been incorporated into the Irish constitution by a 94% majority in a referendum in 1998. For constitutional reasons this could not be held until mid-February in any case.
This referendum was eventually passed by an 70% margin (as the "best available deal") but not before there was much animated debate on its merits, with many noting that it greatly increased the distance between the UK and EU on all matters except for trade in goods, and hence the distance between N. Ireland and Ireland.
Sinn Fein campaigned against the deal on the basis that it should have incorporated a requirement to hold a referendum on a united Ireland as in every respect other than trade in goods it incorporated unionist aspirations to union with Britain rather than nationalist aspirations to a united Ireland within a united Europe, and hence undermined and replaced the Good Friday Agreement with little more than a "trade in goods" economic rather than peace deal.
But the debate around the Irish referendum also took place in the context of increasing parliamentary opposition in the UK to ratifying the deal, and there was widespread "mainstream" public concern that in the absence of a deal, the Irish agricultural sector would be decimated, and Ireland would end up having to put customs barriers around the border to collect tariffs on British Exports arriving via N. Ireland.
The UK government, emboldened by the resounding Irish popular vote in favour of the deal, eventually put the deal to a parliamentary vote at the end of February 2021. To their shock, all opposition parties voted against the deal as "a very poor relation to full or associate membership of the EU," and urged that its terms should be put to a second referendum in the UK. This enabled Brexiteer rebels in the European Research Group (ERG) to argue that the Government was running away from a popular preference for "no deal" and defeat the bill in the House of Commons.
European Leaders reacted with consternation, shock, amazement, and relief they had not yet put the deal before their own Parliaments for ratification. They resisted calls from the UK to renegotiate the deal and offered to hold "clarificatory talks" instead. But it was clear that time had run out and there was no appetite on either side to reopen negotiations. The Johnson Government announced it was happy to proceed on the basis of "no deal", and the 10% and 20% tariffs came into full effect just before St. Patrick’s Day, on March 17th. 2021.
There were some "behind the scenes" attempts to broker some sort of compromise prior to and after March 17th., but they were hampered by the fact that no one seemed to know what sort of compromise could resolve the impasse and achieve a majority in the UK parliament. Also, after the retirement of Michel Barnier, the EU no longer had any team dedicated to resolving EU UK issues.
Responsibility for EU UK relations was passed on to Josep Borell, EU High Representative for foreign affairs, as, officially, no further trade negotiations were taking place between the EU and UK, and the EU Trade Commissioner was busy conducting trade negotiations with other countries. Some in the UK pointed to the resignation of Irish EU Trade Commissioner Phil Hogan in the “golfgate” scandal as contributing to the low priority the EU now gave EU UK affairs.
The "no deal" outcome of the negotiations proved to be hugely damaging to the UK economy in particular, although it didn't help EU recovery post pandemic either. The Biden administration refused to countenance a trade deal with the UK until such time as the Withdrawal Agreement was honoured in full, and trade relations on the island of Ireland were "regularised". The UK also found it difficult to conclude advantageous trade deals with third countries as the EU always insisted that any terms, deemed more advantageous to the UK, would have to apply to the EU as well.
Almost no country, even commonwealth members, could be seen to go out on a limb to secure a trade deal with the UK while it remained in breach of the Withdrawal Agreement. Opponents always asked how the UK could be trusted since it had unilaterally breached the terms of the last agreement it had ratified.
In practice, the UK did in fact implement the N. Ireland protocol, as contained in the Withdrawal Agreement, but it could never acknowledge the principle of doing so as that would relinquish what it saw as one of its bargaining chips with the EU: the repeal of the Internal Markets Bill. So trade within Ireland, and between N. Ireland and Britain continued relatively unhindered, and the UK even seemed to turn a blind eye to applying tariffs to goods originating in Ireland, provided they were "exported" via a N. Ireland registered company from N. Ireland to "mainland" Britain.
The Irish economy, already recovering rapidly despite continuing Covid lockdowns because of its strength in the Pharma, Medtech, ICT, Fin Tech and financial services sectors, grew from strength to strength. Food exports to the UK were only minimally affected and largely replaced by exports to the EU. Transport routes replaced the UK "land bridge" with direct sea routes from Dublin to Spain and Rotterdam and other northern European ports. Many financial services companies had re-located their EU operations from London to Dublin, and other UK companies with a high dependency on the EU market were quick to set up subsidiary manufacturing operations in Ireland.
Unemployment, post pandemic, remained elevated for some time, especially in rural areas, as the extension of high-tech industries was relatively capital intensive compared to labour intensive agriculture, and employed a differently qualified workforce. But it was remarkable how quickly Irish agribusiness adapted to re-directing exports from the UK to the EU, and the government also managed to re-direct much FDI (some of which might previously have gone to the UK) to smaller urban centres around the country. If anything, the pandemic had a greater impact on rural employment as it had devastated the travel and tourism industries. Overall, however, the picture was one of a remarkably quick recovery and outstanding resilience, thanks in no small measure, to extensive government recovery supports and initiatives.
The UK economy, by way of contrast, was severely impacted. Financial services, the driver of much economic growth and government revenue, lost access to EU markets and prestige in many other markets as well. UK industry was devastated, as much of it was foreign owned and but a cog in a longer supply chain which required quick and easy access to other EU markets. When faced with a choice of closing a UK or EU plant, due to falling demand or excess capacity, most corporates chose the former. Those hedge funds which had "shorted" UK assets in advance of Brexit and then repurchased found their assets never recovered their former value.
Ireland is the only European country with which the UK had a significant trade surplus. However, the Irish government was rigorous in the application of tariffs and regulation checks, partly because it needed the 20% of revenues collected the EU allowed it to keep to help close the deficit in government spending. This increased consumer price inflation to some degree from a negative base, but mostly it just encouraged a consumer switch from UK to EU products as exemplified in the rise in Lidl and Aldi market share as opposed to Tesco and from other UK pharmaceutical and consumer products sourced mainly in Britain. Irish companies went on a buying spree of N. Ireland assets so they could "muddy the waters" in terms of "the rules of origin" of goods partly produced in Ireland and sold in Britain.
Gradually, after much propaganda warfare, it dawned on the UK government that the EU was quite comfortable without UK membership and a much-reduced level of trade. Its attempt to use Irish agriculture and the Irish land border as a bargaining chips to gain access to the Single Market had back-fired spectacularly. Its loss of the City's dominance of European financial services had been hugely costly in terms of both output and government revenue. Public services were crumbling for lack of resources, calls for Scottish independence were becoming ever more strident, and much of the north of England was in revolt at rising unemployment and diminishing prospects.
Attempts to revive even low level, back channel negotiations with the EU were less than successful. In the post pandemic gloom EU officials were happy to scavenge what business they could at the expense of the UK and needed to point to the decline of the UK as an example that things could be even worse if the rest of the EU didn't stick together. The focus was on building up European financial services and other industries that might otherwise have located in the UK.
The UK had simply moved way down the EU's list of priorities and the common wisdom was that there is no point in negotiating with the UK because you can never trust it deliver on its commitments. Many considered that Scotland would soon re-join the EU as a sort of consolation prize and were puzzled that N. Ireland hadn't already done so.
But the Irish government was cautious about any move towards a United Ireland because of the risk of unrest in N. Ireland's unionist community and the costs of replacing the UK exchequer's net £10 Billion subsidy to N. Ireland. The Northern Ireland economy, itself, wasn't doing too badly with the status quo because, in practice, it had access to both the British and EU markets. Irish firms requiring access to the UK market were significantly increasing their investment there for that reason. Almost everyone, bar Sinn Fein, was afraid to upset the status quo. The greatest fear was that the diminished circumstances of the UK exchequer would force it to effectively defund the North, where the vast majority of jobs are linked to (UK) public expenditure in some way.
With the sunny uplands, post Brexit, becoming ever more elusive the calls for Scottish independence and for the UK to re-join the EU became ever more strident and widespread within the UK. Campaigners for both couldn't quite understand the EU's apparent lack of enthusiasm for either prospect. Partly this was due to a diplomatic reticence about being seen to interfere in the internal affairs of a non-member sovereign state. But mostly it was because most EU citizens and officials had had quite enough of UK membership of the bloc. Even the prospect of Scotland re-joining wasn't greeted with unmitigated enthusiasm - they would, after, all, be a direct competitor for the FDI that was now going to Ireland, and the EU didn't need another wannabe corporate tax haven within its boundaries.
A change in attitudes didn't really come about until after Labour's resounding victory at the polls in 2024. Labour had campaigned, not on re-joining the EU, but on "normalising and improving relations", understood by everyone to mean an end to tariffs. But the EU had become rather too accustomed to having its own significant revenue stream, not dependent on direct member contributions, and showed little urgency to reciprocate the UK's new change in focus. It took a lot of diplomatic schmoozing and no end of Royal Visits to even begin to put relationships on an even keel again.
Other issues also started to crop up to stymie potential talks, including a Spanish decision to make agreement to any new deal dependent on a change to the status of Gibraltar, French insistent of greater access to UK fishing waters, Cypriot insistence on a return of UK sovereign bases there, and Greek demands that the Elgin Marbles be returned. Certainly, the question of the UK re-joining the EU was never on the agenda. There would have been too much loss of face involved.
Eventually attitudes softened and a minimal deal to eliminate tariffs was agreed in late 2026. Everyone looked forward to a much more positive and productive relationship going forward while acknowledging that things could only improve from a such a low base. Historians will record the Brexit and Trump eras of populism as something of an aberration in the development of Western politics, but in truth they represented but an episode in the decline of the West as a whole. Making America and Britain Great again proved an elusive endeavour which could not be achieved at the expense of other western nations.
Boris Johnson retired from politics to resume his career in journalism berating the EU for all manner of sins. The Tory party never quite recovered from their Brexit adventure, and were eventually replaced by the Liberals in the duopoly of power in the House of Commons. Their main policy focus became to sustain the Union and electoral reform, advocating the adoption of an Irish style system of proportional representation. Scotland became independent after a referendum in 2027 and was eventually granted accession to the EU on condition they adopted the Euro and didn’t lead a race to the bottom on corporate taxation. This created a whole range of issues in border counties.
Ireland was reunified in 2029 after narrow referendum wins, North and South, but only after it became clear the £10 Billion British exchequer subsidy could no longer be sustained and many thousands of publicly funded jobs in N. Ireland were at risk. Unionists were told the only way they could retain a close relationship with Scotland was as part of the European Union. The European Union granted some transitional aid, but basically the costs of re-unification could only be borne by the island as a whole through extensive rationalisation of public administration services and tax increases for higher earners and corporates.
In many ways, re-unification is proving a greater challenge for Ireland than Covid-19 or Brexit ever were. Considerable progress has been made in reducing economic imbalances, but the problems of social division and community tensions remain as difficult as ever. The jury is still out as to whether and how long it will take for these tensions to be resolved, but it is worth noting that tensions remain in Germany 40 years after re-unification, and in the USA 165 years after the end of the civil war!