The Withdrawal Agreement has been universally panned. But the real problem is buried in the accompanying Political Declaration.<\/b>
\nThe U. K.\u2019s Prime Minister, Theresa May, has succeeded in what she set out to do. She has brought the country together. Politicians of all colors, along with their supporters, are at last in full agreement. They are united in their hatred of Mrs. May\u2019s Brexit deal. And with reason. It is a terrible deal.
BELFAST, NORTHERN IRELAND – NOVEMBER 23: Democratic Unionist Party leader Arlene Foster greets UK Chancellor Phillip Hammond as he arrives to speak at the DUP party conference on November 23,2018 in Belfast, Northern Ireland. The DUP strongly oppose the proposed Brexit agreement between the EU and the United Kingdom government led by Prime Minister Theresa May. (Photo by Charles McQuillan\/Getty Images) Getty
Criticism of the deal has centered on the terms of the Withdrawal Agreement, and in particular on the proposed \u201c backstop \u201d to ensure that Northern Ireland\u2019s border with Ireland remains open after Brexit. Arlene Foster, the leader of Northern Ireland\u2019s Democratic Unionist Party (DUP), called for Mrs. May to \u201c bin the backstop.\u201d But what is this backstop, and why does the EU think it is necessary?
After Brexit, the border between Northern Ireland and the Republic of Ireland will become an international border, rather than an intra-EU border as at present. In the absence of a trade agreement, both the EU and the U. K. would be obliged to apply the WTO\u2019s \u201c Most Favored Nation \u201d (MFN) rules on that border. This would mean tariffs and regulatory checks on a border which is politically highly sensitive, because of its long history of conflict, and economically extremely important to the economies of Northern Ireland and its southern neighbour.
Neither the U. K. nor the EU wants there to be a hard border between Northern Ireland and Ireland after Brexit. But preventing one is proving difficult. The U. K. Government proposed technological solutions that it said would eliminate the need for actual checks at the border, but the EU doesn\u2019t believe that the technology exists. The EU proposed a temporary arrangement which would keep Northern Ireland in the Customs Union and Single Market until a free trade agreement could be negotiated, but the U. K. objected on the grounds that customs checks on goods in transit between Northern Ireland and the rest of the U. K. would undermine the U. K.\u2019s own internal market.
The Withdrawal Agreement breaks this deadlock by providing for the U. K. to remain in the EU\u2019s Customs Union, and Northern Ireland in the Single Market, not merely until the end of the transitional period scheduled to end in December 2020, but until a replacement trade agreement can be negotiated, or (potentially) indefinitely if none can be agreed.
This is by any measure unsatisfactory. Everyone hates “ frozen Brexit.“ But the backstop is not the only problem with this deal.
Buried in the accompanying Political Declaration, which establishes the framework for future trade negotiations, is this conundrum:
The future relationship will be based on a balance of rights and obligations, taking into account the principles of each Party. This balance must ensure the autonomy of the Union\u2019s decision making and be consistent with the Union\u2019s principles, in particular with respect to the integrity of the Single Market and the Customs Union and the indivisibility of the four freedoms. It must also ensure the sovereignty of the United Kingdom and the protection of its internal market, while respecting the result of the 2016 referendum including with regard to the development of its independent trade policy and the ending of free movement of people between the Union and the United Kingdom.
When combined with the backstop, this conundrum makes Mrs. May\u2019s deal terrible for the U. K.
Right from the start, both sides have tried to find a way of maintaining frictionless trade after Brexit, particularly across the Irish border. But neither side has been willing to compromise on its principles. Rather, each side has attempted to push the other into crossing its red lines.
The U. K.\u2019s efforts have been primarily aimed at forcing the EU to undermine its own treaties. Freedom of Movement of goods & services, capital, information, and people is fundamental to the EU. These \u201cfour freedoms\u201d were first established in the 1957 Treaty of Rome, and were later strengthened in the Lisbon Treaty of 2009. They underpin the operation of the Single Market as well as the entire acquis of EU law.
The U. K. tried to separate Freedom of Movement from the other Freedoms so that the U. K. could continue to enjoy frictionless trade with the EU while restricting immigration from the EU. But the EU has steadfastly insisted that the Four Freedoms are indivisible. It repeats this statement in the Political Declaration.
The U. K. also attempted to argue that the U. K. could have frictionless trade with the EU without being a member of the Single Market or the Customs Union. This would enable it to strike its own trade deals with other countries without suffering diminished access to EU markets. But the EU said that frictionless trade is a benefit of membership of the Single Market and Customs Union, and is therefore not available to non-members. It repeats this, too, in the Political Declaration: that is what \u201cthe integrity of the Single Market and Customs Union\u201d means.
Thus, in the words of Theresa May, \u201cnothing has changed.\u201d As far as the EU is concerned, if the U. K. wants frictionless trade with the EU, it must remain in the Single Market and Customs Union. This means accepting freedom of movement of people, respecting the primacy of EU law in matters of trade, and refraining from striking trade deals with third countries or blocs that would confer an unfair advantage over EU countries.
The U. K.\u2019s position has not changed either. According to the Political Declaration, the U. K. still wants to end free movement of people, strike its own trade deals and control its own laws. And it also wants to preserve its own Single Market \u2013 the Union of the four countries, England, Scotland, Wales and Northern Ireland. This rules out keeping Northern Ireland in the EU\u2019s Single Market and Customs Union indefinitely. The Political Declaration effectively ends any possibility of the backstop becoming permanent.
Unfortunately, that is all it does. And that is why this deal is terrible for the U. K.
Some time in the next few years, the backstop must end. Indeed, the EU is already trying to put a time limit on it. But the conundrum laid out in the Political Declaration is no more solvable than it ever was. The hard choice for Brexit remains the same. Either the U. K. gives up its goals of immigration restriction and independent trade policy for the sake of maintaining frictionless trade with the EU, or \u2013 since the Political Declaration rules out a permanent hard border between parts of the U. K. – there must eventually be a hard border on the island of Ireland.
By kicking the can across the Article 50 deadline of March 29th, 2019, the Withdrawal Agreement removes the U. K.\u2019s third option, which is to change its mind about Brexit. Currently, if the deal fails to get through Parliament \u2013 which is looking extremely likely \u2013 the Government could call a second referendum with Remain as an option. But once the Article 50 deadline is past, the Withdrawal Agreement would lock the U. K. into \u201c frozen Brexit,\u201d with the EU holding the keys to the freezer. Eventually, the UK would have to choose between hard borders, including in Ireland, or becoming a permanent EU rule taker.
It is an appalling deal. It merely buys time at the cost of a considerably weaker negotiating position for the U. K. But the EU has already said it will not renegotiate it. If this deal fails, then the options are still no-deal Brexit, or no Brexit. The Government has no mandate for either, and nor does either option command a majority in Parliament. All roads seem now to lead to either a General Election, or a second referendum.
I used to work for banks. Now I write about them, and about finance and economics generally. Although I originally trained as a musician and singer, I worked in banking for 17 years and did an MBA at Cass Business School in London, where I specialized in financial risk manag…<\/p>\n