Why is the UK making such a mess of A50 negotiations?

The obvious answer to this question is that the negotiator, the UK government, is completely split on what it wants. But that is only part of an explanation for this shambles. In the first year I think actions were dictated by a completely unreal perception about power, and perhaps more recently by a need to avoid a coup by the hardline Brexiteers.

The people who might have thought about the negotiations before the vote itself, the Leave side, didn’t do so partly because they didn’t expect to win. But they also had completely unrealistic expectations of the relative power of each side. This was an advantage during the campaign, because they could say ridiculous things about the economic consequences of Brexit without knowing it was a lie. But once they had won, there were only two ways to go, and either of them led to an early implementation of Article 50.

The first possibility is that after the campaign they continued to believe that German car makers would pressure the German government and the EU to give us what we want, so why not bring that on by triggering A50. The second was that they began to doubt this, but that in turn led to a fear that once the people found out they had been told falsehoods about leaving they would change their minds. That too lead to an urgent need to trigger A50 before this happened.

But Leavers did not have a majority in parliament. Remain MPs must surely have realised that the EU had much more power than the UK (the proportionate cost of no deal is much greater for the UK), and that once A50 was triggered the clock was ticking for the UK, not the EU. David Allen Green has justifiably said I told you so, and I knew when I wrote a post entitled “The Folly of triggering Article 50” in November 2016 that I was just repeating expert opinion, and to be honest common sense. As I said there

“this has absolutely nothing to do with whether you voted to Remain or Leave. Anyone who actually wants a good deal from the EU when we leave should realise that the UK’s negotiating position becomes instantly weaker once Article 50 is triggered.”

The worst explanation for why the majority of MPs ignored this advice was that they didn’t hear it. (We know the Prime Minister did hear that advice from Sir Ivan Rogers.) Almost as bad was that they heard it but thought it was just a desperate ploy by experts to delay leaving. Those who want to say it is all because of mixed motives from the Labour leadership will do so. But I suspect there is a simpler explanation: MPs felt voting to delay was ‘politically impossible’.

Part of the reason it was ‘politically impossible’ is that the standard of reporting and debate among broadcasters on these issues is so poor that the argument that triggering A50 was bad tactics would simply not have got a proper hearing. In addition the tabloids would have screamed “enemies of the people” just as they did when three judges allowed MPs a vote. In this sense our media not only gave us a Leave vote, they forced an early triggering of A50 which was not in the country’s interests.

As I wrote in that earlier post, it “would only be a slight exaggeration to say [triggering A50] allows the EU to dictate terms” which is exactly what they are doing. In these circumstances, the best approach to the negotiations is to treat them as a cooperative exercise rather than a zero sum game. Yet we were led by Theresa May and David Davis, who were instead determined to treat this as a classical zero sum negotiation where, because you had more power, your best hope was to make the other side believe you will walk away. Yet that walking away threat was never credible, partly because of reasons already given, but more importantly because a deal on the EU's terms was better than no deal.

But despite this, in our negotiators minds the delusion that we have power in these negotiations as long as we threaten to walk away seems to persist. The lack of flexibility by the EU can be dismissed as them playing hardball. As firms move abroad because they need to plan and they cannot be certain of any transition arrangements, the cost of delusion will be paid for in lost UK output and lower incomes.

It is just possible that both May and Davis have begun to realise this, but the delusion of power has been replaced by something else, which is the fear of a coup by Brexiteers. The pro-Brexit views of Tory party members makes such a threat credible, but any coup would have to happen well before the negotiations ended. Perhaps the reason May is now being so slow to move is to make the possibility of a coup less likely. But perhaps that involves a level of strategic thinking the Prime Minister is not capable of and Davis has simply given up.

Whatever the motivation, the end result has one certain consequence: the economy is damaged. As one final example, take the length of the transition period. The logical thing to do is to have a transition period until a new trade agreement is agreed. Anything else involves significant economic and administrative costs. But the UK government does not seek this because it pretends a trade agreement can be done quickly, and it pretends this nonsense to avoid a confrontation with the hardliners.

Even if this turns out to be pretend and extend, because the transition period will keep on being rolled forward at the last minute, this arrangement suits the EU and damages the UK. It is good for the EU because their exports to the UK do not suffer. It damages the UK because the uncertainty continues to make moving production to the EU rather than exporting to the EU attractive. Just one more way that the fantasies of Brexit hardliners are costing us all.

The real obstacle for the Brexit negotiations

I’m not going to say anything about the content of yesterday’s speech: I talked about the likelihood of a transition arrangement that involved us staying in the Customs Union and Single Market back in March. My only uncertainty then was whether May could be pushed to a No Deal outcome, but as the government has done absolutely nothing to prepare for that outcome it now seems an empty threat. As for a two year transition period, its an insider joke. You have to have no idea about trade negotiations to imagine it could be done in that time, but as that includes most Brexiteers it serves its purpose.

Instead I want to talk about is what could be the real obstacle to the negotiations moving on to the next stage, and that is the Irish border issue. Many have noted that putting it as a first stage issue seems illogical, because what happens to the Irish border will depend on future trade arrangements between the UK and the EU. There obvious answer to why the Irish border question got put in the first stage is that the EU want to force the UK into staying in the EU’s Customs Union precisely to avoid recreating a border between the two parts of Ireland.*

The UK’s paper on this question makes it clear that there is no realistic compromise on this issue, as Ian Dunt’s discussion makes clear. There is a third way, which is for Northern Ireland to remain part of the Customs Union while the rest of the UK is not, but the DUP will have none of that. This was a major implication of the election result and May’s bribes to obtain a confidence and supply arrangement with the DUP.

A key political question will therefore be whether the Irish government and the EU will play this card that they have dealt themselves. The Irish government would like to, but I suspect (from past experience) that if they came under pressure from the rest of the EU they would back down. But the EU would also like the UK to remain in the Customs Union to resolve the border issue. Indeed everyone would be better off if the UK committed to staying in the Customs Union on a permanent basis. The only obstacle to this are the fantasies of Brexiteers, personified in the department led by Liam Fox.

I said I was not going to talk about it, but perhaps this was one reason why May gave her speech yesterday. By confirming that there could be a transitional deal (which Richard Baldwin might call a pay, obey but no say period), she hopes to dampen the resolve of the Irish government and the EU to make this a sticking point in the negotiations. Will either party think to itself 2 years will become 5, by which time we will have a different government that is likely to make the transitional permanent, or will they use their dominant position in the negotiations to try and force the UK to stay in the Customs Union to avoid creating a border (and perhaps also force the resignation of Fox and others)? At the moment we do not know, but I suspect once again Mrs. May and her cabinet have misjudged the EU side.

*I've added to this sentence and elsewhere compared to the first version of this post, which might have been construed as implying the border was being used as an instrument to achieving an economic goal. I do not think that is the case.     

Will May face down those who want no deal?

In which I find a silver lining around the current weak state of the Labour party

The negotiations between the UK and EU that will take place over the next two years involve two components. The first will be about non-trade issues, such as how much does the UK pay to the EU to cover pensions etc, and agreeing the rights of EU citizens currently in the UK and vice versa. The second will be the terms of the transitional arrangements for trade while a full trade agreement is negotiated.

The obvious transitional arrangement is for the UK to stay in the EEA, which means staying in the Single Market and customs union while a new trade agreement can be negotiated. It would also mean on the face of it accepting free movement and European Court judgements.

What will be difficult for May is continuing free movement, accepting European Court judgements and paying as much as the UK currently pays during the transitional period. It may be possible to fudge all of those, such that May can appear not to cross her red lines in accepting a transitional arrangement. But to agree to this, the EU will want something else that allows them to say the transitional arrangement is clearly worse than staying a member. That may be the detail that the negotiations over a transitional arrangement are all about.

These negotiations will not be about meeting somewhere between the UK's and the EU's position. That would be a major misunderstanding. The moment the UK triggers Article 50, all the cards are in the EU’s hands, because the UK has a lot more to lose by falling out of the EU with no agreement than the EU has. And Frances Coppola is right is saying that the EU is quite capable of playing hard ball. So the negotiations are more about the UK exploring the EU's trade-offs rather than a genuine give and take.

The key criteria for the EU is that any deal has to be obviously worse than EU membership. A lot will depend on whether the EU negotiators are prepared to take the UK not having a say on the rules of the game as sufficient to indicate a worse deal compared to full membership. That will help determine how much the UK pays the EU during the transitional phase.

That is obviously the sensible way for both parties to proceed. The only uncertainty is whether the UK feels able to accept it. The problem for the hardest of Brexiteers (which includes the Mail and Sun) is that a transitional arrangement of this kind makes it very easy for the UK to change its mind. That could easily happen if the prospective trade agreement makes firms start to leave the UK and public sentiment changes because the promised land was not as advertised. That has been their nightmare all along, which has led the Mail to call judges enemies of the people. Based on what has happened so far, we could expect these Brexiteers to start turning their guns not on the EU, but on May herself, if it looks like the deal will go the way I suggest.

If this happens, how will May react? You can look at what has happened so far as a guide. The trouble with doing that is all the ‘bad deal is worse than no deal’ stuff may just be Econ 101 game theory: make it appear as if you might walk away to get a better deal. The reaction of the press to the NIC changes in the Budget were an obvious warning shot from them towards May. Her climbdown makes it appear as if the press are calling the shots, but that may simply be a sweetener for the major let down that is yet to come.

So recent events provide no clear guide as to how May will react if the hard Brexiteers turn on her. It all comes down to a question of character. In this respect, a discussion by David Runciman in LRB of Rosa Prince’s biography of May is very interesting. He writes

“May didn’t do negotiation; in the words of Eric Pickles, one of her cabinet colleagues, she is not a ‘transactional’ politician. She takes a position and then she sticks to it, seeing it as a matter of principle that she delivers on what she has committed to. This doesn’t mean that she is a conviction politician. Often she arrives at a position reluctantly after much agonising – as home secretary she became notorious for being painfully slow to decide on matters over which she had personal authority. Many of the positions she adopts are ones she has inherited, seeing no option but to make good on other people’s promises. This has frequently brought her into conflict with the politicians from whom she inherited these commitments. By making fixed what her colleagues regarded as lines in the sand, she drove some of them mad.”

I have written before that it was unfortunate that our post-referendum Prime Minister should be the minister who had tried and failed for six years to reduce immigration. Runciman's description above also helps explain why she did not do the two things David Cameron would have done if he had remained leader: given the close vote seeking the softest Brexit possible, and before doing that going back to the EU to see if they were now prepared to be more flexible on free movement. But it does not really tell us how she will play the next two years.

I can see one hopeful element that could allow May to see off those pushing for no deal, and that is the hopeless position of the Labour party. If Labour was strong, the last thing she would want was a 2020 election dominated by internal Conservative fights over her ‘Brexit sell out’ and the press against her. That might have forced her to appease the ‘no deal’ Brexiteers. Luckily in this respect the official opposition is the last thing she has to worry about during these negotiations.