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Public posturing on contested positions carries needless cost

Tense ministerial exchanges show just what it will take to forge a post-Brexit settlement that’s favourable and minimally disruptive for all concerned

PUBLISHED : Wednesday, 28 September, 2016, 1:47pm
UPDATED : Wednesday, 28 September, 2016, 10:39pm

Almost two months ago this column discussed trade options for the UK outside the EU. A major point was that the outcomes would depend on a lot more than technical common sense.

The British position has become no clearer since, but there has been some muddying of the politics.

Grandstanding is bad politics. A good result calls for a cooperative and constructive atmosphere that seeks out mutual gain. This is hardly an earth-shattering observation.

Yet the British Foreign Secretary, Boris Johnson, chose to say publicly that to suggest a link between UK access conditions to the EU single market and free movement of EU citizens among its member states was “absolute baloney”. These two issues, he asserted, had “nothing to do with each other.”

The provocation did not go unanswered by France and Germany. German Finance Minister Wolfgang Schäuble suggested that Johnson needed to inform himself about the contents of the EU’s 2009 Lisbon Treaty. He also offered to explain this to him in English.

These kinds of exchanges are the antithesis of what it will take to forge a post-Brexit settlement that is as favourable and minimally disruptive as possible for all sides.

The relationship between single market access and a willingness to accept freedom of movement of labour among EU members is at the heart of what defines the difference between what have come to be referred to as “hard” Brexit and “soft” Brexit.

Hard Brexit is framed in terms of “getting back control of UK borders”, with less emphasis on maintaining single market access. Those espousing this clean break – largely supporters of Brexit in the first place – seek to assuage concerns about disrupting current arrangements with the promise of “jumbo” trade deals with third countries.

At present the EU accounts for 44pc of UK exports. The comparable figures for China, Korea, and Australia are 6pc, 1.5pc and 1.2pc, respectively

The soft Brexit option is built on concerns about the disruptive economic consequences of losing access to the single market, and seeks to do as much as possible to retain access.

Japan has voiced concern about the consequences for its UK investments of losing free market access that relies on UK-based manufacturing as a gateway to the EU. Others worry too.

A fear in the City of London is that a hard Brexit will lead to the loss of the EU regulatory “passport.” That would reduce access to the EU market for banking and other financial services.

Even if the hard Brexit dream of new and dynamic trading relationships with non-EU countries comes true, it will take many years to shift away from current trade structures. At present the EU accounts for 44 per cent of UK exports.

The comparable figures for China, Korea, and Australia are 6 per cent, 1.5 per cent and 1.2 per cent respectively. The United States looks potentially more immediately promising, with a 15 per cent share. Moreover, in a supply chain world, firms have to look beyond final product markets to the sourcing of inputs as well.

Boris Johnson has also said that negotiating the terms of Brexit should not take as long as two years. No-one who has actually been involved in such negotiations is likely to be so sanguine. Two years is the period foreseen in Article 50 of the Lisbon Treaty for a EU member to terminate its membership. After that nothing beyond a void is contemplated.

The UK government would therefore do well to seek agreement among EU members for an extension of the Article 50 deadline when the time comes. An alternative would be to try to forge some other kind of interim agreement.

It is not just the terms of Brexit that are at stake. Other negotiations cannot be completed before Brexit is done and that will also take time. The US Trade Representative Mike Froman confirmed serial processes recently when he said trade talks with Britain would not be meaningful until after Brexit.

All this emphasises why public posturing on contested positions carries needless cost. It also calls for more government coordination, as the world watches successive ministerial assertions about chosen policy directions being disowned by the Prime Minister’s Office.

Patrick Low is a fellow at the Asia Global Institute of the University of Hong Kong

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