4 March 2021

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CURRENCY

THE PITFALLS OF BREXIT

Has Britain really taken back control of its territory?

Author:

15.01.2021

“We have taken back control of laws and our destiny,” British Prime Minister Boris Johnson said immediately after the signing of the agreement on the terms of the United Kingdom's withdrawal from the EU. It happened right before Christmas. Just an hour before the New Year, for the first time after a long reconstruction, the bells of Big Ben rang as a sign of farewell. After 48 years of UK’s membership in the single European market and 1,645 days after the referendum to withdraw from it.

The negotiations were difficult, nervous, without mutual confidence in success. But towards the end of 2020, it was still possible, through mutual, sometimes even painful, concessions, to reach an agreement in four areas, including trade, cooperation in economic and social spheres, cooperation in security, and a special mechanism for resolving disputes. As expected, the agreement does not include the financial sector. The parties will evaluate the implementation of the agreement every four years.

 

Scandal

The uncertainty during the negotiations was so strong that on December 7, two weeks before their completion, the House of Commons of the British Parliament passed a law on the internal market with highly controversial provisions that caused an international scandal.

In fact, the parliament annulled the Brexit agreement signed just a year ago between the UK and the EU regarding Northern Ireland – the so called Backstop mechanism to ensure that there is no hard border between Northern Ireland and the Republic of Ireland. According to the deal, in the event of ‘hard’ Brexit, Belfast should remain part of the single EU market, while the goods entering Northern Ireland from the rest of the UK are subject to clearance at the maritime border.

Incidentally, the new British bill takes precedence over the local legislation of the United Kingdom. In fact, Boris Johnson frankly admitted that it could be regarded as a violation of international legal norms but explained it was necessary as a "protective measure."

According to Johnson, if the parties fail to conclude a trade agreement, the Backstop mechanism will jeopardize the country's single market. The new bill is supposed to regulate the internal market and is designed to prevent a situation, which the Britons regard as an encroachment on the country's sovereignty and territorial integrity.

Assurances that all the controversial provisions of the bill will be removed in the event of a trade agreement could not be compared to London’s ignore of international obligations anyway.

As a result, Johnson's rash actions almost caused the negotiations to break down. The EU demanded London to change the controversial bill refusing otherwise to ratify the trade agreement. Moreover, Brussels has threatened to impose penalties in line with the Brexit agreement. If these measures do not work, the EU will withdraw from all trade agreements with the UK and introduce tariffs and quotas on British goods and services. In addition, the British financial sector will completely lose access to the EU market.

The threats became effective and the negotiations continued.

 

Who’s the winner?

It was possible to finalize the negotiations at the end of the year largely due to concessions from both sides. Nevertheless, this led to disputes in the European media on the actual winner of the long-standing process.

According to Boris Johnson, London is the obvious winner with the score of 28:11. Others, and in London too, claim that the EU has achieved its goal on all important economic issues, including fisheries.

For example, Jonathan Powell, former chief of staff in the Tony Blair administration, believes that the UK has spent the last weeks defending its position (and ultimately lost) in the fishing industry, which accounts for 0.1% of the country's economy. At the same time, 80% of services that provide a competitive advantage to the UK are generally excluded from the agreement. In 2019, fisheries and the financial sector of the country contributed to the UK economy £437 million and £126 billion, respectively. “Thus, we came to a free trade agreement, which is essentially worse than those that the EU concluded with other countries,” Powell said.

Johnson said he was able to convince Brussels that the manufactured goods produced in the country but containing imported parts could be exported to the EU without tariffs. However, if this is a victory, then it is incomplete. After all, goods will still be taxed if more than 40% of them consist of parts manufactured outside the UK and the EU. In addition, London hoped that Brussels would not levy taxes on components produced in countries with which both the EU and the UK have free trade agreements, such as Japan, Canada, or Turkey. But Brussels did not go for it.

Disagreements over the arbitration mechanism were one of the biggest obstacles to reach the agreement. The EU was concerned that the UK over time and depending on its government could deviate greatly from the EU standards. But under pressure from London, Brussels had to nevertheless take back from the European Court its demand on monitoring the implementation of the agreement. The exception is Northern Ireland, which will continue to be subject to the EU’s single market and customs union rules. This means that the European Court will remain the highest legal body in Northern Ireland, and therefore partly in the UK. For other cases, a kind of arbitration commission will be created. Negotiations are still pending.

It was not possible to reach an agreement on the mutual recognition of sanitary and safety standards for the export of animal products. This means that the UK will have to carry out rather costly checks on products going to the EU's single market.

The EU has pushed for the UK’s compliance with European rules for state aid to businesses. Brussels has been worried that the UK government would seek a competitive advantage through uncontrolled subsidies. The UK was able to insist on its own, and now has the right to establish its own subsidy regime. This is a major concession from the EU.

The two sides also agreed on a minimum level of environmental, social and labour standards, below which none of them should fall. These and other standards will be reviewed every four years.

 

Back to the EU

Ironically, the British seem less worried about the UK's return to the EU in the future. Regular polls also point to this trend.

Also, the British are urging MPs to vote for the agreement with the EU, although most of them are not sure whether it is beneficial for the UK or not. Sociologists explain this by people being tired of the problem. They just want to see the dispute that has split the country and cost them a lot of energy in four and a half years end.

Realizing that the country's economy will grow at a slower rate than if it had not been for Brexit, they are well aware that if Britain knocks back into the EU, it will certainly be accepted. But not on the favourable terms that Margaret Thatcher once bargained for.

The country now faces other problems.

 

The threat of collapse

Due to a sharp outbreak of coronavirus, England, Scotland, Wales and Northern Ireland announced the third lockdown almost simultaneously on January 5-6. Each part of the kingdom is independent in health care, but since the situation is now developing throughout the country equally critical, the measures are equally tough everywhere.

Yet England leads ‘the race’ in terms of the number of cases, with the mortality rate significantly exceeding those in other regions of the country. For example, with a population density six times higher than in Scotland, the mortality rate is 13-15 times higher than in Scotland,.

These indicators, as well as the uncertain and sometimes contradictory actions of Prime Minister Johnson in the fight against the pandemic, are now causing more irritation among the British than the break with the EU.

The epidemic and the ensuing economic troubles showed unexpectedly that, contrary to its name, the United Kingdom is far from being united. It became clear that surprisingly little effort has been made to create or maintain a nationwide identity or institutions that could support it. The short-sightedness of Boris Johnson's policies led to the disintegration of the Joint Ministerial Committee, which was supposed to be a bridge between London and Scotland, Wales and Northern Ireland. And because during his 16 months as a prime minister, Johnson has never convened the committee.

Centrifugal sentiments have intensified too. In Scotland and Northern Ireland, which voted in the 2016 referendum against leaving the EU, political forces demanding independence gain popularity again.

According to the Financial Times, “the United Kingdom risks falling apart,” and “only two events can prevent such a scenario: a new prime minister in Downing Street instead of Boris Johnson, and the transformation of the country into a truly federalist state with full autonomy and equal powers to its four regions."

According to the former Prime Minister, Scotsman Gordon Brown, although the pandemic has exposed political divisions, the roots of the problem lie much deeper. The crisis has shown that decisions that affect the whole of the UK continue to be made without actually considering the impact not only on Scotland, Wales and Northern Ireland, but also on the regions of England. The economic gap between different parts of the country is growing rapidly, and with Brexit it will grow even faster, intensifying the battle for resource allocation.

In order to avoid the collapse of the country, Brown proposes such drastic measures as the development of a new constitution, which would “take into account common values”, as well as the creation of “new social institutions reflecting a multinational, regionally diverse state”. And as a first step, it is necessary, he believes, to replace the House of Lords with a Senate of Nations and Regions following the example of the United States, Germany, Australia and Canada.

 

Priorities

Brexit has materialised but is not over yet. In the medium term, it leaves behind all sorts of issues for future conflicts in British politics. Ironically, the unresolved issues with the EU, no matter how complex and global they might be, are not the largest ones in this list.

One of the main priorities for the British political leadership is the task of preserving the unity of the state. Therefore, Boris Johnson's statement about taking back the control over the country's future sounds somehow arrogant. Brexit can lead to the loss of this control.



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