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Brexit: Where are we now?

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In case you have missed it, the deadline for the UK's negotiations with the European Union (EU) over its departure are fast arriving. At the end of this year the official transition period ends and ideally a deal will be in place, but it needs to be agreed by a forthcoming EU summit which takes place on 15 October for it to be ratified by member states.

So where are we now? And what needs to happen? We caught up with several leading University academics for their insights.

The "Internal Market Bill" and its consequences

The last instalment of the Brexit saga is the UK Government’s “Internal Market Bill” which has created significant friction between the UK and the EU in the ongoing negotiations, setting the scene for an eleventh hour “no deal” Brexit cliffhanger. Why the friction? Because by the UK Government’s own admission the Bill violates “in a specific and limited way” the Withdrawal Agreement concluded between the UK and the EU. More precisely it disregards the part of the UK-EU withdrawal agreement that keeps Northern Ireland closely "aligned" with EU rules for at least four additional years after the end of the transitional period, i.e. four years after 31 December 2020. 

The inevitable cliffhanger might turnout to be marginally positive. This is not because the UK Government will prevail in the "chicken game " with the EU driving the latter to unthinkable compromises (such as the abolition of the Irish Protocol), but because the Government stance may lead the markets to react dynamically before the disorderly exit.

As I have suggested previously Brexit’s conundrum will only be solved when "Iphigenia reaches the altar of her sacrifice." Only then will those - often the most vulnerable - who currently dismiss the “no-deal” warnings as scaremongering will have a taste of what disorderly Brexit actually means. But for this to happen, more "tangible" signals are needed from the markets. During Theresa May’s Premiership, which always aimed at a smooth transition and despite some visible warning signs, the markets’ reaction from the point of view of the everyday experience has been considered by many as mild.

The problem is that the consequences of a disorderly Brexit will be experienced after the actual exit (i.e. the end of the transition period) when it would be probably too late for “Iphigenia”. This is where the possible positive contribution of moves like the introduction of the “Internal Market Bill” lies: Such spasmodic, unprecedented and sometimes constitutionally extreme exploits - like last year’s prorogation of Parliament - give the impression to the markets that a “no deal” outcome is more likely. This increases the probability that markets would then react more intensely and thus more didactically.

Those who thought that Brexit would disappear in the COVID-19 commotion are in for a surprise. This is because unlike COVID-19 there is, nor can be, a “vaccine” that solves the Irish Gordian Knot in a way that meets the pronouncements and preferences of prominent Brexiteers. In other words there is no solution that can accommodate all the following three conditions: a) To allow the UK to conclude its own trade deals with third countries b) To ensure that there be no land border on the island of Ireland in compliance with the Good Friday Agreement and c) To ensure that there be no customs sea border between Northern Ireland and the rest of the UK. The attempt of the Government to replicate Alexander the Great’s solution to the original Gordian Knot, through the introduction of the Internal Market Bill, risks cutting another important knot that endured for three hundred years, the unity of the UK itself.

Dr Aris Georgopoulos is Assistant Professor in European and Public Law in the School of Law

The negotiations

Failure to reach a full agreement by the end of 2020 does not necessarily mean the UK crashes out of the EU without any deal, on so-called WTO terms. It would be possible to agree a form of compromise where some issues remain to be resolved whilst a general deal on trade in goods is put in place.

Two issues appear to be sticking points in the current negotiations. The first is fishing: the UK wants to limit, if not prevent, EU fleets from fishing in UK waters but also want to retain unrestricted access to sell fish on the EU market. The EU is only willing to grant free market access if EU fleets have some rights to fish in UK waters. Fishing is an economically minor but politically charged sector. A challenge for the UK is that those who catch fish and want to limit as much as possible EU fishing access are different individuals to the traders who buy their catch and want to sell it to the EU (the major market). Agreement can be reached if the EU limits the amount of access requested and the UK makes concessions, but the UK will have to make the fishing lobby unhappy to meet the needs of traders and exporters.

The second issue is State aid, effectively the extent to which governments are allowed to subsidise industries. In principle it should be easy to reach an agreement as all members want some scope for State aid (and may even desire more flexibility to address the challenges posed by the Covid-19 pandemic) and there are procedures within the WTO to address subsidies that can affect trade (such as anti-dumping measures). In practice, State aid may be a cover for wider EU concerns about the UK’s approach to regulations and standards.

The fundamental challenge to reaching an agreement is that the EU does not know the true intentions of the UK. The UK government has never been transparent or specific on what it wants and has given the impression that the negotiating position is a response to domestic political considerations rather than an economic strategy. EU officials are concerned that a post-Brexit UK will dismantle many of the labour and environmental regulations put in place for the Single Market, thus giving UK firms a competitive advantage (by lowering costs). Revoking regulations is clearly how ‘take back control’ is interpreted by many proponents of Brexit. The EU wants an agreement that protects the Single Market against this. The biggest barrier to reaching an agreement is lack of trust: the open willingness of the UK government to consider reneging on the Withdrawal Agreement and threatening the Good Friday Agreement has undermined confidence that the UK is negotiating in good faith. The UK government has backed itself in to so many corners, some that are mutually exclusive, that its position is reminiscent of an Escher drawing.

Dr Oliver Morrissey is Professor of Development Economics in the School of Economics

Looking forward to our new future outside the EU

With the transition period coming to an end in a few months’ time, we are likely to see the dreaded ‘B’ word making its reappearance in the daily headlines. Whatever the rights and wrongs of the original decision to the leave the EU, now is a good time to think about how the country can take advantage of the new opportunities that will exist.

The recent announcement of a significant UK-Japan free trade deal is the sort of initiative that many businesses will have been hoping for but we need to see if that is followed by further agreements with other key partners in the next few months.

Apart from free trade agreements, businesses will also be looking carefully at how the Government uses its new regulatory freedoms. This is likely to be an evolutionary rather than revolutionary process but a key test of success will be if we see regulation become better tailored to the interests of the UK economy without weakening key protections for workers.

Big changes cause anxiety for business but they can also create exciting opportunities. No doubt there will be bumps along the way, but I am optimistic that our innovative businesses, including many in the East Midlands, can help to make a success of our new future outside the EU.

Professor David Paton is Chair of Industrial Economics at Nottingham University Business School and Co-editor of the International Journal of the Economics of Business.

Posted on Wednesday 30th September 2020

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