21 January 2019

Renegotiation is the EU’s worst option except for all the others


Following Theresa May’s resounding failure to convince MPs of the merits of her Brexit deal, she has now opened up talks with other parties. It is yet to be seen whether Labour leader Jeremy Corbyn is willing to engage. As a precondition, he has requested that the option of no deal be taken off the table.

But, however loathed no deal may be by most MPs, taking it off the table is difficult without Theresa May surrendering her leverage in negotiations with the EU, especially now that France has put its “no deal” contingency plan in motion.

The bigger problem is that, if MPs can’t agree on any kind of Brexit, it is hard to stop no deal without stopping Brexit.

As Philip Hammond, Chancellor of the Exchequer, has explained, the proposed Commons “backstop” legislative bill to prevent a no-deal Brexit will “rescind the Article 50 notice” and “will meet the test that the European Court of Justice has laid down for unilateral recision of an Article 50 notice”.

EU officials have reportedly already discussed this as one of the options that could stop Brexit. Such a revocation of Article 50 cannot be temporary. The ECJ has stipulated that if the UK would unilaterally withdraw its request to leave, “the revocation . . . must be unequivocal and unconditional, that is to say that the purpose of that revocation is to confirm the EU membership of the member state.”

Political commentator Frances Coppola summed it up nicely when she wrote: “If [Corbyn] doesn’t accept this challenge, [May] implies, he is not acting in the national interest. But if he does accept it, his plans for electoral gain are in tatters”. She therefore thinks a “no deal” is the most likely outcome, due to the intransigence of both major parties in Westminster.

I don’t think a “no deal” at the end of March is likely at all. Perhaps it is possible in 2022, at the end of the – extended – transition, when the EU could refuse to engage with the UK to close a deal to safeguard trade. That would be a traumatic enough event, and the EU would be foolish to risk it, if only because of the importance of Britain as a security partner. But not this year. The immediate damage would be enormous, if only because of the uncertainty and the lack of preparation, both among governments and companies both in Britain and mainland Europe.

At Open Europe, we found that  the UK would cope relatively well with the loss of its current market access to the EU in the medium to long term, but as it would be imprecise, we didn’t calculate the immediate disruption, which is likely to be gigantic. Even those who disagree with me about the cost of the immediate disruption to supply chains, financial services and air travel, despite all the warnings from these industries, will surely agree that a deal whereby market access remains as open as today is to be preferred. In any case, a majority in the UK Parliament is against a “no deal”. It’s pretty much the only Brexit-related issue that a majority in Westminster can agree on.

As we have pointed out at Open Europe, Theresa May’s deal is full of flaws, but we’ve also highlighted how, despite those problems, it could be good stepping stone to a successful Brexit.

It may be the case that Theresa May’s plan is to ask MPs to vote on pretty much the same thing again and again, but we can’t be sure. It may also be the case that attempts to agree something much “softer” – but then also more unsustainable – with Labour succeed. Ultimately, however, there still is a chance of Theresa May – or another British Prime Minister — trying to renegotiate the deal with Brussels.

If that is the plan, what renegotiating options are available to the EU27?

The first is to make a – relatively safe  — bet that UK MPs will force the UK government to request an extension of EU membership, maybe for nine months, as suggested by Conservative MP Nick Boles.

The problem is that this would interfere with EU business. Some realise this. German liberal MP Konstantin Kuhle warned that an article 50 extension “may threaten to delegitimise the whole European Parliament and new Commission. The EU should not allow that chaos infects its own institutions”.

Indeed, imagine if the UK simply suggested to violate the EU Treaty and delegate MEPs from the Parliament in Westminster on 2 July, instead of holding a direct election to pick politicians to send to the European Parliament. Some MEPs elected in member states that have just secured an extra number of representatives would have to wait until Brexit before they’d be able to enter the Parliament.

Even if the “EP challenge” can be fudged, there is more. If it is still a member state, the UK would be able to exert influence over the selection of the successors of Jean-Claude Juncker and Council chairman Donald Tusk. At some point, the British would even gain a say on the EU’s long term budget. That’s a lot of leverage for the UK to use to shape the withdrawal agreement. Is this what the EU27 would want?

The EU27’s second option is to simply allow a “no deal” Brexit to unfold. But for all the talk of “no deal” preparation, we know that member states are not properly prepared for such an event, even if they may suffer less than the UK. Both in Belgium and the Netherlands, the government has been criticized for not managing to have enough customs staff ready to cope with a “no deal” Brexit at the end of March. The Irish government already admitted last Summer that it wasn’t going to manage to hire all the extra customs officials necessary for that. In Germany, political panic about the prospect for “no deal” is abound. Both German governing parties CDU and SPD, as well as the greens, have come out stating they’re open to extend UK membership.  The leader of German governing party SPD warned a “no deal” would cause “heavy turbulence for the whole EU and also for us in Germany” with also the farmers’ federation warning of the “chaos” it would cause.

Unsurprisingly, companies are not ready either. In Belgium, out of the 25,000 Belgian companies that are trading with the UK, four in five say they are not ready for “no deal”. German auto industry association VDA warned after the vote that “the consequences of a ‘no deal’ would be fatal” and “we strongly urge all relevant stakeholders to do everything possible in order to establish much needed certainty for our business and to maintain the truly frictionless trade on which our international production network is based.” I suppose this can be translated as the German car manufacturers urging also the EU-side to get their act together.

Given the shortcomings of the EU27’s first two options,the most preferable course of events for the EU is a renegotiation of the existing deal. It may even prove to be a lesson for it on in the need for major agreements to be acceptable to both sides. If it wants a sustainable deal that won’t be challenged, Brussels should stop wasting time hoping that Labour or some Tories agree to let tthe UK stay in the customs union or single market permanently. As strange as it would be for the world’s fifth biggest economy to permanently outsource its trade policy to the EU, it is also easy to predict that such a deal would come under fire from the moment the UK is asked to implement EU rules it dislikes without being able to vote on them.

And for fans of the EFTA-EEA option, “Norway” status means implementing legislation it isn’t able to vote on, simply because the so-called “right to reservation” that non-EU single market members have can be overruled.

In any case, there are signals coming from the EU that it is ready to consider renegotiation. Ahead of the vote, German Foreign Minister Heiko Maas said that “there could be further talks” in case of a rejection, not ruling out a renegotiation of the actual withdrawal agreement, instead saying he “doubts very much that the agreement can be fundamentally reopened”. That is a softening of language. His predecessor, Sigmar Gabriel, even wrote that “the EU should be ready to make more concessions to the UK and to allow more time for negotiations,” adding: “the British have withstood bigger crises and will overcome this economic crisis sooner or later. But it’s by no means assured that Europe will survive Britain’s departure.”

The Netherlands and other European countries are reportedly even willing to make further concessions on the “backstop”, however under the condition that Ireland supports them. This really makes clear that ultimately, given how the backstop is at the center of the concerns among those that Theresa May needs to convince, this is a negotiation between the UK and Ireland. And while it’s clear that the UK would be hit worse economically than the EU27 in case of no deal, that is by no means clear for Ireland.

The relationship between the Northern Irish DUP and Conservative Brexiteers is not dissimilar from that of Ireland to the EU: whatever the DUP agrees to on the backstop is likely to receive support from the European Research Group of Brexit-supporting Conservative backbenchers (with the exception of customs union membership).

Some in the DUP appear to be moving on the backstop. One of the party’s MPs, Jim Shannon, has said the party has “considered” supporting the Withdrawal Agreement if the backstop was time-limited, mentioning that “if the time-scale was one year, or perhaps even two, certainly within this term of government, I think we would certainly look at that as an option.”

As I have argued before, the EU27 could concede to meet the concerns of Brexiteers. Legally, according to the withdrawal agreement, the EU holds a veto over the UK leaving “backstop” status and recovering its trade powers, something French President Macron has reminded the UK about by threatening to use the right to keep it under the EU’s customs regime, as foreseen by the backstop, as ‘leverage’ to obtain concessions on fisheries.

In reality however, in a context where relations would have deteriorated so badly that it wouldn’t be possible to agree a trade arrangement, it is very unlikely that the UK would willingly continue to outsource its trade policy to the EU. In other words, the backstop is not the cast-iron insurance policy that it seems. An EU diplomat has also conceded this point.

Far from being fail-safe, the backstop even increases the risk of the damage it is designed to insure Ireland against. What could be a possible compromise then? “Kicking the can down the road” may also be the fudge needed here.

That could be done through an EU concession to make the backstop time-limited. This simply means that another cliff-edge will be agreed, adding to the existing cliff-edges of 29 March 2019, July 2020 (when it will be decided whether the UK will enter the extended stage of the transition) and January 2023 (when, short of an alternative deal, a lot of trade becomes illegal, as the UK enters backstop-status, thereby facing regulatory hurdles to the EU market while only being spared from customs hurdles).

Is one more cliff edge such a massive concession for the EU and Ireland? I would think not, especially as at any point during the “unlimited” backstop arrangement, the UK will have the ability to abandon the obligations of the withdrawal agreement, something it can always do with any international Treaty, by unilaterally pledging a date when it is willing to also give up the benefits of the arrangement, in case it would deem it impossible to safeguard a trade deal with the EU.

A time limit would not change the ultimate goal to replace the backstop with an alternative solution, which is likely to require concessions on all sides: from the UK – continued regulatory alignment between Northern Ireland and the Irish Republic, from Ireland – to tolerate certain loose customs checks on the border – and from the EU 26 – to tolerate the fact that just as elsewhere on the EU’s external customs border, there will be a trade-off between border protection and economic interests.

The only difference would be that fourth cliff edge, written in the agreement, possibly in 2026 or so. In any case it may take the UK until then before it has negotiated a whole range of international treaties with non-EU countries, so in terms of UK trade freedom this also isn’t the end of the world.

In terms of how realistic this is, it must be said that Ireland has been relatively flexible in recent months, supporting things like a “review clause”, and nothing indicates that Taoiseach Leo Vardakar, who has been standing up firmly against Irish hardliners, wouldn’t be aware of the importance of avoiding “no deal”.

In any case, even if a formal bilateral Treaty between Ireland and the UK, as some in the UK government seem to favour isn’t likely to happen, the renegotiation of the backstop is ultimately a negotiation between the UK and Ireland, which would face major damage in case of “no deal”.

To recap, the three options for the EU27 are now: extend UK membership, settle for no deal, or renegotiate.

By some margin, the most sensible option is some kind of renegotiation, perhaps with a clean extension until the beginning of July, just before the new European Parliament is installed. It is worth noting that, for all the EU’s reluctance to reopen negotiations, a no deal scenario involves talks to solve hundreds of issues in a very short period of time. So “no deal” will mean a lot more negotiation than renegotiation of the current deal

Renegotiation would basically entail the EU recognising that if indeed the EU and the UK fail to agree a trade deal, the UK ultimately has the right to abandon the obligations resulting from the withdrawal agreement, as with any other treaty.

That makes the backstop already implicitly time-limited under the current deal. If the Irish government allows this to be made explicit, we’re pretty certain to have a Brexit deal.

Pieter Cleppe represents the think tank Open Europe in Brussels.