Boris compromised with the EU — he must do so again

As 100 UK trade negotiators travel to Brussels today to begin talks with the EU, the Brexit discussion in Britain has regressed to the bravado, pettiness and ignorance of the 2016-2019

rolling crisis. It’s as if no lessons have been learned. The EU has set out its opening terms, which as an opening offer unsurprisingly sets the bar high. Leavers are denouncing the EU as

tyrannical and sulking that they won’t give us everything we want.

We’ve been here before. We’re hearing all the same rhetoric and flawed reasoning. Why? Because of a faulty narrative that the EU gave in to Boris because he went on the offensive and held

firm on his threat to leave with no deal. What really happened was that Boris moved back to a Northern Ireland-specific protocol, which became a permanent arrangement rather than a

“backstop”. This option was always on the table. In addition to that, he watered down the political declaration to move towards a more basic relationship based on a Free Trade Agreement

(FTA).

In other words, he compromised. He made concessions and accepted the reality of his preferred destination. This wasn’t a victory brought about by playing a game of chicken with EU. That

false narrative will not help us in the next stage.

Now we are back at the beginning. The EU is “terrified” of Brexit Britain and we “hold all the cards” in negotiations, say the same old Eurosceptic crowd. Next we’ll be hearing about the

German carmakers about to burst through the door to demand the EU caves in. It’s all stuff and nonsense and it’s about time we took a sensible and pragmatic approach.

The EU’s negotiating terms are evidence, according to Leavers, that the EU fears a dynamic Britain making products to its own standards, undercutting and outcompeting the EU. While there is

a little anxiety over the new competitor on its doorstep, this is still a misunderstanding of the balance of power between the UK and the EU, which is the number one regulatory superpower in

the world.

The issue of regulation in the negotiations is complicated. The UK government has asked for a deal similar to that negotiated with Canada, and according to the EU’s mandate this is almost

what they’re offering. There is no demand for “dynamic” permanent alignment to EU rules. The EU is expecting compliance with a range of EU and international standards. As most EU standards

derive from global standards (technical standards produced by international organisations in which the EU hold great sway) to which the UK already complies, this is not a big demand.

Where the problem lies is in the government’s refusal to face two realities. One is that the EU wants to hold us to more stringent “level playing field” rules than it does Canada or South

Korea. The reason for this is clear — the UK is much closer to the EU, is a direct competitor, and does a far greater amount of trade. The trade gravity model still applies, we are next door

neighbours and even linked by a tunnel.

The single market is a complex set of rules designed to uphold standards and obligations. If the EU is to relax its frontier controls for third countries — which is what the UK now is — it

needs assurances to protect the integrity of its market. It’s absurd to whine about the EU protecting the interests of its members and its internal market after we have chosen to leave the

union and its single market.

The other reality we must accept is that, whatever benefits the freedom for regulatory divergence brings, it will come at a price. That price is simply the reality of how trade works and not

the result of the EU “punishing” Britain. If we are happy to pay that price, it will help to smooth the negotiations. If we are not, we will have compromise. Simple as that.

When the UK gains the freedom to diverge from EU regulations it will be treated as if it already has. Free trade isn’t based on trust — it’s based on rules and systems and institutional

frameworks that monitor and ensure compliance with the rules.

It doesn’t matter that on day one the UK’s rules match the EU’s, once we’ve left the single market, our exports will be treated the same as that of other FTA partners. This is a direct

result of opting for a basic relationship over a broader agreement managed by an institutional framework.

The rejection of the concept of “managed divergence” will come at an economic cost and many British firms will choose not to take advantage. Many will instead unilaterally align with EU

rules rather than producing products to two different sets of standards. This won’t reduce trade barriers because an EU-established entity will have the responsibility of ensuring

compliance. It will however be more efficient, less costly and will maximise the number of global markets they can access.

The EU is a global regulatory superpower and the UK cannot escape its orbit. The EU has FTAs with most of the top-ranking economies, is hugely influential in the design of global standards

and has been successful in writing compliance into its trade agreements.

In many areas of our economy there will be no benefit from divergence whatsoever. Take the automotive sector as an example — vehicle safety standards are produced by the United Nations

Economic Commission for Europe, a global body. Compliance to these standards is written into the EU’s FTA with Japan and any divergence would be utterly pointless for UK car manufacturers.

Ultimately, there seems to be no dissuading the government from its approach. If the government continues to aim for a bare bones deal, Leavers will praise Boris for sticking to his guns and

refusing to give in to EU demands. As time goes on, and we find ourselves excluded from lucrative markets. Any slowdown in economic growth will be pounced on, and Labour will no doubt

pledge to rebuild our trade relationship with the EU.

The government should cool its combative approach and hold back on the threats. The EU’s opening offer was bound to be based on its own interests. There is room for compromise however, and

the EU will not expect to win every battle. The UK should focus on constructive counter proposals, rather than leaking outrage to the Telegraph.

For example, the EU expects some kind of parallel evolution of EU/UK rules over time. The UK should be open to this, especially in sectors where divergence will bring no benefit. To address

concerns about the infringement of the European Court of Justice, the government should propose a joint UK-EU court made up of judges from the UK, member states and neutral states.

The negotiations should be approached with an open mind and in the spirit of cooperation. The outcome will be disastrous if its leads to mutually damaged economies, ongoing hostility and

trade wars. Rather, we need to achieve a mutually beneficial, sustainable new partnership, which will last and evolve over time.

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