Can there be a deal with no transition extension?

It is perhaps appropriate that, in these far from normal times, that this BEERG Brexit Briefing is longer and more detailed than normal. The reason relates directly to the complexity of the question which I pose and then attempt to answer as comprehensively as possible: if there is no Brexit transition phase then can there be a deal? 

 

Introduction:

There will be no request from the UK to extend transition beyond the end of 2020. Nor will a deal be in place by then on the future relationship between the EU and the UK. On December 31 next, the UK will leave the EU’s single market, customs union, and associated agreements and protocols. It will be a “third country” outside the EU’s legal order. The fallout will not be pleasant. The politics will be ugly.

This is where the logic of Brexit leads and “Hard Brexit” politicians are now dominant in the UK.

Brexiteers believe that the UK, no matter what the circumstances, will always be better off out of the EU than in. For them, quite simply, the EU has nothing to offer the UK. Only this disdain for all things European can explain the failure of the UK to join the EU program scheme to bulk-buy PPE earlier this year  . The “my dog ate the email” excuse (and others) proffered by ministers simply fails to stand up.

December 31 next cannot come quickly enough for Brexiteers, the economic disruption from Covid-19 notwithstanding. They want to be able to wake up on January 1, 2021 and say: “Free at last, free at last, thank God almighty, we’re free at last”.

 

Core Brexiteer beliefs

A history of antagonism

As well as the belief that the EU has nothing of value to offer the UK, it is also the deep-rooted view of Brexiteers that that EU will implode at any moment. You can probably find three or four articles to that effect any given week in the Daily Telegraph.

Some of them cannot quite believe that the EU has not imploded before now. For them, the EU stands contrary to the natural, God-given order of fully independent, sovereign nation states. They are convinced that it will disintegrate at any moment and when it does Brexit Britain will stand ready to pick up the pieces and offer Europe new leadership. (See this on Euro-gloomsters)

The twin beliefs that EU membership fatefully compromises British sovereignty and that the EU is “unnatural” and about to implode has a long history. As both the pro-EU Hugo Young’s This Blessed Isle and Booker and North’s anti-EU the Great Deception make clear, the UK was hostile to the concept of the EU from its very inception and tried to strangle it at birth.

As Young notes, the then Conservative government designated the Messina process, the talks among the original six that led to the creation of the European Economic Community, as being

…almost from the start and certainly by the end, for destruction with extreme prejudice.

The alleged words of Russell Bretherton, the UK representative to the Messina talks which led to the establishment of the European Economic Community (EEC) in 1958 have gone down in legend:

“Gentleman, you are trying to negotiate something you will never be able to negotiate. But if negotiated, it will not be ratified. And if ratified, it will not work. Au revoir et bonne chance.”

Now, the records show that Bretherton may never have said these actuals words and, even if he did, his own view of what was happening was very much more nuanced and insightful. But the words, and the sentiment they express that the EU was a doomed enterprise from the beginning, have become part of the ideological jigsaw of Brexit, odd-shaped bits and pieces that when slotted together make a complete picture. Or at least they do in the eyes of Brexiteers. Others see something vastly different.

 

Brexiteers cannot countenance transition extension

To do so would concede a real value to EU membership.

Alan Beattie noted in the Financial Times on April 30th:

It’s hard to find a single trade type who thinks failing to extend is anything but a potential disaster.

Except if you are a true believing Brexiteer. And true believing Brexiteers are now in control of the Conservative Party.

That’s what counts. Not what rational “trade types” think. If the 20th century taught us anything it is never to underestimate the hold that ideology and closed belief systems have on the mind. And if that was true then it is even more true now in the days of social media silos and echo chambers which simply reinforce pre-existing beliefs, with people only talking with other, like-minded people. “I saw it on social media” has replaced “I heard it on the grapevine”.

For a Brexiteer asking the EU to extend the transition would amount to admitting that there could be circumstances in which being in the EU’s single market and customs union is better than being outside them. Even if staying in was only for a short period of time and in circumstances of extreme disruption brought on by a global pandemic, it would still be an admission that there was at least some value in EU membership.

And once you admit that, then the absolutism of the Brexit arguments disappear. Exiting the customs union and the single market becomes a rational, pragmatic calculation. Do the sums add up? What do we lose by leaving and putting in place new barriers to trade in goods and services with our single biggest market? Are there deals to be done elsewhere that can replace what we will lose? If so, how quickly can those deals be done, what will they involve and how much will they be worth?

We know the sums don’t add up which is why the economic impact studies of Brexit commissioned by the UK government have never been published.

For true believers, heaven exists. Its existence is beyond doubt. It does not require proof that it exists. It exists as an act of faith. If you try to prove it exists, then you open yourself to the possibility that you could be proved wrong. Best to just make the existential leap of faith.

Brexit requires just such an existential leap of faith. There will be no request for an extension.

It will be argued that former prime minister Theresa May said time and again that she would not shift the UK’s exit date from the EU from March 29, 2019. And then she did. Twice. The same will happen this time, it is suggested.

Theresa May was a reluctant Brexiteer. She had no majority in what was, essentially, a Remainer parliament. Time and again, Parliament forced her hand.

Johnson leads a cabinet of true Brexit believers. He has an 80 majority in parliament. Under the British constitution, he can do what he wants. Yes, if he opted to amend the law to extend the transition, he would have a majority, but only with the support of the opposition. A good proportion of his own party would rebel. His leadership could come into question. He is not going to go there. He did not spend a lifetime climbing the greasy pole to let go that easily.

 

High on their own supply

Low Political cunning and calculation

But if ideology will not allow the UK to request a transition extension, neither will low political cunning and calculation, or to be more accurate, what Brexiteers thinks is low political cunning and calculation.

In the 1983 film Scarface, Michell Pfeiffer’s Elvira Hancock advises Al Pacino´s Tony Montana “Don’t get high on your own supply”. But this is precisely what Brexiteers have done. They are high on the myth of “Boris Johnson´s greatness”. The belief has taken root that Johnson outmanoeuvred the EU in late 2019 and managed to “bin the backstop”.

In reality, Johnson simply snatched defeat from the jaws of victory and substitute an Irish “frontstop” in place of the “backstop”.  But when you are “high”, as George Orwell might have put it, you never see things for what they really are.

Theresa May had convinced the EU to allow the UK to effectively stay in the customs union and single market for goods on very favourable terms if no future deal had been agreed by the end of 2020. This deal emerged from the so-called “tunnel talks” * when EU and UK negotiators locked themselves away to finalise discussions. When the deal saw the light of day a good number of EU member states were less than happy, believing the EU had given too much away. But they reluctantly agreed to go along with it.

(* Negotiating tip: beware of “tunnel syndrome” – the belief that satisfying your negotiating opposites is more important than delivering for your own side. It is a variation of Stockholm Syndrome, feeling empathy for your captors).

Johnson threw away this deal and agreed instead to a border in the Irish sea between Northern Ireland and the rest of the UK. Now, it seems evident that Johnson did not fully realise what he was agreeing to when he accepted the “frontstop”. He had fallen victim to another negotiating error: the “minute-to-midnight giveaway”. Coming down to the wire the negotiator panics, has to have a deal, any deal after all this time. Take what is on offer now. We can sort it out afterwards.

Afterwards, as the implications of what has been agreed slowly become apparent, the negotiator again panics and looks to see what can be clawed back, inviting accusations of bad faith from the other party. Weasel words such as “you misunderstand what we agreed to” become the order of the day. (See this Twitter thread from RTE’s Tony Connolly on the controversy about a proposed EU office in Belfast. And this also from Tony: here).

Despite it being clear to all observers and commentators that Johnson agreed to a lesser deal than May, Brexiteers still believe that Johnson pulled off a great coup in 2019, stared the EU down and came away with the prize. High on their own supply, they think they can do the same again in the current negotiations.

 

The Great Man theory

Brexiteers believe Johnson outmanoeuvred EU in late 2019… and will do it again

A second, related strand in this thinking is what we can call “the great man theory”. This is the belief that all negotiations can be finalised by the “great man” coming to the table and using either charm or brute force, or a mix of both, to bring the other side to heel. Johnson himself is prone to this line of argument as he made clear in a private dinner in London in 2018.

According to Politico

Speaking to Tory activists at the event, Johnson said: “I am increasingly admiring of Donald Trump. I have become more and more convinced that there is method in his madness.”

“Imagine Trump doing Brexit,” Johnson added. “He’d go in bloody hard … There’d be all sorts of breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But actually, you might get somewhere. It’s a very, very good thought.”

So, not the respective size of the EU compared to the UK nor the fact that around 45% of UK exports go to the EU while only about 8% of EU exports go in the other direction nor that UK manufacturing industry is highly dependent on EU supply chains will determine the outcome. Instead, it will be determined by a UK prime minister showing “bulldog spirit” and facing down the Europeans.

Those of you who read the UK press know how far the “cult of Boris” is pushed daily by certain papers. Boris is going to put the “Great” back into Great Britain and lead the UK out of the EU, on its terms. As the journalist, Piers Morgan, writing about a press briefing given by Johnson on Covid-19, put it:

Going full Julie Andrews, Boris assured us that though it’s been like coming through ‘some huge alpine tunnel’, we’ll soon be seeing sunlight and pastures again!

Morgan might as well have been writing about Johnson talking about Brexit.

Experienced negotiators know that while behaviour at the table can be important in finessing a deal, ultimately the outcome of a negotiation is determined by the size, power and leverage of the parties. The fundamentals count.

 

The David Davis Delusion continues

Belief trumps evidence and fact

Apart from “Boris did it once” and “the great man will do it again”, the low cunning calculation draws on a third belief: the “David Davis Delusion”. Speaking to a Podcast for the Daily Telegraph in 2019, the ex-Cabinet minister and former UK Brexit negotiator said:

Remember at the beginning of this process back in 2016 I said it won’t be the first three years that matter, it will be the last three weeks, three days, three hours, three minutes, three seconds.”

Now, of course, Davis is renowned for his expertise on the working of the EU. After all, did he not advise in a series of Tweets in 2016, that:

The first calling point of the UK’s negotiator immediately after Brexit will not be Brussels, it will be Berlin, to strike a deal

…Post Brexit a UK-German deal would include free access for their cars and industrial goods, in exchange for a deal on everything else

…Similar deals would be reached with other key EU nations

…France would want to protect £3bn of food and wine exports. Italy, its £1bn fashion exports. Poland its £3bn manufacturing exports

For a man who was about to become Secretary of State for Brexit he seemed not to know that EU member states can only negotiate trade deals as a bloc, not as individual countries. Did Berlin, Rome or Paris cut and run from the EU and do individual deals with the UK?

David was also the man who said that the EU’s insistence on sequencing the Withdrawal Agreement negotiations would be the “row of the summer” back in 2017 and then folded within an hour of meeting Michael Barnier.

But the “Davis Delusion” that the EU only does deals at a minute-to-midnight has taken hold among Brexiteers.

 

EU has done minute to midnight deals…

…but these were deals among members

Now, it is true that the EU has done many a deal close to midnight. But these have been deals among EU members. Not with “third countries”. But then Brexiteers, for all their desire to be free of Brussels, have never really internalised that “out means out” and that they will no longer be in the room with EU leaders.

Did Johnson himself not say to David Cameron ahead of the 2016 referendum that he believed that after Brexit the UK would still be able to attend EU Council meetings, which brings together EU member state heads of government?

Put together Johnson’s belief in “Trumpian” negotiating tactics with Davis’s “minute-to-midnight” delusion and what you are left with is “John Bull threatening to run amok in the china shop” to force a last-minute deal. Except that John Bull has already left the china shop and is on the outside looking in. There will be no minute to midnight deal. But it will not stop the UK trying.

To summarise. Brexiteers believe that the EU has nothing of value to offer the EU, which is about to implode anyway, that to request an extension of transition could be an implicit admission that they are wrong and that, in any event, “Boris” will sort it out once again. Run down the clock until December and the EU will blink.

There will be no transition extension request.

 

So, can a deal be done?

Spoiler alert… no, it can’t

If there is no transition extension request, then can the EU and the UK reach a deal by the end of 2020?

I do not believe so.

It needs to be kept in mind that the UK already has a deal with the EU. It is called membership of the customs union and the single market. When you put these two together what you get is an internal market of over 450 million consumers. Within this internal market there is free movement of goods, services, capital and people. There are no internal borders for goods, and while the services market is far from integrated, it is still significantly beyond what is to be found elsewhere.

When dealing with the rest of the world, the EU works as a bloc, making it one of the most formidable trade negotiators in the world.

There are also a significant number of other internal agreements and protocols, covering ground and air transport; financial, legal, consultancy and media services; tourism and travel; reciprocal health insurance; to name just a few. There is also deep cooperation on security and police matters.

I have long felt that senior UK politicians have never fully understood the degree of integration that has developed within the EU and just how difficult it is to sever all ties. They seems to think only about borders and stuff in trucks. When did you last hear any senior Brexiteer talk about the importance of data transfers?

The nature of the internal market and related agreements require a judge to settle disputes. That judge is the Court of Justice of the European Union (CJEU).

Brexit means the UK walking away from all of this. The UK says it can no longer accept the free movement of people and cannot tolerate the involvement of the CJEU in its affairs. It also wants to be free to negotiate its own trade deals with other, non-EU countries.

Whatever the UK negotiates with the EU will not be better than the deal it now has. No non-member will ever be given better terms of access to the internal market than members have.

In modern trade history Brexit is the first time a country has begun negotiations asking for less favourable terms than it now has. Normally, in trade negotiations the parties are trying to improve the terms of trade between them, to get closer to one another.

But the UK has made it clear that it wants to put distance between itself and the EU, to put barriers to trade in goods and services in place where none now exist so it can exercise complete and sovereign control over its “borders, laws and money”.

 

A negative sum negotiation

But the status quo holder always has leverage

It is a negative sum negotiation which means that both sides will end up worse off than they are now. In such circumstances the negotiations are not about creating value that can be mutually shared, they are about limiting the damage that will be done and allocating the costs of dislocation. To put in bluntly, in such a negotiation the stronger party is not going to voluntarily take costs to assist the other, weaker party. Especially when it was the other party which called the negotiation in the first place.

In any negotiation, the possessor of the status quo always has significant leverage. The onus on proving the case for change falls on the party that is challenging what already exists. If I am going to move away from what I have then I need to be convinced beyond reasonable doubt that that what you are proposing will make me better off. Not you, me.

Why should I agree to accept changes that will benefit you considerably but leave me poorer or worse placed than I previously was? No rational economic actor would ever accept such a proposition. And if the EU is anything, it is a rational economic actor.

Asking the EU to make itself worse off and to disrupt its internal economic and legal order for the benefit of Britain, a country which has left the EU and wants to set itself up as a competitor to the EU, is precisely what the UK is asking.

The EU is not an inter-governmental organisation. It Is a lot more than that. But it is not a federal super-state either. It is a lot less than that. It is what it is, a unique political construct of 27 proud, sovereign member states, each with its own history, culture and traditions who have agreed to pool a (very) limited degree of sovereignty to enhance that sovereignty.

Its internal legal and economic order is the result of long, torturous and time-consuming negotiations, which have taken place over decades. It is a delicate balance of rights, responsibilities and obligations. With the benefits come costs. And, as we have already noted, it has a judge, the CJEU, to settle disputes among members and ensure that all play by the rules. Rules and procedures replace “trust us to do the right thing”.

The UK has decided to leave the EU. That is its sovereign right. Despite the protestations of the Brexiteers to the contrary, the UK needs the EU market, which accounts for about 45% of all UK exports. It, therefore, needs a deal with the EU and it needs the deal more than the EU needs a deal with the UK. Certainly, if there is no deal the EU will take an economic hit, some countries in the EU, such as my own country Ireland, more than others. But the UK will take an even greater hit.

Re-read the UK’s current Brexit negotiator David Frost´s Brussels speech, which he delivered earlier this year. What comes across is the dismissal of studies that try to detail the costs and benefits to the UK of Brexit. Instead, it is full of “leap of faith, believe and it will happen” sentiments, none of which can be empirically proved in the here and now. Peter Pan economics. In a world where economy after economy has been broken by Covid-19. Brexit is a leap of faith into the economic dark.

So, these are the dynamics. The EU is the possessor of the status quo, the internal market. The UK has left and is now a third country. It wants an agreement(s) with the EU to limit the disruption to trade and everyday life. Otherwise, why even ask for an agreement? You only negotiate if you have to. If you can achieve what you want without having to negotiate then that is what you do.

 

It’s deal or no deal

Level playing field is a sine qua non

The EU is prepared to offer an agreement to the UK, one overarching agreement covering everything to be negotiated between the parties. Both parties accepted in 2019 that an agreement on fisheries would need to be settled by June 2020, otherwise the wider negotiations would be at risk.

As a fundamental term of the wider agreement, the EU is insisting on “level playing field” conditions. This mean an acceptance by the UK of EU laws on social and employment rights, the environment, and rules on state aid to industry. The EU sees this “level playing field” as essential to ensure fair competition. “Trust us, we’re British and we will do the right thing” will not be sufficient, especially when the UK has made it clear that a raison d’etre for Brexit is the ability to diverge from EU rules. (See also the current discussion about an EU office in Northern Ireland, referred to earlier).

The EU’s position is simple. If you want access to our internal market, here are our terms and conditions. But, of course, it is your sovereign right to say no if you find them unacceptable.

For its part, the UK says it wants a simple free trade agreement with the EU, similar to the one Canada has. If it cannot have that, it wants an “Australian” deal, which is code for no-deal because Australia currently has no trade agreement with the EU. But the UK also wants a whole suite of other agreements with the EU covering such matters as data transfers, audio-visual services, air and road transport, legal services, the enforcement of civil and commercial court judgements and ease of access for business and other travellers.

It rejects the one, overarching agreement architecture and wants individual agreements on all these issues. It also rejects the “level playing field” terms as demeaning to an “independent sovereign country”. It wants total control over its coastal waters and rejects a long-term deal on fisheries, preferring annual negotiations instead.

The UK position was well summarised in an article in the Financial Times on May 1 last:

Boris Johnson has warned Brussels it must give ground on three key areas if there is to be a UK-EU trade deal this year, insisting that Britain’s rights as “an independent state” were at stake.

Senior British officials said yesterday that the EU needed to revise its negotiating mandate in time for a high-level meeting in June, or run the risk of a breakdown in talks that would mean Brexit ending in a final acrimonious split.

The prime minister, the officials said, wanted the EU to back down on the question of fisheries, insisting that Britain should be able to exercise full control over its coastal waters, like Norway.

Mr Johnson has also indicated that Britain cannot accept EU restrictions on issues such as environmental legislation, state aid and labour laws, known as “level playing field” provisions.

The third deal-breaker is on the question of oversight of any final agreement, amid fears in Downing Street that the EU’s desire for a single, all encompassing treaty will give the European Court of Justice a role in enforcing any deal.

Reading this you are left with the impression that the UK appears to believe that it is the EU that is leaving the UK, and not the other way around. If the EU wants a deal with the UK then it had better change its tune, and sharpish.

You can also read it as a cry of desperation. “We desperately need a deal. Can’t you cut us a little slack. Help us out here.”

No. We didn’t start the fire.

Now, I don’t know. whether or not a deal is doable on fisheries, as it is an extremely politically sensitive issue in EU coastal states which have centuries-old fishing rights in UK waters… but, for the purpose of this paper let us make a major leap and assume a deal is doable and put this issue to one side.

And maybe the architecture of the deal could be tweaked, but one deal it will still be.

One thing is clear beyond doubt. The EU will not amend its position on the “level playing field”. For it to do so would be to undermine the very foundations of its internal market, which is that all play by the same rules. What the UK is demanding is that it can have access to the EU’s internal market without having to obey the same rules as EU member states. That is simply not going to happen.

The UK’s position is akin to a team saying, “we’d like to play in your league, but we want to play by our own rules, not yours”. Such a request would be declined, politely or otherwise.

If the UK wants an agreement with the EU, then it will have to accept level playing field terms.

 

How stable is UK´s Brexit majority?

‘Europe’ issue will never leave UK politics.

We said earlier that it is a core Brexit belief that the EU will implode sometime soon. That is simply not going to happen.

Second, the multi-nation negotiated nature of EU governance means that policies and positions evolve slowly. But when they do evolve, they have a high degree of “stickability”. Ask any third country that has tried to have an EU policy changed.

But flip the argument. Could the UK implode and/or how stable and long-lasting is the parliamentary majority in the UK in favour of a hard Brexit? Neither Scotland nor Northern Ireland voted in favour of Brexit and, if anything, the anti-Brexit majorities in both have increased since 2016.

The Conservatives may have an 80-seat majority in the House of Commons, but that is with just 44% of the vote. So, why would the EU rip-up its carefully negotiated legal and economic order in response to the demands of what could be a transient parliamentary majority in the UK, if indeed the UK holds together in the face of dissenting Brexit pressures from Scotland and Northern Ireland?

In any negotiation it is prudent to ask the question if the other party can and will deliver on commitments made? Are they in it for the long-term? What happens if there is a change in leadership and policy on the other side?

It may be argued that Boris Johnson now has another four-and-a-half years ahead of him as UK prime minister. He may well have, but then again, he may not. Who knows where Covid-19 will take the economy and politics? Things could change and change rapidly. We just do not know.

As Denis McShane has argued in his book Brexiternity, the negotiation, renegotiation and renegotiation of the renegotiation of aspects of the European relationship will from here on be at the heart of UK politics. “Europe” will never go away from UK politics. Ironically, David Cameron called the 2016 referendum to put an end to in-fighting in the Conservative Party over Europe. Never has a political decision so spectacularly backfired.

 

Could there be multiple agreements?

No EU appetite for salami slicing

The EU has proposed one, overall agreement to govern the relationship between the EU and the UK across all the issues where agreements are felt to be in the parties’ mutual interest. The UK wants multiple agreement with separate governance and dispute arrangements for each area.

It might be argued that it matters little whether there is one or multiple agreements and one or multiple dispute procedures to settle issues of interpretation and disputes arising out of these agreements. But it does.

There is a story told by negotiators. An old peasant couple have a large, prized salami. Their neighbour is jealous of their prized possession. So, everyday when the old couple go out for a walk, he slips into their house and takes a sliver of the salami using a razor. When they come back, they do not notice the missing, thin slice. Until one day it dawns on them that half the salami has disappeared.

If the EU agreed to negotiate multiple, stand-alone agreements with the UK then it would incentivize the UK to continually try to renegotiate these agreements to salami-slice benefits for itself without the need for trade-offs elsewhere. Over time, the UK, agreement by agreement, would try to claw-back all the single market benefits without the obligations.

The EU will not put itself in that position. Further, if politics and policy changes in the UK and/or a future UK government wished to strengthen its relationship with the EU rather than weaken it, then it would be easier to proceed if there was just one master agreement between the parties.

Brexiteers know they were lucky to win the referendum in 2016 and know that sentiment has probably moved against them since then. They want to make it as difficult as possible for any future government to move closer to the EU and put as many barriers in the way to rejoining as they can. They want to “lock Brexit in”. Why should the EU facilitate that?

 

Relying on precedents

…an “orbit of coercive comparisons”

In 1948 Arthur Ross introduced the concept of the “orbit of coercive comparisons” into labour relations literature. Ross noted the tendency of union negotiators to quote the pay and benefits packages in other, comparable employments to pressure management to match those packages.

If Ford was paying $10 an hour, then so should General Motors. Not to do so would be unfair, so unfair that the union would strike. “Coercive comparisons” were coercive because they were backed by economic leverage.

Whatever moral force “coercive comparisons” had, they had no legal force and they worked because unions had the power to strike.

In its only published statement of its negotiating objectives for a deal with the EU, the UK refers some 30 plus times to “precedents”, agreements the EU has done with other countries. The UK sees these agreements/precedents as somehow binding on the EU, a sort of “orbit of coercive comparisons”. There is a none too subtle attempt to assert that because the EU has agreed X with Japan, Y with New Zealand and Z with Canada is it both morally and legally bound to offer the UK the same.

There is no basis whatsoever for this argument, as Chris Grey comprehensively shows here. For the EU, the UK is not Japan, New Zealand or Canada. None of these countries are just 50 kilometers off the EU mainland. 16,000 trucks pass between Calais/Dover daily. How many trucks pass daily between the UK, Japan, New Zealand or Canada?

Nor do millions of Japanese, New Zealanders or Canadians drive across the English Channel annually to take holidays across Europe.

The EU is perfectly within its rights to say to the UK, “We’re sorry. What was on offer elsewhere is not on offer to you because you are different. That is all there is to be said. If you want access to our markets, here are our terms.”

Your bank is prepared to offer you a loan on terms it considers appropriate to your circumstances. It may have offered similar loans on the same or better terms to other clients. It is under no obligation to match those terms when it comes to you. You are always free to decline the loan.

As every seasoned negotiator knows, never go into a negotiation unless you have a clearly established BATNA, Best Alternative To a Negotiated Agreement. Sometimes if no better deal is on offer then your BATNA is the status quo, what you already have. But the UK has already rejected that, walked away from it, left the EU.

The UK’s only BATNA to a deal with the EU is to trade with it on World Trade Organisation (WTO) terms. But such terms are minimalist, covering mostly trade in goods. Little on services and nothing on all the other agreements that the UK will fall out of when it exits transition on December 31.

Nor has the UK put in place the customs or regulatory infrastructure that will allow it to trade with the EU on WTO after a no-deal exit. Talk to anyone in any British company that does business in the EU and they will tell you how unready the UK is for no-deal.

The EU will not accept that the UK is entitled to the agreement(s) it wants based on the “power of persuasive precedents”, to coin our own phrase. The precedents it quotes have no legal force and the UK has little or no leverage to force the EU to concede. No doubt, there will be statements from UK politicians as well as multiple newspapers articles suggesting that the EU is being “inconsistent”, “unfair”, “not following its own rules”, “punishing the UK”.

But as the old children’s rhyme puts it: “Sticks and stones may break my bones, but names will never hurt me”. In negotiations, the “sticks and stones” of leverage are what counts. Not name-calling.

 

Where’s the ZOPA?

Is there one at all?

Negotiators will recognize the acronym ZOPA. It stands for the “Zone of Possible Agreement”. I want a 10€ an hour increase but will settle for €6. You would like to offer me €4 but will go to €8. So, there is room for negotiation between €6 and €8. Getting into that zone and finding a deal there is the art of “at the table” negotiations.

But there are many instances where no settlement zone exists. The demands of the parties are simply incompatible. If I ask for €10 but will settle for €8 and you want to offer €4 but will go to €6 then there is no overlap in our positions. There is no evident settlement zone.

Historically, in labour negotiations when no settlement zone existed the union called a strike to try to force management to move into the settlement zone. The union´s BATNA was a strike. The union always also had the option of sticking with the status quo. “OK, we are not going to do better, but we will be no worse off than we are now.”

When it comes to the EU/UK negotiations there may well me a ZOPA around fisheries. There may even be a ZOPA around the architecture of a deal. But there is no ZOPA over level playing field conditions.

The EU simply will not allow the UK, 50km offshore, access to the internal market unless it agrees to abide by the same labour, employment, environmental and state aid rules as EU members. The UK will not accept this as it sees the EU’s position as a refusal to accept the UK’s new-found status as a “fully independent, sovereign state.”

 

UK and EU not sovereign equals

Basic maths: 1 does not equal 27.

Continued UK assertions that it is now the “sovereign equal” of the EU cut no ice. First, the EU is not “sovereign”. It is the 27 member states of the EU that are sovereign. No matter how you look at it, 1 is not equal to 27. Second, all sovereign states are formally equal. But that does not make them politically or economically equal. Size, power and leverage matter. Even if the point that the UK is the “sovereign equal” of the EU is granted, that does not make it the political or economic equal.

“Sovereign equal” is the UK’s conform blanket to hold onto in the economic dark. But, in the light of day, the magic disappears, and it looks torn and tawdry.

In negotiations I make a distinction between “dollar issues” and “decision issues”. Dollar issues are about money and quantifiable things and finding agreement on dollar issues is always possible. Even if the road to an agreement can be painful.

Decision issues, on the other hand, are about power and authority and the right to decide. While you may give away an extra dollar to get a deal, no rational economic actor gives away all or any of their power to decide unless forced to do so by brutal circumstances or the overwhelming leverage of the other party.

Setting level playing field conditions is in the EU’s power to decide. The UK simply does not have the leverage to force the EU to give away all or any of that power. The EU will not give it away to a country that has left the EU. Or to any other country for that matter.

But, for now, UK Brexiteers are unable and unwilling to accept that they do not have that leverage. The amour-propre of their new-found “sovereignty” will not allow it. Because Brexiteers are still “high on their own supply” there will be no deal.

 

Footnote: In this paper I have avoided discussions around the complex issue of the implementation of the Ireland provisions of the Withdrawal Agreement. Suffice it to say that if the UK is seen trying to walk-back on its commitments then its chance of doing a trade deal with the US will become non-existent. It may negotiate terms with the US negotiators, but they will never get through Congress. Irish-America will see to that. 


This is a companion discussion topic for the original entry at https://beergbrexit.blog/2020/05/04/can-there-be-deal-with-no-transition-extension/