What’s Really at Stake in the Second Round of Brexit Talks

The burning of effigies has become a popular sport in the highly polarised debate over Britain’s trading relationship with the European Union.

The Eurosceptic Right first forced onto the bonfire of EU vanities the European Court of Justice.

With its court of last resort status over the UK, the ECJ, it was argued, was the ultimate abnegation of our sovereignty. It had to burn, or we would not be taking back control.

The recent rumpus over the ‘customs union’, whatever that means, acquired a similar standing. It had to go as moving goods around freely brought with it the risk of people moving around freely, definitely something that the Great British Public wanted to stop.

In the same way, access to, or membership of, the Single Market was also an early victim of fundamentalist red lines.

From a business perspective, the exclusionary approach to negotiating the UK’s trade terms with the EU27 is worse than showing your hand.

You narrow your wiggle room in two directions — with your EU interlocutors and with your domestic political allies and opponents. Negotiators are left to dance on a pinhead, and run closer to the risk of no deal.

While the Treasury and Phillip Hammond, in particular, have been reflecting the line of the majority of the business and financial community that a wide ranging free trade agreement is in best interests of the UK economy, we have already observed how the Eurosceptic right is taking a pointedly relaxed attitude to a no-deal exit from the EU.

The faction has been arguing that the UK is a big enough economy — fifth largest in the world — to stand on its own two feet and trade its way through Brexit, while falling back on the WTO as a global framework.

But let’s remember that in a ‘crash-out’ Brexit scenario, the UK will be required to bow to the Most Favoured Nation (‘MFN’) principle, which would apply to the country’s WTO-governed trade arrangements.

In plain terms, this means that the best trade deal offered to any one country would need to be offered to all countries, in order to maintain equal conditions of market access. In some sectors, this principle would have profound consequences for the competitiveness of UK-produced goods.

The trouble with much of the UK domestic political debate over our future trade terms is that it has failed to consider the question from both sides of the negotiating table.

What is best for both sides — UK and the EU27 — is continued mutual market access: it is in the interests of businesses and citizens across both that the upcoming talks focus on how this is to be sustained.

The ambition is great — and it should be for a wide-ranging free trade agreement, bespoke to these circumstances, but of sufficient breadth to obviate the invocation of the MFN principle.

We know that on Brexit Day, all of the EU rules will roll over and continue in the same form to have force in the newly independent UK. They will diverge over time, but the extent of that divergence will be reflected in the loss of market access rights that inevitably flow from it.

A bespoke tribunal — not the ECJ and not the UK courts — will be required to adjudicate on claims that divergence has occurred to an extent that triggers the removal of unimpeded market access.

Wherever we end up, being different will come at a price, and the EU27 will be unsentimental in enforcing that.

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