January 10, 2018
Britain’s business world sees the transition period as a positive achievement, but for the UK it would be like jumping out of the EU plane without a parachute!
Is Brexit inevitable? Could a ‘no go’ scenario be worked out? No, according to EU officials I consulted off-the-record, because the UK is blocked by internal politics: the British train is about to collide with the wall of reality at high speed, and nothing can divert it.
This is not my view. I believe that the UK remaining in the European Union is a credible option – an option that requires mobilisation – provided that the EU makes itself more attractive by improving its governance and by allowing the UK to save face should the negotiations stall or break down.
Since Article 50 was triggered at the end of March 2017, British policy (among both the Tories and Labour) has been characterised by demagogy, a poorly-informed population, lack of technical understanding and persistence with losing strategies.
The supposed achievements of the first phase barely conceal the disagreements. Leaving aside the amount of the divorce bill to be paid by the UK, or the status of residents, the EU’s negotiating team considers the idea of having no border between the Northern Ireland and Ireland to be unworkable.
But as the Italian saying goes: E la nave va (the ship goes). It is as if nothing can be done to reverse the process; no awareness of the economic disaster around the corner, nor a possible change of heart among the UK population via a new referendum that would have to take place before 29 March 2019 (the date on which the two-year negotiation period will end).
My presentation will aim to demonstrate the inanity of Brexit from the perspective of agricultural and food policy, as well as the lack of rationality and even feasibility in separating the UK from the EU. To take a powerful image, it is as if your country was firmly anchored to the European Union by thousands of technical regulations, like the giant Gulliver paralysed by Lilliputians.
The Common Agricultural Policy, the day after…
Since their accession, the British have detested the CAP, with its excessive prices and exporting of costly surpluses to world markets. This system was the precise opposite of their old one, which was based on low prices and huge imports from the Commonwealth.
In 1992, then in 2000, the CAP moved towards the UK pre-accession system, greatly reducing prices in conformity with the rules of the World Trade Organisation. But the British continued to dislike the CAP: too expensive, not industry-based, hostile to GMOs and too much oriented towards family farming.
We can therefore expect significant changes once Brexit happens. But if we are going to imagine a UK agricultural policy after 29 March 2019, we must remember that agriculture has three dimensions: production, standards and international trade.
29 March 2019: the CAP becomes the UKAP (United Kingdom Agricultural Policy)
On the day of separation, the United Kingdom will a priori enjoy full legislative freedom. That’s what the Brexiters think. Nothing could be further from the truth. In reality the legislation applicable within the UK on 30 March 2019 will be exactly the same as on the day before, because the EU acquis (comprising 1,685 laws and 12,420 regulations) will be fully transposed into British law via the ‘Great Repeal Bill’. From that moment (at least initially), the United Kingdom Agricultural Policy will be exactly the same as the CAP applying to the remaining 27 Member States of the EU.
Clearly, with time the UK will be free to amend its agricultural policy. For the moment, we know nothing about the intentions of the British authorities. There has been no negotiation on the issue and all we know is that they want to make their farming system “more sustainable”, which means nothing.
In what direction will the UK agricultural model develop? Broadly speaking, three systems can be envisaged: retaining a CAP-based scheme, adopting a liberal system without subsidies (like New Zealand) or opting for the US model that combines direct aid with innovative systems of insurance and cyclical measures.
It does not take a prophet to predict that the future UK agricultural policy will be a ‘pick and choose’ between these three models. But the new model will be costly in budgetary terms and it will take time to set up, since no change to the EU-inherited system will be possible before the end of the transition period, i.e. 1 January 2021 at the earliest. This all the more true as the May cabinet has promised to guarantee British farmers the full payment of subsidies until the end of 2023 to allow them to adapt to the new framework.
In addition to the time required to develop a new farming policy, the British will as of 30 March 2019 be confronted with the urgent need to adopt a series of technical tools to ensure they can handle the daily management of agricultural markets (in other words, replacing the comitology committees that will be reserved to the EU-27).
What about standards?
The EU Common Agricultural Policy is accompanied by countless norms and standards, many of which are highly sensitive: genetically modified organisms (GMOs), plant protection products (glyphosate, neonicotinoids), endocrine disruptors, new-generation veterinary products, health treatments, etc.
On this topic (like others), the British authorities want to have their cake and eat it. They clearly would like to move in the direction of US regulation (pro-GMO, pro-glyphosate) while benefiting from full access to both the US and EU markets.
But this is fantasy, because the UK will have to make a choice: either maintain European standards and keep access to the European market, or opt for the US market by aligning themselves with US standards. According to my information, representatives of the US administration have already informed Theresa May that any free trade agreement with the US will have as its corollary the alignment of UK standards with US standards.
The United Kingdom will have to choose: either give priority to the European market and its standards, or favour the American market and its standards. The two are not compatible and it would be surprising to see the UK choose a distant and less significant market when the leading economic world power – the EU – is right on its doorstep.
WTO and agricultural trade agreements: still a black box!
Until now, the question of international trade has not been tackled in the negotiations. All of the EU’s agricultural regulation is based on World Trade Organisation rules and it is clear that not only will the WTO be involved in EU-UK talks but it will have to give the green light with the agreement of its members.
Several hundred international treaties and agreements (some say there are 759!) have been ratified by the EU since the accession of the UK in 1973. Generally, these are multilateral Uruguay Round-style agreements and bilateral EU/Canada-style agreements (295), agreements on fisheries (69), international transport, customs procedures and nuclear co-operation.
The complexity is huge. Let us focus on three examples:
- The EU and the UK, both members of the WTO, will have to hold discussions envisaged under Article XXIV of the GATT with the relevant WTO authorities before the trade component of the EU/UK agreement can enter into force.
- The recent EU-Canada trade agreement opens up export markets to British cheddar. The quid pro quo for this favourable concession was an equivalent concession granted by the EU to Canada concerning an export quota for beef without hormones. We cannot imagine that this will remain. The agreement, like all the others, will have to be re-negotiated.
- UK accession was accompanied by the signature of trade agreements with Commonwealth countries whose exports to the European market were guaranteed, e.g. New Zealand lamb, Mauritius sugar, bananas. Each of these agreements will need to be re-negotiated very carefully by the countries concerned as well as the United States.
Although the EU and UK negotiators insist that the talks have begun, I am convinced that the trade dimension of the CAP will remain a black box that everyone will try to push into the distance given its extreme complexity.
The British dream of free trade agreements all over the world
Ever since the triggering of Article 50, the ‘pragmatic’ Brits have been mistaking their desires for reality. Preserving their European financial passport while optimising their fiscal attractiveness and setting up a free trade zone stretching from the Americas to Europe: this only occurs in dreams!
In reality, only two models can be envisaged:
- A ‘CETA-plus’, in other words a free trade agreement inspired by the one the EU concluded with Canada. This type of agreement (limited to goods) could, according to London, be extended to services and particularly financial services, which would allow the United Kingdom to preserve its European passport without which the City would lose a large part of its business. For the EU negotiators, this option is a no-go.
- An ‘EEA-minus’, i.e. a free trade agreement inspired by the one with Norway, Iceland and Liechtenstein allowing full access to the EU market, but without free movement of workers. For reasons of morality and political realism, this option will never be accepted by the EU-27.
Thus, the trade dimension of Brexit leads us into a corner. We can see that the acceptance by the EU of a period of transition running from 30 March 2019 to 31 December 2020 will have as its raison d’être the finalisation of a trade package between the UK, the EU, the WTO and its contracting parties.
The transition period: how the UK is putting itself in a coffin
The transition period is being interpreted differently on each side of the Channel. The British see it as a way to gain time and create the best possible conditions for their departure (again, having their cake and eating it!). For the EU-27, the transition period is known as ‘Everything But The Institutions’. This means that, during a period of 21 months, the United Kingdom:
- will be considered a third country,
- will no longer have a European Commissioner,
- will no longer have any MEPs,
- will no longer have any EU civil servants,
- will continue to pay into the EU budget,
- will have to apply the EU acquis unchanged,
- will not be able to sign any free trade agreement with another third country.
As Emmanuel Macron once said about high taxes in France, “it’s Cuba without the sunshine!”
In reality, during the transition period the issue of trade agreements will be dealt with. However, the UK will not have any guarantee on the favourable outcome of the negotiations and will operate with the very unfavourable status of ‘third country’. Put briefly, the transition period will be like jumping out of a plane with no parachute, or even like enclosing oneself in a coffin.
An alternative to the transition period: extending the negotiation phase beyond two years
The triggering of Article 50 was clear, opening up a two-year negotiation period that will, at its end, result in the withdrawal of the UK, unless the EU-27 unanimously decides otherwise.
It is obvious that the negotiations will not be finished by the end of March 2019, given their complexity. It is also obvious that respecting this deadline and then using a transition period to resolve the question of trade agreements amounts to shooting oneself in the foot.
According to my high-level contacts, the option of extending the negotiating period beyond two years will be considered positively, by both the EU negotiating team and the governments of the EU-27.
This seems to me the only reasonable option. It is the only one that would allow us to get through the negotiations in a way that makes it possible to undertake a proper SWOT analysis of the risks and opportunities of Brexit, for the EU-27 as well as for the United Kingdom.
Gaining time would also allow pushing back the idea of the ‘unavoidable’ Brexit, in the hope that more enlightened leaders might come to power and, before the end of the negotiation period, hold a new referendum on leaving or staying in the EU.
Letting the United Kingdom save face while the governance of the European Union is reformed
The vote on 23 June 2016 confirmed the European people’s disaffection with the European Union. That referendum was the latest in a line of similarly negative referenda in France, Ireland and the Netherlands, but nothing was done to improve the EU’s communication, its image or its governance, the latter now so bureaucratic due to enlargements and procedural complexity.
Alongside the psychodrama of the Brexit negotiations, the European leaders who meet regularly in the European Council should set up a taskforce, half political and half legal, with the objective of re-thinking the governance of the Union; simplifying it, making it more transparent, more focussed on the essential, less regulatory, more visionary.
But the taskforce should also look in detail at the feasibility of a ‘two-circle Europe’, something that has been proposed for a long time by some officials: a first circle, federally-inspired, for the countries of the Eurozone; and a second circle, limited to internal trade, the single market and competitiveness. Basically, it is to this second circle that the UK aspires.
Losing face, feeding deceptions and frustrations; all of this will fail. Offering the United Kingdom and by extension the citizens of Europe (whether Eurosceptic or critical Europhile) a Plan B constitutes the only realistic, effective and positive way forward.Daniel Gueguen