Boris Johnson Denies the Laws of Gravity
(Bloomberg Opinion) -- Know that feeling when you’ve hit the snooze button and a blissful amount of time passes before another rude awakening? Well, nearly a month after celebrating Britain’s official European Union departure, Boris Johnson’s government is threatening to walk away from trade talks with the bloc if it doesn’t get what it wants. That doesn’t mean there’s nothing to talk about, but the talks may have to break down before they can get started in earnest.
The U.K. published its 30-page negotiating mandate on Thursday for the EU trade talks that begin next week. The document, unsurprisingly, refers repeatedly to existing EU free trade agreements, with phrases like “in line with precedent.” Britain’s position is that what Brussels has given other countries like Canada, it can give to the U.K. The negotiations should be about the cherries on the cake. That’s not how Brussels sees it.
The U.K. document also puts its red lines up front:
Whatever happens, the government will not negotiate any arrangement in which the U.K. does not have control of its own laws and political life. That means we will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the U.K.
Britain’s position — a maximal free-trade agreement with minimal obligations(1) — is in direct conflict with the EU’s own demands that zero-tariff, zero-quota goods trade will come only with the alignment of rules and regulations. It is, of course, an opening gambit; lines can still move. But gone is the “cake and eat it” confidence that a deal delivering the “exact same benefits” as EU membership can be done. Instead, there’s an assertion that Britain no longer needs those benefits anyhow. If, by refusing alignment, it has to fall back on World Trade Organization terms to decide its tariffs with the EU then so be it. “No-Deal Brexit” is back — again.
The EU holds that alignment is necessary to prevent Britain from undercutting European firms by lowering its regulatory standards. That view is grounded on the gravity theory of trade, the common-sense notion that close proximity means you do more trade with close neighbors. Hence the worry of German Chancellor Angela Merkel and others about having a free-wheeling U.K. on the EU’s doorstep, and why Europe’s leaders won’t offer up tariff-free trade without a “level playing field” on rules. Canada doesn’t need alignment because it’s a long way from Europe.
Johnson’s government is ignoring those concerns and disputing the idea that treaty-based guarantees of alignment are necessary. They’re even countering the principle that distance really matters. The U.K. position, first set out by former International Trade Secretary Liam Fox in 2016, is that we live in a “post-geography trading world.” That’s news to companies on both sides of the English Channel who determine their supply chains by proximity.
The mood music between Europe and London couldn’t be further from that famous meeting between Johnson and Irish Taoiseach Leo Varadkar last October. To clinch a Brexit deal, the new British prime minister gave considerable ground by allowing an effective customs border to be established between Northern Ireland and the rest of the U.K.
The biggest difference now is that Brexit has happened and a Withdrawal Agreement is in force. That means the two sides have agreed on a range of major issues from EU citizen status to divorce payments to — at least in theory — resolving how the Irish border will be treated.
The other difference is that, politically, Johnson doesn’t have to compromise now. His entire cabinet is made up of committed Brexiters who believe that the freedom to diverge on rules is intrinsic to Brexit and to the Conservative’s fresh 80-strong majority in Parliament.
How much of the trade talk starting position is bluster? Maybe not so much. One of the Brexiters’ deepest-held beliefs was that it was weakness and uncertainty in the British position under Johnson’s predecessor Theresa May that gave Brussels its competitive advantage in the Withdrawal Agreement negotiations, not the EU’s relative economic heft.
Whether or not most of Johnson’s cabinet thinks this uncompromising position makes economic sense is beside the point for now. They’re convinced that it’s a political imperative. Johnson’s hard tack on Brexit after he took the reins from May didn’t just win over Labour voters; it neutralized the hardest core of Brexiters, the European Research Group of Tory lawmakers, whose opposition had doomed previous party leaders. Johnson is making sure this faction cannot act as a dissenting caucus by claiming Brexit was diluted in the implementation.
Johnson may also be calculating that the economic cost of a hard Brexit can be absorbed provided there’s government stimulus and a reasonably favorable macroeconomic environment. If that doesn’t pan out, he can always do what he did with Varadkar and sue for a compromise deal, which he can then sell as a victory.
Does the EU have room to budge on its own strict red lines? At a time of slow growth, the rise in nationalist parties and with a new European Commission finding its feet, the bloc needs both unity and to avoid more shocks to its own trading environment — especially with the coronavirus looming. Chief Negotiator Michel Barnier’s mandate has no room for concessions on alignment on state aid, but there’s wriggle room elsewhere.
Betting the EU will cave is a bold gamble, though. Brussels is mindful that the visible costs to the U.K. of its historic decision should serve as a deterrent to others. Any signs from Johnson that his simultaneous U.S. trade negotiations will lower U.K. standards will only confirm for Europeans the merit of sticking together.
The first rounds of negotiation, then, may be fleetingly short. It was never realistic to attempt anything other than a bare-bones trade deal within the one-year negotiating time-frame on which Johnson has insisted. The terms of the new relationship will take time to work out. There’s every chance that the U.K. will walk away at some point as Johnson is threatening. But the gravity of such a large neighbor will be hard to escape for long.
(1) And special annexes for the tricky areas such as fisheries, aviation and cooperation on criminal matters.
To contact the author of this story: Therese Raphael at traphael4@bloomberg.net
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.
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