Chequered tale

UK is stuck between a soft Brexit and a hard place

With the Chequers agreement, the United Kingdom finds itself between a soft Brexit and a hard place. Prime Minister Theresa May’s position looks shaky as two Cabinet ministers and a junior minister have resigned after the Cabinet approved the deal; President Donald Trump has conveyed, with characteristic brashness, his disagreement, only to backtrack. More to the point, businesses have no more clarity on what to expect come March 29, 2019, the cut-off date for Britain to exit the European Union (EU).

The Chequers agreement — the detailed document is due this week — merely sets out the terms on which the UK and the EU will negotiate the post-exit relationship. The summary suggests that Ms May has worked hard to retain all the positive aspects of Britain’s membership of the EU and exclude what Britons don’t like about it, and placate the EU. Predictably, such an intricate balancing act satisfies nobody. The question is whether this is the least harmful deal for both parties.

The convoluted arrangements may make neutral observers wonder why the UK needs to quit the EU at all. The proposal for trade in goods and foods is a case in point. It suggests an EU-UK free trade area under which the “UK would commit by treaty to ongoing harmonisation with EU rules on goods,” an arrangement that has been widely approved by manufacturers and also solves the Irish “hard border” problem. The doubts that arise are whether the EU will agree to this split of the single market into goods and services. And it is on services that the agreement sounds opaque. It broadly says the UK “would strike different arrangements for services, where it is in our interests to have regulatory flexibility”.

As for financial services — on which rests the future of the City as one of the most dynamic centres of global capital — the wording is somewhat vague. It pledges to seek arrangements “that preserve the mutual benefits of integrated markets and protect financial stability”, but recognises that these would not replicate the EU passporting regime, which is the foundation of the EU’s financial services industry. It enables banks and financial services providers to provide customer services based on a single rulebook throughout the zone with minimal interference. If the UK exits this regime, it may be relegated to “third country” status, which allows passporting benefits for a significantly narrower range of services.

The worry for Indian companies is the uncompromising stance on free movement. The relevant proposals, which the Chequers document describes as “non-negotiable”, says free movement will stop, though it seeks a mechanism to enable UK and EU citizens to travel to each other’s territories for study and work. Other elements are likely to create incendiary opposition on both sides. Suggestions on a “Facilitated Customs Agreement”, which will allow the UK to collect taxes on behalf of the EU, without reciprocal agreements can be expected to be rejected by Brussels as well.

And the proposal for a joint committee to interpret and enforce agreements once the European Court of Justice ceases to be a “supreme court” in the UK is unlikely to appeal to Brexiteers. In sum, the Chequers agreements clarifies nothing. It provides grist for the hard Brexiteers to step up their campaign even as it reveals the UK’s weak hand to the EU’s obdurate negotiators. India would really do better to resetting its sights and looking east with greater resolve.