Postponing the inevitable

The latest negotiating deadline for Brexit takes it down to the wire

After dramatic late dinners and reports of the UK Navy preparing to mobilise warships against French fisherman, UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen have agreed to set a new, unspecified, deadline to extend negotiations over a Brexit deal. This marks, since mid-October, the fourth postponement of the deadline to create the full legal text for the UK and EU-27 member countries to ratify. This latest extension does not, however, mean a shift of the final December 31 deadline when the transition period ends and the UK will have to leave the European Union (EU) with or without a deal. In effect, then, the two sides have 15 days to agree on the remaining differences, have the treaty ratified by the EU council, passed by the European Parliament and then by each national parliament. Though UK MPs have agreed to sit over Christmas Eve to ratify any deal that emerges and the EU has hinted that the country-by-country ratification deadline could be postponed, it is unclear whether the two sides can come to an agreement over residual issues that have been deadlocked all these months and complete the multiple approval process on deadline.

In contention still is a common fishery policy setting out how much access EU (mainly French) fisherman will get to UK waters, a point that has more to do with national prestige since fishing is not a major contributor to national revenues for either party. More tricky are the EU’s “level playing field” demands to align standards of UK goods and services to ensure there is no “downward competition”— such as subsidies by the British government — that would undercut EU competitors. Given that resistance to complying with EU common standards was the proximate reason for Brexit in the first place, this will be a challenging issue for Mr Johnson to sort out before December 31. A dispute mechanism also remains to be worked out.     

As pundits predict chaos at the ports, shortages of essentials and sharp price hikes if the UK exits the EU without a deal, Mr Johnson has spoken of an “Australia-style deal”. Since Australia does not have a trade deal with the EU, it can be assumed that he is referring to a trading under World Trade Organisation rules where both countries levy tariffs on each other’s goods. This is unlikely to be a happy outcome. For one, Australia is currently negotiating a trade deal with the EU with some specific arrangements in place, such as trade on wine, which would not be available for the UK if it exits the EU without a deal. For another, as former Australian prime minister Malcolm Turnbull pointed out, there are some very high barriers to be overcome in those negotiations and Australians did not consider its relationship with the EU to be a satisfactory one. Third, the UK’s economy has a far deeper relationship with the EU than Australia. The EU is the UK’s largest trading partner, accounting for 43 per cent of the UK’s exports and 52 per cent of its imports; for Australia, the proportion is 7.8 per cent of exports, half of it, ironically, to the UK. Besides, Australia has robust trade relationships with China, Japan and South Korea, which the UK cannot claim. Given the tight deadline, this latest extension may well amount to little more than postponing a no-deal inevitability even though the dislocations are the last thing the global economy needs at this time of fragility.