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Category: BREXIT Page 1 of 7

EACCNY Pulse: Transatlantic Business Insights

Listen to this final “Brexit Musing” episode with John Bruton, the former Irish Prime Minister (Taoiseach) and former EU Ambassador to the United States who will share his wisdom on what Brexit means and his thoughts moving forward with regard to not only the UK and EU, but also the U.S.

THE TRADE AND COOPERATION AGREEMENT

UK GAINED A LITTLE EXTRA SOVEREIGNTY OF THE ISLAND OF BRITAIN, BY GIVING UP SOME UK SOVEREIGNTY IN NORTHERN IRELAND

The EU/UK trade deal maintains Ireland’s agricultural export market in Britain. A “No Deal” would have destroyed it. The imposition of tariffs would have imposed huge costs on consumers and disruption to business.

That said, the fact that the Agreement had to be rushed through at the last minute left little time for debate which side lost the least in the negotiation.  For it is in the nature of a divorce, like Brexit, that both sides actually lose.

First let us look at the British side.

 For them, the goal was “sovereignty”. In sum, Boris Johnson gained more UK sovereignty over the island of Britain, but did so by sacrificing a considerable measure of UK sovereignty over Northern Ireland.

Traditionally sovereignty in Britain was seen as the unfettered power of the British Parliament to legislate.  Brexiteers have interpreted it as taking back control into the hands of British Ministers, rather than into the hands of Parliament as such.

On the other hand, EU rules, in which neither the UK, nor the people of Northern Ireland, will have  a direct say, will continue to be made for, and apply in, Northern Ireland. This creates a democracy deficit, even if the subject matter will be highly technical.

After much effort and controversy, the UK has won the right to diverge from EU rules for the island of Britain. To show that the effort was worthwhile, it will be tempted to adopt different rules on trade and regulatory matters just for the sake of it.

THE MORE BRITAIN DIVERGES FROM EU, THE MORE WILL IT DIVERGE FROM NORTHERN IRELAND

But the more British rules diverge from EU rules, the more will Northern Ireland diverge from the rest of the United Kingdom.

 This creates a political mine field and a strategic dilemma.

The implications for NI unionists could be quite destabilising. A sense of losing control over their future, and of not being represented when decisions are being made, could encourage irrational politics. This will require serious reflection in Brussels, London and especially Dublin before there is any new divergence between the UK and the EU.

The Joint EU/UK Committee, already set up under the Withdrawal Agreement, will need to monitor the political and security consequences. Title X of the Agreement requires advance notice, and consultations, on any changes in regulations as between the UK and the EU. It will be important for peace and security of these islands  that these consultations include representatives of all major interests in Northern Ireland.

 THE GAINS FOR THE UK SIDE, AT A PRICE

On the other hand, the Agreement contains significant gains for the UK side from a “sovereignty” perspective, at least as far as the island of Britain is concerned.

 Firstly, there will be no direct application of decisions of the European Court of Justice on the island of Britain.

Secondly, while the UK has accepted that it will not regress from present high social and environmental standards, it will be free to set for itself the detail of those standards. These may be different from those in the EU and thus in Northern Ireland.  This right to diverge is what UK Brexiteers saw as an expression of UK’s sovereignty. There will be strong temptations to use this power if only to show that Brexit was worth the effort.

But the UK also accepts that divergence will not come for free.

 It has had to accept that services exports from the UK have lost automatic access to the EU market, a large and incalculable sacrifice. It has also lost the European Arrest Warrant and access to eU data bases.

 As one advocate of Brexit, Dr Liam Fox MP, put it in Westminster last week

“If we want to access the Single Market, there has to be a price to be paid.  If we want to diverge from the rules of the Single Market, there has to a price to be paid”

The Agreement establishes detailed mechanisms to settle what ”price” will  have to be paid for any new  divergence .

Already, the UK is contemplating allowing genetically edited crops. If these are not permitted in the EU, there could be trade frictions and competitive losses for EU farmers.

HOW WILL DISPUTES BE SETTLED?

These new mechanisms , a Partnership Council, Joint Committees, and Arbitration Tribunals, are completely untested at this stage.

A great deal will depend on how much use the UK will make of its new freedoms. The more EU and British policies diverge, the greater will be the strain on the Agreement.

 In the last 5 years of debate about Brexit, UK politicians have actually advanced very few ideas of how they might use the new freedom conferred by Brexit.

So it is impossible to assess, at this stage, whether or not they might do things that would push the EU to seek redress through the mechanisms of the Agreement, or contribute to instability in Northern Ireland.

 If problems arise and these cannot be settled in the committee system, there is an agreed provision for arbitration. Three person Arbitration Tribunals which will operate on strict time limits. If the Arbitrators find that either the EU or the UK has breached the agreed principles, the other party will be allowed to impose tariffs or prohibitions, to compensate for losses it has suffered.

BETTER THAN NO DEAL

 This Dispute settlement aspect of the Agreement is valuable from an EU point of view.

 Without it, any disputes would have had to be referred to the WTO.  The WTO system is both cumbersome and narrow. Parties can stall, adopt delaying tactics, or  ignore WTO rulings.

 Disputes in the WTO can drag on for years, as we have seen with the US/EU dispute about subsidies to Boeing and Airbus.

 That said, we will now  be replacing a single set of rules, interpreted by the European Court of Justice (ECJ), with individual Arbitration Tribunals, operating under tight deadlines.

This could lead to inconsistent decisions in different areas of trade. If a Tribunal interprets EU law differently to the interpretation later made by the ECJ, there could be real difficulties. Some of the problems that have arisen in EU relations with Switzerland could be replicated in EU relations with the UK, but with added complications in respect of Northern Ireland.

The UK will also be free to negotiate trade agreements of its own with non EU countries. These negotiations may create additional pressure for even more divergence between UK and EU standards, than the UK authorities themselves might have chosen.

 It may come under pressure to allow the imports to the UK that would not meet EU standards, for example chlorinated chicken, hormone treated beef, or genetically modified food . If these products are then incorporated into exports to the EU, the EU will have to ban them.

  UK or EU policy decisions could also skew the level playing field on which EU and British producers must compete.

In Title XI of Part One, and in Part Six of the Agreement, there are provisions for resolving disputes .

 If the dispute is about unfair subsidies, firms can go directly to the courts, citing the text of Title XI.

 If the dispute is about something else, the remedy  will be under Part Six  and  will be indirect, requiring either the EU or UK side to take the matter up in one of the many Committees set up under the Agreement. There could eventually be recourse to an Arbitration Tribunal.

In global terms, the continent of Europe as a whole has been weakened by Brexit.   The day to day effect remains to be seen.

WHAT THE BREXIT TRADE DEAL MEANS

The Trade and Cooperation Agreement between the EU and the UK is an exercise in damage limitation. The UK will face numerous obstacles because of its decision to leave the EU, including leaving the Customs Union and Single Market.

 But it was in nobody’s interest to add to these obstacles. That was the spirit in which the EU approached the negotiation.

The Agreement may run to 1256 pages, but it boils down to some fairly simple and sensible ideas.

 While no longer a member of the EU, the UK still wants to do business with the EU, and the EU members want to do business with it. 

So, for the future, there needs to be a system for ensuring that there are no surprises, or unfair trading , that would disrupt mutually beneficial business. That is essentially what the Agreement is all about.

 While the UK was a member of the EU, that goal was achieved by having a common set of business rules, made democratically and together, and interpreted in a consistent way by the European Court of Justice (ECJ). These rules could be enforced in national courts. In other words the goal of predictable and fair business conditions between the UK and its fellow EU members was achieved directly by common action. 

Under the new Agreement, the same goal will be pursued, but indirectly.

 Common rules, made and interpreted in common, will be replaced, as far as trade between the EU and the UK is concerned, by understandings set out in the Agreement, which will be interpreted by arbitrators appointed under the Agreement.

 These understandings will have legal force, but will generally only be enforceable under the procedures set out in the Agreement, rather than directly in national courts.

While the EU and the UK will each be free to determine their own policies on the environment, social and working conditions, and subsidy controls, Article 9.4 of the Agreement allows for “rebalancing” measures to be taken by the other side if it feels its own businesses are being put at a disadvantage. This is supposed to restore the level in the level playing field. 

The Agreement contains principles, now to be enshrined in international law through the Agreement, that are shared by the EU and the UK. These cover environmental, social and subsidy issues. Arbitration Tribunals to be set up under the Agreement will interpret these agreed principles in specific cases. They will have a legal, but also a political, task.

Most of the text of the Agreement is taken up with procedures for resolving disputes. 

Matters, currently resolved in national courts under EU law, will have to be resolved at inter state level between the UK and the EU, rather than in the national courts. This is inherently more cumbersome.

Sometimes the issue will be settled by political agreement in one of the myriad of committees set up under the Agreement. 

ARBITRATION…. THE CORE IDEA

If the issue cannot be settled in this way, it will go the arbitration. 

So, instead of the interpretation being done by Judges of the ECJ, they will be done by an Arbitration Tribunal set up under the Agreement.

An Arbitration Tribunal will consist of three people. There will be lists of qualified arbitrators from which the three may be chosen, one by the UK and one by the EU and the Chair of the Tribunal will be someone who is not from EU or the UK. 

 I think this idea that the chair must come from outside either the EU or UK may prove difficult. It will not  always be easy  to find suitable chairs who are not either British or EU citizens, especially as the work will have to be done at short notice and under tight time limits.

To qualify for appointment, an arbitrator will have to have “demonstrated expertise in law and international trade” .  They will all have to be people “whose independence is beyond doubt”. They will serve in their individual capacities, and not take instructions from anyone. They will have to be people who would qualify to be judges in their home countries.

I suspect there will be a lot of intense haggling over the composition of particular Arbitration Tribunals.  The nationality of the arbitrators and their past records will be scrutinised by the governments most affected by the issues in dispute. 

There are detailed provisions in the Agreement to prevent stalling by either the EU, or the UK, in appointing Arbitrators. Once established, the Tribunals will have to deliver their ruling within 130 days . Within 30 days after that, the affected party will have to say how they will comply with the ruling.

This entire structure of dispute resolution will be presided over by a Partnership Council to be chaired jointly, by a UK Minister and an EU Commissioner. It will be assisted by over 20 specialised committees and a number of Working Groups, all of which are listed in Title III of the Agreement.

EVEN MORE MEETINGS THAN BEFORE!

 I expect that there will, in the future, be even more EU related meetings for UK officials than in the past.  But the dynamic will be different.

 Instead of being able to build alliances on particular topics with other EU member states, the UK will in future find itself alone in the room with the European Commission.

 The Commission side will have instructions, negotiated in advance with the 27 member states, so there will be a high degree of rigidity in the process.

As the EU member state most affected by relations between the UK and the EU, this will be a particular challenge for Ireland. Irish officials in Brussels and will have to stay on top of all that is going on in the various EU/UK committees. Cultivating an understanding with the Commission officials serving on these committees will be a priority.

No longer in the EU, the UK will, notwithstanding the provisions of the Agreement, encounter significant extra bureaucracy and uncertainty in doing business with the EU. 

PARTING COMPANY GRADUALLY

This will lead to a gradual divergence between the UK and all its European neighbours, including Ireland. That, in turn, will have cultural and political effects. 

The UK, and the EU states including Ireland will, so to speak, be mixing in different company .They will increasingly be seeing the world from diverging angles of vision. Issues that were previously depoliticised will become more political.

 Eventually, this may affect the way the UK sees its physical and military security. NATO is already under strain, and Brexit creates a new fault line within NATO.

 While Ireland is not in NATO, we live in a part of the world which has sheltered under the NATO umbrella, and we are deeply interconnected with NATO’s biggest member, the US.  

Brexit may be over and done with, but the forces which led to it…identity politics and suspicion of foreigners….have not gone away.

A NO DEAL OUTCOME IS STILL POSSIBLE

So the EU/UK talks are back on again, after all.

There seems to have been a change in the negotiating method, but the underlying reasons for the UK initiated suspension still remain. A No Deal outcome is still possible.

The UK Prime Minister said last Friday that the talks on a possible trade deal between the UK and the EU were over because the EU was not willing to offer the UK acceptable terms.

 He said that, since the outset of the negotiations, all the UK had ever wanted was the same terms the EU had agreed with Canada.

This was misleading.

The UK asked the EU for a full no tariff deal on all goods and services, whereas, under its deal, Canada still has to pay some tariffs , and has little access for services. 

Canada is an ocean away, whereas the UK has a land border with the EU. The EU and UK economies are so entangled that the UK, unencumbered by EU rules, would be much more of a threat to the integrity of the EU’s single market, than Canada, on the far side of the Atlantic, could ever be.

 That has been explained to the UK over and over again. 

Boris Johnson based his dramatic announcement on Friday on the fact that the European Summit had, on Thursday, dropped the adjective “intensified” in its reference to resumed  trade talks with the UK.  He followed this up by rudely telling Michel Barnier, the EU negotiator , not to come to London for planned talks on Monday.  The UK Minister, Michael Gove then   demanded what he called a “fundamental “  change in the EU’s stance.  

 This all seemed to come out of nowhere. 

There was nothing new in the conclusions of last week’s EU Summit as far as Brexit was concerned. The talks were progressing normally, and had narrowed the issues down substantially.  The European Summit had given the Commission its negotiating mandate on 25th February 2020, and there had been no suggestion of any fundamental change in it since .

 In fact, real progress has been made under that mandate. 

Even Boris Johnson himself admitted on Friday that 

“a lot of progress has already been made , by the way, on such issues as social, security, aviation and nuclear cooperation”.

He could have added that here has also been substantial progress on trade in goods, and some on services. An agreed approach to police cooperation, and to road haulage had  also been reached. The UK and EU positions had also come much closer on the overall governance of a future agreement, including on dispute settlement.

The stand off  about the Ireland Protocol has arisen because  the Joint Committee, set up to work out the implementation of the Protocol, had  not had enough meetings, and started far too late, mainly  because the UK side was not ready.  

So how do we explain Boris Johnson’s dramatic gesture?

 It is about negotiating tactics……and domestic politics.

The UK wants to settle everything else first and leave the most politically visible issue of all, fisheries, to the very end. 

Given that EU trawlers catch more fish in UK waters than vice versa, that sequence would put the EU side on the back foot. The EU prefers to deal with fisheries in conjunction with other open issues, and refuses to be rushed.

Fish is a politically sensitive national identity issue, and there is nothing Boris Johnson would like more than to be able to say that he has settled everything else, and is left defending Britain’s sovereign fishing grounds from rapacious foreigners.

 Standing up to Brussels unifies the Tory Party and distracts from the domestic difficulties about Covid 19.

But  It can also raise unrealistic expectations and lead to accidents.  

The actual cost of bringing about a No Deal Brexit, because of a disagreement over fisheries would be a hundred times greater than the value of the entire fishing industry. This is true for both sides. 

Tough talk now may also make it harder to sell any eventual deal in Westminster, unless it can be radically repackaged.

The UK never really worked out what it wanted to do with its new found freedom after Brexit. Different factions in the pro Leave coalition had different ambitions.

 Some wanted a less regulated economy, some a more regulated one.

Some wanted to government to leave business to do its own thing, others wanted the state to take the lead.

The argument about the EU’s demand for strict level playing field rules goes to the heart of these unresolved dilemmas.

If Boris Johnson gives specific commitments to the EU on the level playing field, he will have to disappoint one section or another of his pro Leave coalition. He will not want to do that.

So he may find it politically easier, in the short term, not to make a deal with the EU, and contrive a situation in which he can blame the EU for that disaster, and thereby avoid dividing his own party.  

Boris Johnson’s focus on a deadline around last week’s EU Summit was a mistake in terms of negotiating strategy. But it might make sense as part of a narrative the end point of which is blaming the EU for a No Deal outcome.

The EU Heads of Government continue to leave the negotiations of trade agreements to the European Commission.  This is to prevent attempts at divide and rule, and is one of the reasons the EU, notwithstanding its tiny budget and lack of military clout, has become a trade super power. Even though the UK was an EU member for 45 years it seems never to have learned that this was one of the reasons for the EU’s success as a trade negotiator.

 So,If the UK continues to insist on  a fundamental change in the EU approach to the negotiation, we are  heading for a No Deal Brexit on 1 January 2021.

This would have dire consequences for the Irish and British economies.  Irish farmers would be shut out of their traditional markets for beef and dairy products .  In this it would be like the Economic War of the 1930’s all over again. British consumers would face higher prices for almost everything, but especially for food. Protecting the EU Single Market in Ireland could become politically fraught.

Professor Tom Sampson of the LSE estimated that the economic cost to the UK of a No Deal would be three times as great as the costs to it of Covid 19. That is a lot.

The Covid effect will be short and sharp, with a quick recovery, whereas the cost of a No Deal Brexit would be slower to emerge, and be much larger, and much more long lasting. Some of this will happen even if there is a deal. But a No Deal will be worse because it will involve tariffs and bad blood..

It is not too difficult now to sketch out how one might  avoid a No Deal Brexit, if that is what the UK really wants.

The Level Playing Field issues on subsidies to industry, and  on differing environmental and food standards, can be settled by agreeing a fast track arbitration system between the EU and the UK. 

Relying on the WTO disputes mechanism is too cumbersome, as we have seen with the long running Boeing/Airbus saga. 

There will have to be an independent and robust system to prevent subsidized or sub standard goods entering the EU market across the Irish border. Trust will have to be built between EU and UK Customs officials. That may take several years.

Obviously there will have to be big changes in EU fishing rights in UK waters, now that the UK has left the EU. But these could be phased in over 15 or 20 years. In any event, the UK would not be able to consume all the fish it could catch in its own waters, and will need to export them to the EU. Free access to the EU market for British fish could be linked to fishing quotas for EU boats in British waters.

Of course, agreeing a Trade deal would not end all controversy.  And a No Deal would not end all negotiation.  Talk would restart after much damage had been done.

In any event, there will be lots of small disputes, not least over Customs checks in Belfast port. With goodwill and patience, these disputes can be settled .  

But , Deal or No Deal,  the EU and the UK will gradually draw further apart, as will Ireland and Britain.

 Irish people will need to pay much more attention to politics in Paris, Berlin and Warsaw, and a little less to the English speaking world. 

This will involve a major psychological reorientation, with profound implications for our educational system.

THE EU SUMMIT AND BREXIT

Brexit is only one of the topics this weekend’s EU Summit has had to address.

Approving the massive 1.8 trillion budget, ensuring that the rule of law is respected by Poland and Hungary, agreeing a line on how to deal with Russia and Turkey, and giving teeth to its climate action plan are also on the agenda. Vital issues are at stake here for all 27 members. 

This reduces the time that can be devoted to the seemingly interminable Brexit negotiations.

On paper the issues to be sorted out on Brexit are manageable. Sharing fishing rights, and policing state subsidies to industry, should not be deal breakers.

The real problem is lack of trust in the seriousness of any commitments the UK might give. There is a sense that the UK is more into the short term optics than the long term substance.

A Trade Agreement between the EU and UK would not be worth the paper it is written on, unless both sides have the same understanding of what the words in the Agreement mean. There also has to be a robust system for mediating and arbitrating disputes, that is consistent with the EU’s global trade policy..

Nobody wants a disruptive “No Deal”.  But a poorly drafted, last minute, Agreement that, within a year, breaks down in a multitude of legal disputes would be no use.

This explains why France is looking for provision for rapid retaliatory action, if the UK backslides on the Agreement. 

It also explains why European Commission is so promptly taking the UK to Court over the Internal Market Bill. 

This Bill, passed by the House of Commons, gives the UK government power to break the Irish Protocol in the Withdrawal Agreement. The EU is suing the UK even though the Bill is not yet law, and the powers have not yet been used. This again illustrates a lack of trust.

The Commission objects a provision in the Internal Market Bill, which gives UK ministers powers to breach the Northern Ireland protocol on state aid and customs duties. Even taking the power to this is seen, in itself, as a breach on the Withdrawal Agreement.

The UK is still be subject to EU law, although no longer an EU member, up to 31 December 2020. During this period, the Commission has the power to use EU remedies to enforce the Withdrawal Agreement. This is what the Commission is doing by taking this case.

It has decided to act straight away, because it believes the UK needs to be made to understand that the EU takes the literal meaning of words in Agreements very seriously.. 

The UK has one month to reply to the notice of proceedings and if its answer is not satisfactory, the Commission can take the next legal step. The end game would be a lump sum and/or penalty payment by the UK imposed on the UK by the European Court of Justice (ECJ).

The EU target is not the detail of the Internal Market Bill, it is the breach of good faith.  Article 5 of the Withdrawal Agreement requires the UK , in good faith,  to take

 “all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising from this agreement and  refrain from any measures which could jeopardise the attainment of the objectives of this agreement”.

The offending portions of Internal Market Bill do the direct opposite. They take powers to allow the UK NOT to honour Article 5! 

The Commission also  is acting because it has to be seen to enforce Treaty obligations on members and ex members alike. 

Some EU member states (eg. Hungary and Poland) are threatening to breach the rule of law in other matters. So the Commission cannot be seen to let the UK get away with the same thing . It has to be seen to be consistent.

There is another issue that could lead to a problem with the UK Conservative government when it gets down to finalising the text of any Free Trade Agreement with the EU, and having it approved on the Tory backbenches.

This is the continuing role of the European Court of Justice (ECJ) after 1 January 2021.

 The rule of the ECJ will still apply to the UK, in the following matters  

  • cases pending at the end of the transition period and  relating to events that took place before that, 
  • cases to do with citizens’ rights, for which the ECJ will remain partly competent;
  • EU budget legislation (‘financial settlement’), that is financial commitments  to which the UK committed when it was an EU member state, 
  • parts of the Protocol on Ireland/Northern Ireland  and
  •  UK army bases in Cyprus 

For Brexiteers, any continuing role for the ECJ is allergic. It is the sort of thing Jacob Rees Mogg railed against when Teresa May was Prime Minister.

In addition, the ECJ will have a role, albeit indirect, in any settlement mechanism  designed to resolve disputes under the Trade Agreement, if there is one.

If there is a dispute, either the UK or the EU may bring the dispute to an arbitration panel. If that does not work, and the interpretation of EU law is at issue, then the ECJ will have to make that interpretation.

This is normal under EU Trade Agreements. It is in Agreements the EU signed with Ukraine, Georgia and Moldova.

 This provision is there to ensure that EU law is interpreted in a consistent way across all agreements involving the EU. There cannot be one law for the UK and a different one for Ukraine.

Although logical in its own terms, this will be a hard sell for Boris Johnson.

His political authority has been reduced by Covid and the restrictions it is imposing on some parts of the UK. Despite his large parliamentary majority, he may even have to seek Labour support to get a compromise with the EU through Parliament.

But, with the UK economy in difficulty, he may have no choice. The stakes are high.

ALL TRADE RESTS ON RESPECT FOR TREATIES

The fact that the UK government is now saying it will pass legislation that will break an international Treaty it signed and ratified little over a year ago, is very serious. It undermines Britain’s aspiration to be a globally trading nation.

All trade between nations rests, ultimately, on respect for Treaties and contracts.

Deliberately breaching commitments, freely given in a Treaty, undermines the whole structure of global relations between states.

 If one cannot rely on a commitment in a Treaty, nothing is reliable.

The EU only continues to exist because its member states respect the Treaties that set it up ( as some seem to have forgotten in another context recently).

If the UK, by its breach of the Withdrawal Treaty commitments it gave  on checks on goods going from Britain to Northern Ireland, forces Ireland to introduce checks on the Irish land border,  in order to protect Ireland’s status as a fully complaint EU member, it will undermine the structure that has brought peace to these islands. 

We could be living with the consequences of this long after Boris Johnson has passed from the political scene.

A FAILURE TO PROTECT THE INDEPENDENCE OF THE EUROPEAN COMMISSION

LACK OF FAIR PROCESS, OR OF RESPECT FOR THE EU TREATIES

I have always believed that the independence of members of the European Commission was a keystone of successful European integration.

 Commissioners are obliged by their oath of office to seek a European solution to problems, rather than just seek a balance between conflicting national interests.

 Since 1958, they have done so, and this is why European integration has succeeded, while efforts at integration on other continents have failed, under the weight of national egoism.

The larger the membership of the European Union became, the more important did the independence of Commissioners from national politics become.

Some believe the Commission is too large. From an efficiency point of view, they have a point. 

But Ireland, among others, has insisted that, despite this, each member state should have one of its nationals as a member of the Commission at all times. 

But if the “one Commissioner per member state” rule is to be kept in place, as the Union enlarges, Commissioners, from all states large and small, must demonstrate that they put the European interest first, and are not subject to the vagaries and passions of politics in their country of origin. 

In other words, European Commissioners must be independent, and be seen to be so. All member states must be seen to respect this.

This is why I am so deeply troubled by the attitude take by the Irish government, and then  by President Von Der Leyen of the European Commission, to calls for the EU Trade Commissioner Phil Hogan to resign.

 Both of them failed in their understanding of the European Union, and of one of its vital interests….. namely the  visible independence of members of the European Commission from the politics of any one EU state, large or small. 

I was genuinely shocked by what happened.

 Late in the evening of 22 August,  the leaders of the Irish Government called on the EU Trade Commissioner, Phil Hogan to “consider his position”. Those words mean resign.

 They piled on the pressure thereafter, with a further statement, on 23 August, containing a political determination that he had broken their Covid 19 rules. 

Phil Hogan did resign on 26 August.

 That was his decision and one he was entitled to make.

LESSONS FROM THIS PRECEDENT

But there are profound lessons to be learned by President Von der Leyen, and by the Commission as a whole , as to how, and to whom, Commissioners should be held accountable,  and a need to understand what this precedent means for the future political independence of Commissioners from their home governments.

 Separately, there are also questions to be asked about the internal management of, and the collegiality, of the Commission.

I will set out my concerns here, drawing on the words of the EU Treaty, which I helped draft as a member of the Convention on the Future of Europe.

On the 26 August, President Von der Leyen clearly withdrew any active support from Commissioner Hogan, and unquestioningly accepted the line of the Irish Government. This influenced him to resign his position.

 In this action, I contend that she did not fulfil all her responsibilities under the Treaties.

 I know she faced a genuine political difficulty. But the Treaties were framed do deal with fraught political situations, while preserving the independence of the Commission and due process.

 The Commission is guardian of the Treaties, and should be seen to defend the rules laid down in the Treaties in all circumstances, even when it is politically difficult. 

Article 245 of the Treaty requires member states to respect the independence of Commissioners. Ireland is bound by that article having ratified it in a referendum.

 One should note that Article 245 refers to respecting the independence of Commissioners individually, not just to the Commission as a whole.

 It is for the Irish government to say whether publicly demanding a Commissioner’s resignation, for an alleged breach of purely Irish rules, is compatible with the Irish government’s Treaty obligation under Article 245 to respect his independence, It had other options,

If any Commissioner is visiting a member state for any reason, he or she is subject to the laws of that state, on the same basis as any other citizen. A visiting Commissioner would not be above the law, but nor would she be below it either. 

If she breached the law, due process in the Courts ought to be applied, as to any citizen.

 This what would have happened if the visiting Commissioner was from any country other than Ireland and had had the difficulties which Phil Hogan had….due process would have been followed. 

 The statements of the Irish government, and the unsatisfactory explanations by Phil Hogan, did create political problems for the President of the Commission.

 She had to do something, but not necessarily what she did do.

 But there were options available to her which, inexplicably, she failed to use or even consider.

RULES IGNORED

 Commissioners are subject to a Code of Conduct, last updated in 2018. Under that Code,

 there is an ethics committee to determine if the Code has been breached. If the matter was urgent, there is provision for a time limit  to be set for a report by the Committee.

 But a reference to the Ethics Committee would have allowed for due process, and a calm and fair hearing. More importantly using this process would also have asserted the independence of the Commission as an institution.

 The Code says that it is to be applied “in good faith and with due consideration of the proportionality principle” and it allows for a reprimand. where the failing does not warrant asking the Commissioner to resign. 

Now, because of the course followed, we will never know if there was any breach at all of the Code at all by Phil Hogan. 

President Von der Leyen’s failure to use these mechanisms seems to be a serious failure to defend due process and proportionality, and to protect  the independence  of individual Commissioners, as she was required to do by the Treaty.

 The Commission and the Parliament should enquire into why she did not do so.  There are consequences now for the viability of the Code of Conduct, if it is not to be used in a case like this. 

CRITERIA NOT APPLIED

Was what Phil Hogan did a resigning matter anyway ?

Article 247 allows for only two grounds for asking a Commissioner to resign. There are that he or she is

“no longer being able to fulfil the conditions for the performance of his duties”

Or

” has been guilty of serious misconduct”.

I do not think either condition was met in this case.

Phil Hogan would have been fully capable of carrying out his duties while the Ethics Committee did its work. Instead his position is now effectively vacant.

Most people I have spoken to do not think the breaches committed by Phil Hogan, while foolish, amounted to “serious misconduct” within the meaning of Article 247.

 Failure to recollects all the details of a private visit over 2 weeks, or to issue a sufficient apology quickly enough, may be political failings, but they hardly  rise to the level of “serious misconduct”. Any deliberate and knowing breach of quarantine should have been dealt with in the Irish courts without fuss. 

 In any event, President von der Leyen would have been far wiser to have got an objective view on all these things from the Ethics Committee, before allowing Phil Hogan’s resignation.

WHY DID THE COMMISSION NOT MEET?

Another issue is the President’s failure to call a Commission meeting, if she was considering that a Commissioner should resign.

Under article 247 it is the Commission, not the President alone, who may compulsorily retire a Commissioner, and even then, they must have the approval of the European Court of Justice.  These safeguards were put in the Treaty to protect the independence of the Commission. They were ignored in this case.

The resultant weakening of the institutional independence of the Commission is very damaging to European integration and to the interests of smaller EU states. This should be of concern to the European Parliament.

WE NEED A FULL STRENGTH TEAM ON THE PITCH AS BREXIT REACHES THE ENDGAME

It is increasingly likely that, unless things change, on 1 January 2021,  we will have a no deal Brexit. The only agreement between the EU and the UK would then be the already ratified Withdrawal Agreement.

 There are only 50 working days left in which to make a broader agreement. The consequences of  a failure to do so  for Ireland will be as profound, and even as  long lasting, that those of Covid 19.

A failure to reach an EU/UK Agreement would mean a deep rift between the UK and Ireland.

 It would mean heightened tensions within Northern Ireland, disruptions to century’s old business relations, and a succession of high profile and prolonged court cases between the EU and the UK dragging on for years.

 Issues, on which agreement could easily have been settled in amicable give and take negotiations, will be used as hostages or for leverage on other issues. The economic and political damage would be incalculable.

We must do everything we can to avoid this.

Changing the EU Trade Commissioner in such circumstances would be dangerous.  Trying to change horses in mid stream is always difficult. But attempting to do so at the height of a flood, in high winds, would  be even more so.

The EU would lose an exceptionally competent Trade Commissioner when he was never more needed. An Irishman would no longer hold the Trade portfolio. The independence of the European commission, a vital ingredient in the EU’s success would have been compromised…a huge loss for all smaller EU states.

According to Michel Barnier, the EU/UK talks , which ended last week, seemed at times to be going “backwards rather than forwards”.

The impasse has been reached for three reasons.

THE MEANING OF SOVEREIGNTY

Firstly, the two sides have set themselves incompatible objectives.

The EU side wants a “wide ranging economic partnership” between the UK and the EU with ”a level playing field for open and fair competition”. The UK also agreed to this objective in the joint political declaration  made with the EU at the time of the Withdrawal Agreement.

Since it agreed to this, the UK has had a General Election, and it has changed its mind. Now it is insisting, in the uncompromising words of it chief negotiator, on

 “sovereign control over our laws, our borders, and our waters”.

This formula fails to take account of the fact that any Agreement the UK might make with the EU (or with anyone else) on standards for goods, services or food stuffs necessarily involves a diminution of sovereign control.

Even being in the World Trade Organisation (WTO) involves accepting its rulings which are a diminution of “sovereign control”. This is why Donald Trump does not like the WTO and is trying to undermine it.

The Withdrawal Agreement from the EU (WA), which the UK has already ratified,  also involves a diminution of sovereign control by Westminster over the laws that will apply in Northern Ireland (NI) and thus within the UK.

 The WA obliges the UK to apply EU laws on tariffs and standards to goods entering NI from Britain, ie. going from one part of the UK to another.

This obligation is one of the reasons given by a group of UK parliamentarians, including Ian Duncan Smith, David Trimble, Bill Cash, Owen Patterson and Sammy Wilson, for wanting the UK to withdraw from the Withdrawal Agreement, even though most of them voted for it last year!

Sovereignty is a metaphysical concept, not a practical policy.

Attempting to apply it literally would make structured, and predictable, international cooperation between states impossible. That is not understood by many in the UK Conservative Party.

THE METHOD OF NEGOTIATION

The second difficulty is one of negotiating method. The legal and political timetables do not gel.

The UK wants to discuss the legal texts of a possible Free Trade Agreement first, and leave the controversial issues, like level playing field competition and fisheries, over until the endgame in October.

The EU side wants serious engagement to start on these controversial issues straight away .

Any resolution of these controversial issues will require complex legal drafting, which cannot be left to the last minute. After all, these legal texts will have to be approved by The EU and UK Parliaments before the end of this year.

There can be no ambiguities or late night sloppy drafting.

The problem is that the UK negotiator cannot yet get instructions, on the compromises he might make , from Boris Johnson. Boris Johnson is preoccupied instead with Covid 19, and with keeping the likes of Ian Duncan Smith and Co. onside.  He is a last minute type of guy. 

TRADE RELATIONS WITH OTHER BLOCS

The Third difficulty is  that of making provision for with the Trade Agreements the UK wants to make in future with other countries like the US, Japan and New Zealand. Freedom to make such deals was presented to UK voters as one of the benefits of Brexit.

The underlying problem here is that the UK government has yet to make up its mind on whether it will continue with the EU’s strict precautionary policy on food safety, or adopt the  more permissive approach favoured by the US.

Similar policy choices will have to be made by the UK on chemicals, energy efficiency displays, and geographical indicators.

The more the UK diverges from existing EU standards on these issues, the more intrusive will have to be the controls on goods coming into  Northern Ireland from Britain, and the more acute will be the distress in Unionist circles in NI.

Issues that are uncontroversial in themselves will assume vast symbolic significance, and threaten the peace of our island.

The UK is likely be forced to make side deals with the US on issues like hormone treated beef, GMOs  and chlorinated chicken. The US questions the scientific basis for the existing EU restrictions, and has won a WTO case on beef on that basis.  It would probably win on chlorinated chicken too.

 If the UK conceded to the US on hormones and chlorination, this would create control problems at the border between the UK and the EU, wherever that border is in Ireland.

Either UK officials would enforce EU rules on hormones and chlorination on entry of beef or chicken to this island, or there would be a huge international court case.

All this shows that, in the absence of some sort of Partnership Agreement between the EU and the UK, relations could spiral out of control.

Ireland , and the EU, needs its best team on the pitch to ensure that this  does not happen!

BREXIT….HEADING FOR THE CLIFF EDGE

Last Friday Michel Barnier gave a stark warning about the lack of progress in the Brexit negotiation. 

But this week Boris Johnson has come back to work. 

Perhaps it was unrealistic for Michel Barnier to have expected the UK to  have engaged seriously with the trade offs and concessions, essential to a long term Agreement  , while the UK Prime Minister was ill.

Brexit is Boris’ big thing. He made it. Other Tory Ministers have no leeway to make Brexit decisions without his personal imprimatur. He has purged from his party of all significant figures who might advocate a different vision of  Brexit. 

The point of Michel Barnier’s intervention is that, now that Boris is back at work, he will need to  give a clear strategic lead to the UK negotiating team.  If he fails to do that, we will end up, on 1 January 2021, with No Deal and an incipient trade war between the UK and the EU.  Ireland  will be in the front line.

 The scars left by Covid 19 will eventually heal, but those left by a wilfully bad Brexit,  whether brought  about deliberately or by inattention, may never heal. 

This is because a bad Brexit will be a deliberate political act, whereas Covid 19 is just a reminder of our shared human vulnerability.  

Boris Johnson signed up to a Withdrawal Treaty with the EU, which  legally committed the UK to customs, sanitary, and phytosanitary controls between Britain and Northern Ireland, so as to avoid controls between North and South in Ireland.

 So far, Michel Barnier says he has detected no evidence that the UK is making serious preparations do this.  An attempt by the UK to back out of these ratified legal commitments would be seen as a sign of profound bad faith. 

Michel Barnier said that negotiating by video link was “surreal”, but that the deadlines to be met are very real.

 The first deadline is the end of June.  This is the last date at which an extension of the negotiating period beyond the end of December might be agreed by both sides. While the EU side would almost certainly agree to an extension, there is no sign that the UK will agree. Tory politicians repeatedly say they will not extend. 

This tight deadline would be fine, if the UK was engaging seriously, and purposefully, in the negotiation.

 But, according to Michel Barnier, the UK has not yet even produced a full version of a draft Agreement,that would reflect their expectations. The EU side produced its full draft weeks ago.  Without full texts it is hard to begin real negotiation. So far the UK has only produced texts of selected  bits of  the proposed Treaty.

 But the UK  insist that Barnier keep these bits of  draft UK text secret, and not share them with the 27 Member States. Giving Barnier texts that he cannot share with those on whose behalf he is negotiating, is just wasting his time. It seems to me the UK negotiators are adopting this strange tactic because they have no clear political direction from their own side.  They do not know whether these bits of text are even acceptable in the UK!

In the political declaration, that accompanied the Withdrawal Agreement, Boris Johnson agreed his government would use its best endeavours to reach agreement on fisheries by the end of July. Such an agreement would be vital if the UK fishing industry were to be able to continue to export its surplus fish to the EU. Apparently there has not been serious engagement from the British side on this matter. 

The other issue on which Barnier detected a lack of engagement by the UK was the so called “level playing field” question.

 The EU wants binding guarantees that the UK will not, through state subsidies, or through lax environmental or labour rules, give its exporters an artificial advantage over EU (and Irish) competitors.

 The “level playing field” is becoming a difficult issue within the EU itself.

 In the response to the Covid 19 economic downturn, some of the wealthier EU states (like Germany) are giving generous cash/liquidity supports to the industries in their own countries. 

 On the other hand, EU states with weaker budgetary positions (Italy, Spain and perhaps even Ireland) cannot compete with this.

 It is understandable that temporary help may be given to prevent firms going bust in the wake of the Covid 19 disruption.  But what is temporary at the beginning, can easily become indefinite. And what is indefinite can become permanent. Subsidies are addictive.

 The reason we have a COMMON Agricultural policy in the EU is that, when the Common Market was created 60 years ago, nobody wanted rich countries to be able to give their farmers an advantage over farmers in countries whose governments could not afford the same level of help. The same consideration applies to industry. Subsidies should be equal, or should not be given at all.

 State aid must be regulated, inside the EU, if a level playing field is to be preserved. To make a convincing case for a level playing field between the EU and the UK, the EU side will need to show it is doing so internally. This will be a test for President Von der Leyen, as a German Commissioner.

Which way will Boris Johnson turn on the terms of a deal with the EU?

I think it is unlikely he will look for an extension of the Transition period beyond the end of this year. 

He wants a hard Brexit, a clean break as he would misleadingly call it,  but he knows it will be very painful.

 He will probably reckon that the pain of a hard Brexit ,or no Deal, Brexit at the end of December, will be concealed by the even greater and more immediate pain of the Covid 19 Slump. Brexit will not be blamed for the pain. But if Brexit is postponed until January 2022, the Brexit pain will be much more visible to voters.

The Conservative Party has become the Brexit Party. It is driven by a narrative around re establishing British identity, and is quite insensitive to economic or trade arguments. It wants Brexit done quickly because it fears the British people might change their minds. That is why there is such a mad rush. It is not rational. It is imperative!

A FRAUGHT NEGOTIATION BETWEEN THE EU AND THE UK IS LOOMING

 #banksy

There are increasing grounds for concern that the UK is backing away from the legal and political commitments it made last October in its Withdrawal Agreement with the EU. The Withdrawal Agreement was made before the UK General Election, when Boris Johnson led a minority government. Now he has an overall majority, and the prospect of four more years in office. He has more weight to throw around, at least in the short term. Some of the governments on the EU side are not in such a strong position.

 There is a suspicion that he may now be backing away from legally and politically binding commitments he gave to the EU last October in order to appear to “get Brexit done” before his General Election.

For example, the newly appointed Northern Ireland Secretary has stated that there “will be no border down the Irish Sea”.  Boris Johnson has made similar comments.

 

This could be interpreted as meaning that the UK was acting in bad faith when it agreed last October to the Withdrawal Agreement and to its legally binding protocol on Ireland.

In the Protocol, the UK committed itself to what amount to border controls between Britain and Northern Ireland.

While the word “border” is not used in the Protocol, the UK accepted in Article 5, that  EU customs duties would be collected on goods coming into Northern Ireland from Britain which if those goods were “at risk of subsequently being moved” to the rest of Ireland and thus into the EU.

It was also envisaged that goods would also have to check for the purposes of collecting the appropriate amount of VAT, and to verifying their origin. EU officials were to have a right to be present when this checking was being done, so as to assure themselves that the UK officials were correctly interpreting the EU laws that would apply in Northern Ireland.

The protocol contains detailed provisions for determining how UK goods, that were at risk of entering the EU through Ireland, might be identified and controlled, and how the customs duties on them might be collected. This was not to be done at the land border in Ireland, so it had to be done before the goods entered Northern Ireland, effectively on either side of the Irish Sea.

It is difficult to see how the new Northern Secretary’s comment the there would be no border in the Irish Sea can be compatible with the legally binding protocol agreed to by the UK, unless one interprets that the word “border”  as only applying to a border on land.

The UK Government also seems to backing away from the commitments, on ensuring fair competition, it made in the Political Declaration which it agreed with the EU as the framework for the Withdrawal Agreement.

This Political Declaration, while not legally binding in the same way as the Withdrawal Treaty itself, is part of the Withdrawal process under Article 50 of the EU Treaties, and it is referred to in the Withdrawal Treaty.

For either the EU or the UK to back away from what they had agreed in the Political Declaration would amount to bad faith, and could poison future relations.

One can accept that, once the UK leaves the EU, the EU should accept the autonomy of the UK’s decision making processes, and vice versa.

 It a legal sense, there should be a relationship of equals between the EU and the UK.

But if there is to be trade between the EU and UK, it is only common sense that there  be  basic compatibility of standards. Indeed most modern trade agreements are more about standards than they are about mere tariffs and quotas.

The Political Declaration, agreed by the UK last October, makes repeated references to the need for  provisions for a level playing field and fair competition in any future agreement between the UK and the EU.

 Article 17 says the Partnership between the UK and the EU should ensure

a level playing field for open and fair competition

 between UK and EU firms.

 Article 77 commits the UK and the EU to

uphold the common high standards applicable to the EU and the UK at the end of the transition period in areas of state aid, competition, social and employment standards, environment, climate change and relevant tax matters.

The common standards applying at the end of the transition period at the end of this year are the existing EU standards. The UK agreed there would be no rolling back of these  EU standards.

 But Boris Johnson said, in a speech in Greenwich earlier this month, that

There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment or anything else anymore than the EU is obliged to accept UK rules.

Prime Minister Johnson’s EU negotiator, David Frost went further this week when he said

to think that we might accept EU supervise of so called level playing field issues simply fails to understand the point of what we are doing

adding that the UK must be free to “set laws that suit us” and that

 this is the  point of the whole project.

On the face of it, these statements appear to be a flat contradiction of what Mr. Johnson and his government agreed to last October in the Political Declaration.

The level playing field provisions in the Political Declaration clearly envisage mutual supervision of the EU by the UK, and vice versa, to ensure that neither side does anything that interferes with open and fair competition or rolls back standards.

There may be some room for benign interpretation.

Prime Minister Johnson could say he is referring to rules to be made in future by either the EU or the UK, and not to the rules in force now.

 But the Political Declaration is only says that the “common high standards “, in force at the end of the transition period, should not be reduced. It does not prevent new rules being made by either side, so long as they do not reduce these standards. So it is difficult to know what Mr. Johnson and Mr. Frost are talking about.

 The agreed Declaration does not require the UK or the EU to use exactly the same words to maintain those standards, just that standards should not be reduced.

The statement by David Frost, rejecting any EU supervision of what the UK does, could undermine the Political Declaration in a fundamental way.

The UK, if it wants good relations with all its immediate neighbours, should dial back the rhetoric. Trust needs to be rebuilt.

The EU should also be careful not to over estimate its own negotiating leverage, and not to look for certainty on everything.

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