Tag: trade

Amid the smiles and fanfare at the Windsor Guildhall as the Northern Irish border deal was unveiled, EU Commission President Ursula Von der Leyen referred to PM Rishi Sunak as “dear Rishi”. Selling the deal in Northern Ireland, Sunak indicated a change in thinking from a glowing endorsement of a hard Brexit, instead hailing the British province’s place in the European single market as an “unbelievably special position”.

Sunak’s language mirrors a shift in British public attitudes towards Brexit over the past year and a half, with support for UK membership in the EU climbing to around 57 percent, according to a What UK Thinks polling aggregate.

The British economy is in a poor state post-Brexit. Both the IMF and OECD expect it to contract in 2023, as the G7’s worst-performing economy. Brexit is far from the only cause of this economic weakness; the UK has suffered from poor productivity growth since the 2008 financial crash for a complex array of reasons. Nevertheless, economists say Brexit is undermining the UK’s economic growth, with the Treasury’s non-partisan forecaster, the Office for Budgetary Responsibility, expecting Brexit to leave the economy four percent smaller than it would have been if the UK had stayed in the EU.

>> Sunak’s ‘seismic’ deal resolves N. Ireland border problem – but DUP support remains elusive

There is a feeling “among a small but substantial minority of those who voted ‘Leave’ that it’s messed up the economy”, noted Tim Bale, a professor of politics at Queen Mary, University of London.

As far as the political class goes, “even a fair number of Brexit-supporting Tories would like to see things put on a more amicable and hopefully more profitable footing”, Bale added. “Continued hostility, now we’ve left, benefits very few politicians, outside of the Brexit ultras on the Conservative backbenches.”

‘More pragmatism, less ideology’

Brussels bore this context in mind when reaching out ahead of signing the Windsor Framework, sensing this was the right moment to improve relations with the UK.

“It’s the EU that moved the most; they’ve accepted the UK’s concerns about trade flows between Great Britain and Northern Ireland, and they did so for political reasons, at a time when you can see the under-performance of the British economy is only going to get worse,” explained Jacob Kirkegaard, a senior fellow at the German Marshall Fund’s Brussels office.

“They gave Sunak a pretty good deal, and they didn’t have to do that. They could have played hardball.”

The changing of the guard at Downing Street made a colossal difference to what was possible – with the EU regarding Sunak very differently from the way it viewed a blustering Boris Johnson. Combined with the shift in British public opinion, the return of emollient, technocratic diplomacy in London laid the groundwork for deeper UK-EU ties.

The Windsor Framework “may open a new chapter in EU-UK relations, based more on pragmatism and less on Brexit ideology”, said Nicoletta Pirozzi, head of the European Union programme at the Italian Institute of International Affairs in Rome.

Ukraine ‘shifted the EU’s trajectory’

Even before Sunak’s Northern Ireland deal, the Conservative government showed a little more movement than pundits expected. Sunak’s predecessor Liz Truss had a similarly belligerent diplomatic style to Johnson’s – refusing to say whether France was friend or foe, for example. Yet Truss signed up to French President Emmanuel Macron’s grand idea of a European Political Community, bringing together EU members and non-members alike to discuss Europe’s common priorities.

When Truss surprised observers by attending the European Political Community’s inaugural meeting in October, Europe’s united stance behind Ukraine was at the top of the agenda. Indeed, the Russo-Ukrainian War has made Britain a relevant geopolitical actor again after the turmoil of Brexit. Europe’s biggest defence spender and a global leader in intelligence, the UK is the second-largest weapons donor to Ukraine behind the US. London has developed a special relationship with Kyiv – as demonstrated by the talks on Ukraine manufacturing its own arms thanks to a licensing deal with British companies.

Defence and security issues are much more salient than they were during the first stage of Brexit wrangling from 2016-2019. Back then, it was common to hear pro-Brexit pundits in the UK talking up the chances of Eastern European countries like Poland helping Britain get a special trade deal, seeing as the UK was the main proponent of their accession to the EU and has long shared their hawkish stance towards Russia. But this was wishful thinking, as the EU 27 maintained a united front behind the European Commission’s chief negotiator Michel Barnier, who was keen to make sure that Britain did not enjoy the benefits that come with being part of the club after summarily rejecting membership.

Yet now the war in Ukraine is likely to soften Brussels’ stance towards the UK even further – and Eastern European countries will cheer this process on, Kirkegaard predicted. “The EU is certain to accept Ukraine as a member state within the next 10 years – and that means the EU will almost certainly have a difficult border with a nuclear-armed adversary in the shape of Russia. The UK is a major military power, a nuclear power – and that really matters,” he said.

“Before the war, it didn’t matter very much, to be frank, but the war has really shifted the trajectory of the EU,” Kirkegaard continued. “Military and security issues are a much bigger deal – making the UK a lot more important to the bloc – and nowhere will this be felt more keenly than Poland, the Baltic states and Finland.

“I’m not so sure that even the French hard line on Brexit would have been sustained if the war had broken out in 2017 or 2018,” Kirkegaard added.

‘Full benefits for full members’

If both sides proceed with building closer economic relations, the most likely options are either the Norway model or the Switzerland model.

The Norwegian approach is membership in the single market without EU membership, which involves a lot of rule-taking without any real say in rule-making. This would be anathema to the anti-EU hardliners on the Tory backbenches, who heaped opprobrium on fellow Conservative MP Tobias Ellwood when he endorsed re-joining the single market last year, even if they are largely acquiescent about Sunak’s Northern Ireland deal. The Labour Party also rules out the Norway option.

By contrast, the Swiss option could give Britain the single market access its services-reliant economy needs without it having to adopt every single EU rule. Switzerland negotiates regulatory alignment with the single market on a sector-by-sector basis through an array of bilateral deals, many of which require renegotiation as the EU changes its rules.

Downing Street denied The Sunday Times’s report in November that it is looking at the Swiss model, amid backlash from the backbenches. Labour leader Keir Starmer said the same month he is not considering the Swiss option.

Enjoying a whopping poll lead, Labour are the overwhelming favourites to win the next general elections, due before the end of 2024 – although historically polls at this stage in the electoral cycle have tended to exaggerate Labour’s chances of taking power.

Starmer’s party wants to keep Brexit off the agenda and focus on the UK’s cost-of-living crisis and flagging public services, since Leave-voting Labour supporters switched to the Tories en masse to give Johnson his landslide in 2019. Hence Labour’s oft-repeated, opaque mantra about “making Brexit work”.

“Labour’s policy is basically to find ways of reducing trade friction without getting too close to the single market,” said John Curtice, a professor of politics at the University of Strathclyde. This position has fuelled speculation that Labour wants to “cherry-pick” EU rules to follow for market access à la Switzerland, Curtice observed.

But regardless of who wins the 2024 elections, there will be limits to the EU’s new conciliatory approach. Despite its importance as a defence and security heavyweight while war rages in Europe, the EU will not accept the UK trying to undercut the single market, noted Juha Jokela, director of the European Union research programme at the Finnish Institute of International Affairs in Helsinki.

The prospects for a better economic deal depend on how much the UK diverges from the EU regulation, Jokela said. If the UK seeks a “competitive advantage by lowering standards in areas such as workers’ rights and environmental protection”, for instance, the two sides’ relations could worsen again.

There will be a “limit” to the EU’s ties with Britain as long as it remains outside the bloc, Jokela concluded. “Even if the UK is a former member state, the EU is likely to continue to highlight that the full benefits of European integration belong to full members of the Union; while they enjoy all the rights of membership, they also have to fulfil the obligations of membership.”