Brexit Update - Are We Heading Towards a Chaotic Exit?

The 18^th – 21^st August 2020 saw the seventh round of the UK/EU Brexit negotiations, and anyone who was hoping for some positive news may be sorely disheartened. Following the talks, the EU’s chief Brexit negotiator Michel Barnier expressed his frustration at the lack of progress; "Today at this stage, an agreement between the UK and the EU seems unlikely…I simply do not understand why we are wasting valuable time." He went on to say, “Those that were hoping for negotiations to accelerate this week will be disappointed”. David Frost, the UK’s Chief Negotiator, made his thoughts known at the same time, “We have had useful discussions this week, but there has been little progress. “The EU is still insisting not only that we must accept continuity with EU state aid and fisheries policy, but also that this must be agreed before any further substantive work can be done in any other area of the negotiation, including on legal texts. This makes it unnecessarily difficult to make progress. There are other significant areas that remain to be resolved and, even where there is a broad understanding between negotiators; there is a lot of detail to work through. Time is short for both sides”. So with only a few weeks remaining to secure a complex trade deal, both sides appear to be blaming each other.

What is remarkable is that even after a full round of negotiations, as Michel Barnier stated, “We have made no progress whatsoever on the issues that matter.” Unfortunately, the same sticking points remain in relation to EU fishing rights in UK waters, state aid, the ‘level playing field’, common standards, and worker’s rights.

Is This Not all Just Part of the Negotiation Process?

It is tempting to believe that this is just all part of the course, and we just need to wait until a midnight deal is thrashed out. Indeed, some commentators, including the BBC’s Brussels Correspondent, Nick Beake, believe that UK and EU negotiators are ‘locked in last-minute power play’; “In what is the theatre, the negotiation, the art of the deal, the EU and UK are holding out for the best possible arrangement in the new socially-distanced, face-covering world that Covid-19 has created”.

One of the challenges for the government is that even if they were planning on last-minute power-play to achieve their objectives, they are now having to add to their calculus the impact of COVID-19 on the UK economy. They may have even planned to use COVID-19 as a partial rationale for any negative impact of Brexit, but it may have put the UK in a far more vulnerable state to weather a no-deal. The last time Brexit was mentioned in a government press conference was on 24^th January, when PM Boris Johnson talked about his ‘oven-ready deal’. That now seems a lifetime away and the government appears to be blaming the oven for not having the meal ready on time.

So is this all power-play? The truth is no-one knows, and to assume it belies the fact that 27 EU nations have to agree to any consensus that Frost and Barnier can come to.

Planning for the Worst, Hoping For the Best

As we speak, Michael Gove, we are told is working ‘night and day’ to prepare for no-deal, although quite how much can be achieved given we are nearly in September is unclear. But the leaking of a "reasonable worst-case scenario" document from the Cabinet Office to a national newspaper may be about to complicate matters more for the government. Despite the stubborn reluctance to believe otherwise, pro-Brexit politicians continue to maintain that worrying about any adverse outcome is pointless. According to the leaked dossier which was written in July to plan for the intersection of a no-deal Brexit and a sharp rise in coronavirus infections in the winter, there will be an army on the streets to manage the public disorder and the Navy will be dispatched to scare off EU fishing vessels. We will also see food, power, and oil shortages, animal disease, and the bankruptcy of one in 20 councils wreaking havoc on the social care system. In response, Michael Gove seems to have a more rosy view of the situation, “We got Brexit done with a great deal in January and we are working flat out to make sure the United Kingdom is ready for the changes and huge opportunities at the end of the year as we regain our political and economic independence for the first time in almost 50 years. Part of this work includes routine contingency planning for various scenarios that we do not think will happen, but we must be ready for come what may.”

Those last words are important, if not perplexing. On the one hand, businesses are being expected to invest large sums to prepare for the start of 2021, on the other hand, the government doesn’t think this will happen. It is easy to see why confusion abounds.

In a recent piece in the Financial Times, associate editor Wolfgang Münchau takes an alternative view on Brexit. In the balance between no deal and a ‘wafer-thin’ deal, he says, “An agreement is highly desirable — if only as a framework for future co-operation. But it would be wrong to conclude a deal at all costs. I did not support Brexit myself. But starting from where we are today, I would prioritise exploiting the potential of Brexit rather than minimising its costs”. He believes that to make the best out of Brexit, the government should look to introduce new strategic industrial subsidies, especially in favour of high-tech opportunities that the EU has failed to grasp. Regardless of the outcome of the Brexit negotiations, a post-Brexit industrial strategy is what is urgently needed to steer a positive step forward from 2021 onwards.

The Brexit talks are scheduled to resume on 7^th September in London; we will keep you updated with any progress. We can only hope we will have more positive news to report in mid-September 2020.

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