The country seemed to breathe a collective sigh of relief when Boris Johnson finally struck his trade deal with the European Union (EU). According to conventional wisdom the signing of the deal finally ‘put Brexit to bed’, freeing the public of an argument all sides had grown to find torturous. In truth, however this deal is the beginning of a very long and potentially conflictual process.
The deal has created a special status for Northern Ireland that places it in a unique position: a sovereign component of the United Kingdom (UK) but with a system for customs and regulation that aligns fully with the EU and Republic of Ireland. In Scotland, the Brexit process has animated support for independence with polls now showing it has clear majority backing. Beyond these constitutional questions, the UK-EU treaty creates a permanent structure for on-going negotiations between the two sides with lots of potential conflict. Far from being ‘over’ this newly created European level will continue to have a profound impact on the UK.
This makes analysing the terms of the deal and its likely effects critical to our future arguments and strategy. A future left government will have no choice but to grapple with the UK relationship to the EU and the series of questions the deal poses. Did the Brexiters get what they want? What future issues does the deal create for the UK economy? And what kind of challenges would a future progressive government face?
The aim of the Tory Brexiters was to achieve the economic benefits of free trade with the EU but without the same standards and competition rules. They wanted the freedom to deregulate in areas like employment, finance and consumer rights. They insisted on leaving the legal jurisdiction of the European Court of Justice (ECJ) on sovereignty grounds. They sought to remove the UK from the freedom of movement system. And, in a novel departure from traditional British Toryism which famously opposed government intervention in industry, they also wanted out of the‘state aid’ rules in order to funnel money to private business.
This set the stage for a very unusual negotiation. Most trade deals take place between countries, or blocs, that start out with different regulations and want to ‘standardise’ them. While in principle this could lead to higher regulatory standards, in practice the corporate agenda driving free trade agreements has sought to push protections down, not ‘level up’. In contrast, the UK-EU agreement took place between two actors that already had shared standards and a high level of economic convergence. The UK sought the freedom to diverge through deregulation and corporate subsidies while maintaining access to the single market. For its part, the EU saw this agenda as a competitive threat. So, they insisted instead on ‘level playing field’ commitments. The UK would have access for as long as it applied EU standards.
The end result exposes the contradictions of the Brexit project. With the UK having left the single market and customs union, businesses trading with the EU now have to deal with significant, costly new ‘red tape’ and restrictions. The creation of a customs border means all goods moving between the UK and EU (and, within the UK, to Northern Ireland) have to be logged on the CHIEF system (Customs Handling of Import and Export Freight). It is a complicated platform thatsome businessesare signing up to for the first time. CHIEF requires paying a monthly subscription of £157 (in order to tell HMRC how much you need to pay them) anddoes not have a telephone helpline, only an email that promises a response within five working days. Companies experienced in non-EU trade already use specialist software, which costs £2k, but the currentlevel of demand for it means there is a four-month waiting list for installation. Although the UK has a free trade agreement in goods, importers have to pay the tariff and then claim it back. This is due to the ‘rules of origin’ system – a complex area of trade law, that broadly means they have to show the import was actually produced in the EU.
Brexiters claim the competitive gains of deregulation will outweigh all the additional costs for business. But the Tories have signed up to a treaty that permits the EU to introduce tariffs if they can show the deregulation has an impact on their trade and investment with the UK. So, on the one hand, the Tories are touting the UK’s ‘tariff free’ access to the EU. On the other hand, they are promising to deregulate, which could lead to the introduction of EU tariffs on UK goods. This is a hard contradiction to resolve. It seems likely that it will depress manufacturing investment because the UK cannot guarantee tariff-free access to the EU over the medium and long-term.
The Tories also sought to remove the UK from the EU state aid rules. These place limits on the extent the state can intervene in the market to support businesses. Their interest in relaxing these rules, which they once strongly supported on free market lines, reflects how their old philosophy has given way to a new approach that ratchets up state support for the private sector. Very far from socialism (which has never been simply about state intervention) this agenda is about subsidies for big corporations. But the Tories may find the terms of the deal are a hindrance to this goal. Under the deal the UK has agreed to introduce a system for state aid regulation that is consistent with the EU. This means the EU could respond to UK subsidies with a dispute process and potentially introduce tariffs.
Looked at in its ‘own terms’ it is also hard to see how the deal is a success for Tory Brexiteers. The benefits of deregulation are unlikely to ever compensate all the new barriers to accessing the European single market. For example, with financial services now outside of the EU market, the Tories approached City of London executives to consult them on regulations they would like to abolish. But in an embarrassing turn for the government, the Financial Times reported that they were primarily asked to prioritise a new financial services deal with the EU, and not increased divergence of UK regulations from the EU. Similarly, after putting so much store in increased fish quotas for the British fleet, the nuts and bolts of the deal are proving to be hugely damaging to the industry with seafood exporters, dependent on selling to the Spanish and French market, warning that their sector may now be unviable. As a result, the government has been forced to announce £23m of cash support to the industry.
So, the deal appears almost programmed to generate arguments and conflict in the years ahead – between the UK and EU and, even more so perhaps, in the four nations at home.
Conservative MP John Redwood recently argued the problems in trade between the UK and EU demonstrated the new opportunities for ‘import substitution’. British producers should, he suggested, treat the increased costs of EU imports as a chance to sell more on the domestic market. This is a curious argument for a hardline Thatcherite and apparent supporter of ‘free trade’. But while it is an interesting sign of how politics is changing, the left should not endorse this thinking. The economist, Joseph Stiglitz, and social justice organisation, Global Justice Now, have both argued that it is a wrong to think about trade deals simply in terms of whether they are ‘pro’ or ‘anti’ trade. An agreement needs to be judged by the economic model it enshrines, i.e. whether it prioritises social wellbeing, environmental sustainability, a democratic economy, and other human needs.
Tory Brexit simply meets none of these criteria. It is a flawed attempt to deregulate and aggressively subsidise favoured companies in a ‘cronyist’ fashion. The nationalist logic underpinning it carries with it the constant threat of an UK-EU trade war, aggravating tensions at a time when the world needs more collaboration. So, while a decline in international trade may on occasion favour groups of workers, and there is a strong case for more locally based production, this deal simply doesn’t offer, or even allow for, a progressive path.
A future progressive government will inherit an economy damaged by the effects of Brexit, Covid-19 and other policies of the Tory government. Despite the talk of ‘levelling up’ and ‘import substitution’, towns and cities more dependent on manufacturing are especially vulnerable to the exit from the EU’s single market. Financial services and the City of London are generally much more adaptive to the kinds of changes that Brexit has brought. This is a recipe for a toxic mix of inequality and decline amid the bitter recriminations of nationalism.
In this context, the left will need to boldly outline an alternative agenda and seek support for it across Europe. We will need to avoid the common mistake of treating the EU as either an entirely evil (the Brexiteer line) or entirely benevolent (the Remain line) entity, recognising it is a club of nations that will protect their interests but is not ideologically homogenous. The Tories treated the negotiations as a zero-sum game and the talks demonstrated how it is impossible to ‘win’ with this approach. The EU is a simply much larger, more powerful bloc.
Instead, a left perspective should make proposals for the UK-EU relationship that pursues higher regulation and a more democratic economy. They could, for example, seek reform of state aid rules to allow greater intervention to tackle inequality while strengthening their protections against cronyism. Many across the EU are sympathetic to this and other demands. The groundwork for a future negotiation can be prepared now. Civil society movements can build political support for an alternative agenda in the UK and across the whole of Europe.
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