A new start after Brexit

‘Future is blue’, a partnership of Funcas Europe and Agenda Pública, has recorded a post-Brexit podcast with Jill Rutter, Brexit analyst at UK in a Changing Europe, and Raymond Torres, Funcas Europe Director, moderated by Carlos Carnicero Urabayen. With the new free trade deal in place and the UK outside of the EU, we now see Brexit as a new start for the relationship between both parties. Here is the transcript of the conversation and a link to the podcast.

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Carlos Carnicero.- So today, we’re here to talk about the new start, a new relationship between the EU and the UK after Brexit. Because yes, Brexit really happened after more than four years of round the clock negotiations between the two sides. And since January 1st, both parties are cooperating under a new framework, that is the withdrawal agreement and the free trade deal. So today, we’re joined by Jill Rutter who covers Brexit at UK in a Changing Europe and she’s, as well, a visiting professor at King’s College, London. Thank you for joining us, Jill.

Jill Rutter.- Thank you, delighted to be here.

C. C.- Great. And in fact, Jill is talking to us from London and I am based in Brussels and I’m going to now welcome Raymond Torres, a voice you may be familiar with. He’s Funcas Europe Director and Raymond is talking to us, I assume, from Madrid. Is that correct, Raymond?

Raymond Torres.- Yes, this is correct. Hello everybody and happy new year.

C. C.- Happy new year. So I wanted to ask you first, both of you, because you are both experts, you’ve been following Brexit for a while and I think you’re well positioned to tell us about how is the EU and how is the UK digesting the fact that finally there is a new deal? A no deal Brexit was avoided. We’ve been talking about this for years and now finally the time has come, January 2021. There is a new relationship, there is a new framework for two parties that they work together for decades, and now they are ready for a new start. So, Jill, is the UK ready for this kind of new start?

J. R.- I think, if I was to be totally honest, it’s all become a bit of an anticlimax. Obviously, we had the deal with the EU unveiled on Christmas Eve. That was, you could say, a moment of political triumph for the Prime Minister here, he could trumpet his new deal, a positive relationship with the EU, the coordination there with Commission President Von der Leyen, so that was all quite positive.

He then, and this is in huge contrast of course, to the parliamentary problems that both Theresa May and Boris Johnson faced in 2019, getting the withdrawal agreements through. We then had this very, very short, quick debate in parliament, which was recalled for a day on the 30th of December to enact the necessary legislation, to allow the UK to ratify that. But one of the things is, frankly, there’s very little attention at the moment to Brexit and what the new deal really means, because we are totally preoccupied with coping with this new spike in the pandemic.

The government is now having to resort to regular press conferences, had to recall parliament again this week to approve new national lockdown. And we’d actually had a bit of a preview of chaos, one of the things people were saying was how is this new agreement going to work in practice? The really dramatic scenes of lorry parks being used to get over the channel border when the border closed, were really seen before Christmas when we had France closing the border to the UK when the government identified this new variant of Covid-19, so I think Brexit is going to be a slow burn story, the sense that this is a sort of dynamic new start to anything has been completely swamped over here by the pandemic taking center stage.

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C. C.- Raymond, I guess, for the EU, the fact that we are struggling with this pandemic and in the middle of this biggest ever vaccination program in history, I think the attention to the new deal is not exactly the same as if we didn’t have this pandemic, right?

R. T.- Yes, yes. In a way it is very similar to what Jill was saying for the UK, is that, in fact for Europeans and European Governments, the main preoccupation now is to get out of the crisis, both the health crisis and the economic crisis and to do everything possible, first of all, to contain the third wave of contagions, which is well under way in a number of countries, not only Spain, but also Germany, for example, France. I think it’s very much widespread. And so, I mean, this is the main occupation.

And of course, Brexit is something which has been noted. And then I think it animated some of the Christmas discussions, but of course, also there is realization that the process is not over. In a way some people expected, perhaps a bit ingeniously, that this would be, I mean, the kind of agreement that would settle everything, and it clearly, despite the fact that this is a very heavy text, hundreds of pages, we’re talking about the situation, which is still going to evolve.

A bit like what Jill was saying, that some areas have been clarified. I mean, there is going to be, I mean, zero tariff trade, so possibility to trade in terms of goods and services without these kinds of barriers, but there are other barriers that still exist or new barriers that would be imposed. And at this, we will need some time, both on the UK side and on the EU side to settle these, to really make sure that we understand the different elements which are there.

And I think Europeans are realizing that. And also, I think for Europe, a main preoccupation is not only the deal with the UK, but the deal with the Europeans themselves. So in other words, the EU understands that this is a very heavy shock to the EU, such a country leaving the club. But of course, the whole attention now has to be placed on the existing members and making sure that the EU delivers.

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C. C.- Yeah, I think, Jill, following up on what Raymond is saying, that there’s work that needs to be done. You recently wrote an article and you said this is not an agreement that allows the UK to distance itself from the European Union. And I think you were referring to the fact that there’s some institutional work to be done after the agreement, is that right?

J. R.- Yes. I mean, I think if you look at what the UK is addressing now, I think there are two things that really will set the agenda following on from the agreement. The first is actually one specifically here, which is about businesses coming to terms with what the agreement exactly means in terms of the new processes they have to navigate, both to move their goods into Europe, what it means for doing business with the EU and also, of course, because of the Northern Ireland Protocol into Northern Ireland. And one of the things I think businesses, and people who are used to doing business in Europe, are finding is that they have to read the small print and the deal was done so late that they haven’t really come to terms with what needs to be done. And I think that will be a story that will run in the background.

If you listened to UK news bulletin today there were two or three stories of people encountering consequences they hadn’t really anticipated and it didn’t come out in the way the government presented the deal. The Prime Minister said this means there will be no non-tariff barriers, as well as no tariff barriers. People are discovering, because of the rules of origin there are tariff barriers, and of course, it was never true, frankly, that there were no non-tariff barriers. There are massive non-tariff barriers, not least because the UK didn’t really succeed in getting some of the simplifications it sought.

But, I think, the other point, so those issues, I think, is an interesting question about whether anything could happen in the partnership council or the joint committee on the Northern Ireland Protocol to ease some of those. I’m not sure that there’s that much appetite for that in the EU, which will probably remind the UK that Brexit meant Brexit. But I think the other point is there is this huge, big structure, as Raymond was saying, there are the issues that have been left unresolved, where the agreement contains a sort of timetable for future agreements on a whole range of areas. That’s clearly going to require work in both London and Brussels and then from Brussels with member states.

But there are also the provisions that we have in the new agreement where we don’t really know what they mean. So if you look at all those level playing field provisions, the provisions designed to ensure fair competition, those were clearly highly contested. The UK is making a lot of the fact, and this is a very important win for the government that it has got the right to diverge from EU regulation, and that is definitely true in theory, but what we don’t know, and I think will only emerge over time when we see how the EU reacts to what the UK decides to do, is what will be the consequence? How long do we hold on to this free trade agreement? And how far can we, if you like, push that possibility for divergence? What will end up being deemed to have an impact on trade or in other provisions a material effect on trade? There are sort of different tests, different processes, and can end up with this great rebalancing mechanism where either side can say that the agreement’s not working for them.

And I don’t think at the moment, we really have an idea of how this is going to work out in practice with the EU, who’ll think, «We’ll actually we push the UK far enough away from the single market that we can be relatively relaxed about areas of divergence.» The UK has a huge, big, new set of barriers to trading with the EU or whether the EU really is seeing almost any move by London to differentiate itself from the EU as something that will trigger those complex processes set out in the agreement.

C. C.- I think the process of coming to terms to reality is going to be tough for businesses and consumers on both sides of the channel. I’m going to put a personal example, because I bought some champagne glasses before Christmas and I was very excited to cheer with them for the new year. Well, I bought them on a UK website and the glasses first were delayed. And then today, I received a notification from UPS saying that I need to pay 50 euros for import fees.

And this 50 euros is the same amount that the glasses are worth it. So, imagine, this is a huge barrier for trade and I assume this is a situation that is affecting many consumers and many businesses in both sides of the channel and adaptation is going to be economically very challenging, because imagine for this operation, this is a hundred percent cost on top of the price of purchase. So, Raymond, how do you think businesses in Europe and consumers are going to adapt to this new reality?

R. T.- Yes, I think, first of all, I am sorry about that. I hope they were cheap enough to justify the fee. I am surprised that such a fee would be imposed, but nevertheless, or import tariff would be imposed. But I think this is probably symbolic of something which is going to multiply, which is lots of issues concerning the application of the agreement. I think we need time, probably months, to settle these, to ensure that the supply chains continue to function and that somehow the formalities, the custom formalities are swift enough in order to facilitate trade. Of course, it will be still an impact on trade on both sides. The shock will be obviously bigger for the UK economy than for the EU economy. But I think that your experience is significant. What may happen, especially if the UK, as is the intention of course of the UK Government, start agreements with different partners.

And then, of course, will come the issue of what happens if somehow the agreement with a third party allows the trade on certain terms, which are different from the terms for which EU has agreements with that third partner. And so, this is one specific issue which would have to be clarified. Another area, which is going to be important and I think there was a lot of discussion in EU, is about taxes or labor issues. I think on labor issues, I suppose always the UK had the different type of labor legislation, but after all, it still has a number of rules which are quite consistent with the EU and the same for social security and social protection and an extensive social position system, and likely, let’s say, social dialogue system with lots of social partners intervening.

And so, I suppose, that I would not expect such a big divergence, but it’s possible that somehow for specific areas or specific sectors, there may be rules established in terms of social issues or tax issues, which are not necessarily consistent and not perceived as being consistent with the EU rules. And this was, I mean, a concession, which was given in a way by the EU side, which was that such divergencies would not be settled by the European Court of Justice. It would be another instance, but these again, I mean, this will happen at some point and we will have to see what kind of dispute settlement mechanism will be established in order to settle those issues, for example, in terms of taxes or labor.

One can add also, the issue of the currency itself. I mean, as you know, I mean the UK anyway was not part of the euro, but then after all it was in the EU, so somehow there was some sort of orderly evolution of the different exchange rates, but being outside the EU, we don’t know how it is going to go. These are all issues that will need to be settled and I may also add the question of financial services. Here, I must say, it’s very unclear whether the UK will manage to retain many of the financial services that it performed on behalf of EU members. I doubt that will be the case, but nevertheless, there may be kind of establishment of certain financial companies which are in the UK, they may have branches in the EU and may continue to operate. We don’t know how the financial market will go in the absence of a financial passport, which is the reality of the present agreement. So many unknowns and we would need time to settle those.

C. C.- Thank you, Raymond. I wanted to move on a bit and ask Jill about something that I think is interesting and it’s not such a short-term issue, but a rather medium-term, long-term issue and this is about Scotland and the integrity of the UK. We know that there are elections in Scotland in a few months and there are some expectations there that the SNP will campaign for another referendum and I think there are some promises to come back to Europe. How concerning is this for the integrity of the UK and how ready is Boris Johnson to prevent a second referendum?

J. R.- I think people do think this is going to actually be the issue that’s going to dominate politics over here when, in a sense, we get through the acute phase of the pandemic. It looks as though the Scottish National Party may get an outright majority in the Scottish Parliament in the elections in May, they’re doing very well in the polls and they will clearly take that as a mandate to request another referendum. Under UK law, under the devolution settlement, the ability to hold a referendum is reserved to the UK Parliament, so the Scots cannot under their own authority hold a legal referendum. And we know that Nicola Sturgeon, at least, the First Minister of Scotland, is very keen to avoid what is seen in Scotland as a Catalonia situation to avoid holding an illegal referendum. So she will pressurize the Prime Minister for what is called a Section 30 order, which would transfer that power to Scotland to hold a referendum, which is what David Cameron did with Alex Salmond back in, I think, 2011, 2012 under the Edinburgh Agreement.

So there would undoubtedly be pressure. At the moment the Prime Minister, Boris Johnson, is saying that he will resist. And I think the big question mark is how long can he resist? He went on then to TV studios on Sunday and was asked when did he think the time might be for another referendum on Scotland? And he pointed to the 40 year gap between the UK’s first referendum on EU membership and the second one and suggested that might be the appropriate sort of time interval, which would obviously take us to sort of 2050 something, so that’s not what the Scottish National Party wants. How long that becomes possible and whether that in a sense is actually the wise tactics, I think, will be a judgment the Prime Minister will have to make.

One of the problems for the Prime Minister is that Brexit opened up one divide in Scotland. It sort of, if you like, turbocharged the sense that Scotland was being taken out of the EU and that the promises made in the 2014 referendum, that the way of guaranteeing Scotland’s longterm place in the EU was by staying part of the UK. It was felt that that obviously undid that. Scotland is now pointing very much at the relative treatment of its views on Brexit, with the way in which the EU treated the concerns of Ireland and saying that the EU is good at looking after the interests of small member states, whereas the UK government rides absolutely roughshod over the interests of its constituent nations. You have to say the Scots, though, obviously the situation is right different, the Scots do have a bit of a point there.

They point to the Northern Ireland Protocol and say, «This is very much the sort of deal we were keen to have. We floated this, but you negotiated this for Northern Ireland, but not for Scotland.» Slightly ignoring the point that the Northern Irish parties all hate the Northern Ireland Protocol, but it’s a different matter, we voted against it. So I think there’s sort of lots of potential tensions and this, I think, will dominate parliament.

One of the problems for the Prime Minister is that in the view of Scots, he has managed Covid-19 much less competently than Nicola Sturgeon, the Scottish First Minister, she’s undoubtedly communicated much better, even if substantively, she’s not done very much different and made many of the same mistakes as the UK Government has, for example, on school exams and things like that, but she has communicated much better, so she has retained public trust in way in which the Prime Minister has failed.

And the Prime Minister himself is very badly regarded in Scotland. He represents a certain type of Englishness that actually plays quite well in England, surprisingly, even in the North of England, so miles away from the playing fields of Eaton, but goes down really badly in Scotland. So one of the huge big question marks is who can be a plausible leader of the campaign to retain the Union and is there a sort of vision for the Union? Last time in 2014, it was sort of the economic implications that eventually sort of frightened the Scots back into staying. One of the real problems for the Brexit supporters is that every argument they made about why it was sensible to leave the EU can be replayed almost with a sort of control-alt-delete and find and replace as the case for Scotland leaving the UK. And it’s hugely difficult to be a Brexiteer who can make the case for Scotland staying in the Union on economic grounds.

C. C.- Well, very, very interesting. And I think then the next months are going to be very interesting to follow what’s going on up North in the UK. But as you know, I want to ask you about the room for cooperation between the EU and the UK. But before that, I’m very tempted to ask Raymond on this same topic, but looking into the EU, because some years ago we saw Brexit and many observers thought this was the beginning of the end.

Brexit was the first piece of the structure that was falling apart and other Brexits would follow. Marine Le Pen was about to win in France, in Italy we’ve got the populist and the right wing in government, Poland and Hungary have been for a while challenging Brussels in a number of ways, so what’s the status for the integrity of the EU after these years and with a new reality now in place with post-Brexit, the scenario, Raymond.

R. T.- Yes, Carlos, you’re right to point this out. I mean, Brexit is one thing, but I think there was, let’s say, similar phenomenon going on in different parts of Europe with a number of parties, political parties or even entire countries challenging the main trust of the integration process. And I think that’s very important. I think that’s why I was saying that perhaps the top priority for the EU at the moment is to actually ensure that the European citizens perceive that the European integration goes in their own interest. And that concretely means that the first test would be the recovery from the Covid-19 crisis. The EU, I think, it’s probably the case that perhaps one of the few positive side effects of Brexit has been to ensure that Europe would kind of change a little bit its approach to crisis management.

I think probably many people, I don’t know, would probably agree that what was agreed last year with the European Recovery Fund funded with Euro bonds in the end, because that would be it, is something which was unthinkable a few years ago before Brexit, for example. And even a couple of years ago before the crisis. So, I think, there has been some change in the approach in Europe, a move away from a number of policies, very rigid kind of policy rules, which were not really understood and certainly did not seem to bring sufficient benefits to the different countries.

And I think that is something which kind of exacerbated polarization within European countries. And I think there has been a change there. And so, a first test of whether those movements, Euro skeptical movements, can be contained, will be when the EU manages to have a successful crisis response. So European Recovery Fund is one of the elements, European Central Bank itself has put a lot of money into this. And, I mean, it can be safely asserted that never in the history of recent history of Europe, we have seen such a combination of European wide policies in order to get out of the crisis, so I think this is one first element.

The other is to talk about things that concretely preoccupy the Europeans, such as environment issues and a different approach towards China. And I think this is an area of possible common interest with the UK after Brexit. So that, I mean, before you could say the EU, the approach vis-a-vis China was to have, I mean, perhaps summarizing the extremes, of asymmetric trade liberalization, vis-a-vis China with Chinese Government subsidizing many sectors and on the other side on European States simply opening boundaries to Chinese goods and services very widely.

And I think, I mean, we have seen some of the impacts or at least perceived impacts of these. It’s part of the problem in a way in the United States as well, and what makes plain the Trump phenomenon in United States, but certainly in Europe, this is something which there’s a change also in the approach towards international trade or technology, having a bit of a more proactive approach at the European level in order to avoid the phenomenon you’re mentioning, Carlos.

C. C.- Yeah. Thank you, Raymond. In fact, I want to ask you to finish, what are the issues, what are the areas that can bring cooperation to the highest level between the EU and the UK? And you mentioned the environment, I think this is an area that is very high on the agenda in the UK and in Europe as well. So, Jill, do you see this area as critical for having the EU and the UK working together in the next months?

J. R.- I think, yes. One of the big things, the UK is present at the G7 this year, obviously France and Germany and Italy are all fellow G7 members, so I think that’s an important forum for cooperation with European countries, if not institutionally with the EU. But I think, particularly now, with the Biden administration about to be inaugurated in the US, there’s quite a lot of potential momentum towards a successful COP-26, the UK is hosting that, sort of joint chairs with the Italians, so that’s an obvious place for European cooperation. The Italians are having the pre-meeting for the COP and I think that’s an area where if you look at all the sort of blocks around the world, the UK and the EU have always had these closest common approach on climate. It’s important to work together, but I think there’s sort of announcement the Biden administration and the Chinese announcement on net zero by 2060, give it a sort of degree of momentum you might not have expected a few months ago.

And I think that’s going to be very important for the British Government to be able to show that its global Britain agenda, something we hear a lot about over here, can actually work very productively going forward. I think it’s quite interesting on other areas that the UK is still looking to stay in the Horizon Europe program, it’s very keen, I think, to maintain scientific collaboration. That I think was an important element. And I think that the environment is going to be an area where we will see the sort of biggest potential. I think, on an issue by issue basis, I think we will see that coming up, see where the UK can align with Europe.

And we saw that actually in the last few years, going through this very fractious sort of Brexit process that on issues like the Iran nuclear deal, some of the sanction stuff, there was quite a lot of coordination with major European players as well. I think one of the things though, that the government will feel here, is it will institutionally find it easier to cooperate with the governments of Germany and France and Italy, Spain, than with the EU institutions per se. It just, I think, will be investing a lot more. It’s upgrading its embassies and its representation in most EU countries. Interestingly, and I think mistakenly, it seems to be running down its representation in Brussels. I think that would actually be a temporary move, because I think when it looks at its need to service all that architecture contained in the trade and cooperation agreement, it will realize that actually it needs a lot of people still in Brussels.

C. C.- But it’s a bit risky, Jill, because this attempt to use the bilateral approach was attempted during the Brexit negotiations and it proved a bit pointless in the end.

J. R.- I think it’s very different though. I think it’s very different, where the EU27 was very obviously unified and very determined to maintain its unity and actually impressively maintained its unity through the negotiations. And frankly, leaders didn’t want to deal with that. But on the foreign policy stage, EU corporation is in some senses, much less developed. So you’ve actually seen on things like in those areas that there is more scope, I think, for some degree of multilateral cooperation, maybe with the EU as one of the players there, but it was very notable. And it’s one of the things that Michel Barnier always raised and the difference, I think, between the political agreement, political declaration and also the approach Theresa May’s government might have taken, was that this government was very explicit, it never actually was questioned in much detail about why, but it was very explicit that it didn’t want to tractor about foreign policy or defense cooperation in the agreement.

I mean, other players, the UK will remain a very big player in NATO. We’re actually maintaining our defense spending, so that’s another forum where there will be cooperation with European partners, though not within the EU frameworks. But I think over time these will evolve and I think one of the hopes is that the TCA itself doesn’t become a source of tension that gets in the way of collaborating on these, if you like, non TCA issues.

But I think one of the other things for Europe to reflect on, based on what Raymond was saying, is whether actually Europe is seeing some benefits of not having an awkward member state at the table, which might’ve had reservations about the scale of the European Recovery Fund or European joint efforts in some of the Covid-19 response. I think that UK provided useful grit, but there were some points at which it also provided slightly frustrating [inaudible 00:33:55] with other member states. And maybe at some point, when we both think strategically about where we are, we can put this sort of long-term relationship onto a productively positive basis. I think that’s what we should all be working towards.

C. C.- Hopefully, hopefully yes. And I think let’s close this with that positive hope of Jill that I share as well and I’m sure Raymond shares as well, and we’re looking forward for a positive new relationship.

R. T.- Yes, I would like to add something.

C. C.- Okay, go ahead, Raymond.

R. T.- I would like to add to this, to what Jill said, that I completely agree on the environment. I think that’s an obvious area of conversion and very concretely when there is a carbon tax, either there are proposals for carbon tax in the EU, which would entail a border tax as well. And I think that’s a very concrete area where maybe some cooperation could be leveraged between the two, the block and the UK. But I think more generally, I think the only other, and there is a [inaudible 00:35:05] for a major overhaul of the multilateral system. I think it can be safely asserted that CP needs at least very deep reform. One can see that very clearly in the case of the WTO, which doesn’t function, it’s this resettlement mechanism simply to assist the function.

And more generally, I think there is a need to redefine rules of the game with a better integration of the environment, that and social issues into the main stream, more economic type of multilateral agreements. Jill mentioned the [inaudible 00:35:42] settlement, I think the G20 would be an obvious forum. I couldn’t myself participate in previous life in G20 meetings and I could see that already then the UK had a very special voice in the G20, not necessarily in full harmony with a percentage of the European Commission, which also participates in the G20 and of course, Germany, France, Italy, and as an observer, Spain.

I mean, it’s a special voice, but in the very end, the basic principles didn’t seem to me at the time, very different from what you would defend in terms of a multilateral system, which in other words, consistently put in rules of the game to globalization. I think that’s another obvious area of cooperation, probably on a case by case basis, but it needs to be rebuilt and now with the new presidency in the US it is to be hoped that the new [inaudible 00:36:42] will be given to these.

C. C.- Yes, it is to be hoped that the new presidency in the US will bring a new transatlantic relationship. And it will be interesting to see how the UK, the EU and Washington can cooperate together with this newest scenario, after a deal with Brexit and a new president in the White House, quite a different president.

J. R.- Just to add on that, Carlos.

C. C.-Go ahead, Jill, a few words, we need to close.

J. R.-I was just going to say, I think this may be a quite an interesting thing to see how it develops, a new wake up call, because I think the Biden administration will find itself naturally relying building relationships first with the European block, the EU and the big member states, and the sort of UK has always prided itself on its special relationship naturally as a bridge between the US and the EU and I think it might be quite interesting to see how that sort of, if you like, slightly unbalanced triangle works in the future. It might be quite an interesting wake up call to some of the UK’s ambitions in the short run.

C. C.- Indeed. All right, I want to thank you both, Raymond Torres, Funcas Europe Director, and Jill Rutter who covers Brexit at UK in a changing Europe. So thank you both. And I think this is an issue we’re going to… We have so much to talk about, and I’ll be happy to talk to you again in the next months, it’s been very interesting and have a nice day.

R. T.- Thanks to you.

J. R.-Thank you. Thank you.

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