The British are either against Brexit or are shooting themselves in the foot

Jul 9, 2018 4:57 PM|Marcin Lipka

"We had to wait two years for the United Kingdom plan on the EU divorce conditions. The proposal put forward by Theresa May's government is disastrous for the United Kingdom and unacceptable to the EU. It is possible, however, that this is a more long-term game, which will ultimately keep the Kingdom within EU structures," writes Marcin Lipka, Conotoxia Senior Analyst.

Self-destruction. This is the outline of the 120-page document, which will be published in full on Thursday. The British explain that publishing it shows their willingness to make uneasy compromises in their future relations with the Union. In fact, however, the resignations of David Davis, Brexit Minister and Boris Johnson, Foreign Minister, suggest total chaos in the British administration or, on the contrary, a clever game for remaining in the EU.

London is proposing an unfavourable solution

The basic proposal of the British Government is to create a free trade area for goods between the European Union and the United Kingdom. The problem is that the United Kingdom is not a special beneficiary in trade in goods with the Union. Its trade deficit with the EU amounts to less than 100 billion GBP (ONS data for 2016), which is about 5% GDP. Leaving physical trade on terms similar to those we are seeing today is a very weak negotiating proposal and possibly even a shot in the foot for London.

Interestingly, in the disclosed document outline, as well as in the main assumptions that have leaked into the press, there is practically no question of access to the EU services market. This is what London should be most concerned about, because it clearly has a competitive advantage over the Union.

In 2016, the UK trade surplus in services with the EU, excluding travel, was over 30 billion GBP (90 billion GBP of services exported to the EU alone). This was relatively dominated by financial and insurance services (over 20 billion GBP). The UK also benefited from a surplus in telecommunication services or intellectual property. However, it is not entirely clear why services are not on the government plan, since they generate high revenue and a trade surplus.

The EU will not accept the proposal. London is in a terrible position

If we stand up for London, we can see that the issue of trade in goods was important in order to maintain the lack of a physical border between Northern Ireland and the Republic of Ireland, which is not only logistically but also politically important.

Maybe Prime Minister May also wanted to reach out to Brussels and show that she is willing to make broad concessions (access to the British market), if the EU accepts limits on economic admission of migrants, does not contend with the European Court of Justice (ECJ) or renounces the collection of EU budget contributions.

It should be remembered, however, that these are not mere negotiations for the Union, as in the case of other trade agreements. The negotiators in Brussels can and will say that this is a step in the right direction, but if they notice the UK’s weakness, they will want to reach an agreement that really does not differ greatly in terms of the actual participation of the British Isles in the EU. This would also be a lesson for any other countries considering leaving the Union.

Is staying in the EU the only way out?

This proposal will, therefore, be the beginning of London’s negotiating collapse, until there are only two solutions left to choose from. The first is a tough divorce from the Union, which will have a devastating impact on economic sentiment in the country and will cause the pound to collapse. The second is, e.g., the acceptance of all fundamental EU freedoms, the need to pay contributions and ECJ superiority over national courts. In fact, this will mean that the United Kingdom will remain in the EU.

The proposals put forward by the British Government are surprisingly weak and it is hardly surprising that on Sunday evening, the Brexit Secretary resigned and the Head of Foreign Affairs made the same decision on Monday. The UK administration actions would only be understandable in one case. London wants to stay in the EU and is trying to find an elegant solution to remove Brexit. It will suggest that it is not possible to find new beneficial relations with the Union and that there must be another referendum. In the case of a relatively broad political consensus on the right and left of the political scene, the vote would end with the UK remaining in the EU structures.

Jul 9, 2018 4:57 PM|Marcin Lipka

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