UK’s economic bond with EU likely to wobble

Ben Chu, The Independent

The Brexit trade deal – technically the Trade and Co-operation Agreement – was formally ratified by the European parliament on Wednesday morning. That means the final, lingering, danger of a “no deal” collapse, with tariffs shredding the operations of UK exporters to the EU, has now been extinguished.

And yet the threats continue. The French European affairs minister Clement Beaune has this week been warning of “retaliation measures” against Britain if the UK doesn’t speed up the issuance of licences for French boats to fish in UK waters.

So what’s going on? Didn’t Beaune get the memo that the Brexit battle is over? Doesn’t he realise that an era of diplomatic and economic harmony has dawned between Britain and the continent? If only that were true.

The reality is that, even with this free-trade deal, Britain now faces an economic relationship with the EU that is likely to be fractious, uncomfortable and potentially unstable.

The simple fact is that, outside the bloc, there is no EU law for the UK to cite that will protect our economic interests. We have no representatives to fight our corner in the Brussels bureaucratic machine. We have no voice in its political councils. We are outside the tent.

And it seems that some UK ministers and politicians have not fully woken up to this.

To the great distress of parts of the fishing industry, the EU has not allowed any imports of live shellfish from the UK since the beginning of the year. The environment secretary George Eustice has implored the EU to do so, pointing out that “there is no legal barrier to this trade continuing, both on animal health grounds and on public health grounds”. Yet this misses the point. There may be no legal barrier, but there is also no legal compulsion for the bloc to accept these imports, as there was when we were in the single market. And that makes all the difference in the world.

The Cheshire Cheese Company has been unable to export directly to European customers since 31 December, because every chunk of cheddar sent to the continent must be accompanied by its own expensive health certificate, signed off by a vet, or it is not allowed in. The food minister Victoria Prentis told the company’s managing director recently that the EU was simply refusing to consider relaxing this requirement. But, as with live shellfish, the EU is under zero legal compulsion to do so, and so it doesn’t.

The fundamental reality of Brexit is that we are now a “third country” to the bloc. Any regulatory tweak we might ask for – whether on health certificates or shellfish imports – can be turned down by Brussels regulators without any justification or even explanation.

Appeals to precedent are meaningless. The UK points out that the EU has some very extensive financial services “equivalence” arrangements with many other countries around the world – countries ranging from tiny Bermuda to the mighty United States. So, ask ministers, why can’t the EU offer precisely the same to the UK and enable the City of London to continue serving EU clients after Brexit? The answer, again, is simply that it doesn’t have to, so it probably won’t.

This looks self-defeating given that many EU companies benefit from UK financial services, and the EU’s financial infrastructure is not sufficiently developed to meet all of their needs. Yet the French government feels it would benefit economically in the long run by encouraging financial firms to relocate from London to Paris. The political consequence of Brexit is that Paris has a new avenue within the EU to pursue that long-term goal: blocking equivalence for the UK.

There’s confusion about the nature of the new world. The Conservative MP Sir Bernard Jenkin complained earlier this month about “the degree of compliance required” by the EU on goods travelling from the UK to Northern Ireland. Yet this demand for rigid compliance stems from the fact that the EU has lost its other mechanisms for oversight and control. The EU commission president, Ursula von der Leyen, has been explicit about this, saying the new trade deal, with its provisions for retaliatory tariffs, “will give us the tools we need to ensure full and faithful compliance with the obligations, which both sides signed up to.”

This, then, is all a result of the UK moving from inside the tent to outside. It’s an institutional loss to both sides. And in the new post-Brexit world both sides must rely on what leverage they have remaining.

The Brexit deal has finally landed: now get ready for the turbulence.