Four things that have changed since the last Brexit cliff edge

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Brexit is back. Not six months since Boris Johnson’s administration last approached the political precipice threatening to unilaterally rip up the deal it signed on post-Brexit trading arrangements in Northern Ireland, it’s back at it again.

So what has changed since the autumn when the cabinet last peered over this cliff edge, but pulled backspooked by the clear threat of a trade war with Europe and the political fallout from ruining Christmas.

The fundamentals of the problem, of course, have not changed: Brexit recreated an external EU-UK trade border in Ireland that had disappeared in 1993 at the birth of the EU single market. This is a border that all sides agree should not be allowed to return.

The solution (agreed by Johnson in 2019) was the Northern Ireland protocol. This deal left Northern Ireland following EU rules for goods trade and agreed those goods would be policed ​​along a trade border in the Irish Sea to avoid a north-south border.

Nearly 18 months into the operation of this protocol (which has never been fully implemented) Johnson’s government and the political unionist community say the deal is “unsustainable” and want it radically reformed.

The EU as well as nationalist and centrist parties in Northern Ireland, backed by the business community, maintain it can work – with fixes.

So if all that stuff has remained the same, what has changed since October to explain the renewed threat by Johnson and his foreign secretary Liz Truss to walk away unilaterally from the deal – potentially bringing back a north-south border in Ireland or, assuming no one will do that, into the sea between Ireland and the EU? And do these changes make a difference?

In ascending order of importance. ..

1) David Frost is no longer Johnson’s Brexit negotiator

You might think, given Frost’s reputation in Brussels for diplomatic boorishness throughout this process, that his departure from the cabinet could have softened the government’s attitude, but that is a slight misreading of the internal dynamics.

It is said by those close to the process that on many questions related to the protocol’s implementation, Frost was actually less “hard over” and binary on the protocol than Johnson. Insiders say the PM can get quite emotional about the Irish Sea border he personally created to deliver Brexit.

However, as we shall see, Frost remains a fringe player in the drama, urging the government to re-fight battles with Brussels that he was never able to win when in post.

2) The ‘partygate’ scandal

The rule-breaking in Downing Street has weakened the prime minister. Should a no-confidence vote come, Johnson’s survival rests on the so-called government payroll vote and the sovereignty-focused rightwing of the party that also finds the protocol intolerable.

A weak prime minister invites challengers. One of the frontrunners is Truss, who this week has been briefing about how hardline she is on the protocol. This rattled Downing Street, which then briefed against Trusssuggesting she might be getting ahead of herself, burnishing her own political credentials with the Tory right.

In short, part of the dynamic this time round is driven by a Brexit breast-beating contest between Johnson and Truss. That may be the politics of the playground, but there we are.

3) The war in Ukraine

The conflict has enabled Johnson to improve his credentials in Europe (the UK was clearly ahead of the diplomatic curve in arming the Ukrainians) and has driven some new thinking in government that the Ukraine crisis puts the Northern Ireland situation into a new perspective – or should .

This was clear in Johnson’s framing of the problem yesterday on his visit to Sweden and Finland to support the Nordic countries’ Nato candidature when he noted Northern Ireland represented “0.4 per cent of the value of the whole of the EU economy”. He added: “It is crazy. I didn’t think there’s any need for drama. This is something that just needs to be fixed. “

Flowing from this, is a bet that – to quote Frost recently in his Policy Exchange speech – if the Northern Ireland situation comes to a crunch, there won’t be sufficient unity among the 27 EU member states to start trade sanctions against the UK.

The argument goes that the Baltic states, Poland and other CEE states will be so grateful for UK military and moral support post-Ukraine they will no longer be content, as Frost put it, “to tuck in behind a commission-France-Germany axis in imposing trade sanctions on the UK “.

All I can say is that I can’t find a single European diplomat, including from all those countries that agrees with Frost’s analysis. Perhaps they’re all just bluffing; perhaps the UK should roll the dice and find out.

But the history of Brexit suggests the odds are not in Johnson’s favor. Throughout this process the EU27 has retained the bloc’s internal unity by taking a maximalist position when it comes to dealing with the UK.

The council and commission will not want to be salami-sliced, and have avoided it so far. If the UK wants to force the trade border back into the sea between Ireland and France – and that will be the true trigger-point of EU action – then based on past precedent, expect trade sanctions to follow.

Johnson will then have to decide whether it is worth spending the political capital he has built up around Europe and in Washington on Ukraine, by sparking a trade war over Northern Ireland. The UK Treasury might also have views on whether a trade war is a good idea when inflation is running at 10-plus per cent and a cost of living crisis is dominating the domestic agenda. For what it’s worth, the EU broadly bets that, as before, Johnson will bottle it.

4) Assembly election in Northern Ireland

Sinn Féin emerged as the largest party for the first time in last week’s elections, a highly symbolic moment, even if a referendum on reunification remains a distant prospect.

The Democratic Unionist party is refusing to enter into power-sharing until the protocol is fixed to fully restore Northern Ireland’s place in the UK’s internal market. This is proof-positive, says the UK government, that the protocol is undermining the Good Friday Agreement peace deal and must therefore be overhauled.

But for the Johnson government the election results highlighted some truths that, to put it mildly, are inconvenient to the government’s arguments.

It turns out that 60 per cent of the newly elected MLAs in Northern Ireland’s assembly represent parties that want to live with the protocol.

At the same time, while UK ministers such as Michelle Donelan give interviews to the BBC warning that the protocol is “crippling” businesses in Northern Ireland, the data suggest the exact opposite is the case, as a report from the NIESR think-tank this week showed.

It found that Northern Ireland’s economic output had outperformed the UK average and had done so partly because of the Protocol and the region’s “special status in the Brexit arrangements, including better trade and investment conditions as part of the EU’s single market and customs union”.

That leaves Johnson’s government in a very strange position indeed, proposing a solution to the acknowledged difficulties caused by the protocol that is backed by only one side (unionism), which is itself in a minority.

It is difficult to see how this unilateral and one-sided approach can be squared with the UK government’s profession that it is defending a Good Friday Agreement – a peace deal that depends on both communities accepting suboptimal outcomes to their constitutional ambitions – as brilliantly unpacked by Dr Andrew McCormick who until last year was the Brexit lead for the Northern Ireland Executive Office.

The solution – as indeed the Ulster Unionist party has conceded – has to emerge from a pragmatic implementation of the deal itself that minimises impacts at the Irish Sea border. Or as McCormick puts it: “A fact-based, problem-solving approach to a highly complex and sensitive task.”

Unilateral threats to rip up the protocol on behalf of one side of Northern Ireland’s political divide is clearly not that.

Still, we may get there yet. We have been here before during the fracas over the Internal Market Bill of 2020 where the UK put a legislative marker down over the protocol and extracted concessions from the EU.

The latest UK legislation, if it comes, will take a year or so to enter the statute book and if the EU restarts the legal infringement proceedings it suspended last year, that may yet provide the breathing space to get a deal that can give Unionists political cover to enter power-sharing.

Whether Johnson’s tactics help or hinder that process – and you could argue that the legal threats in 2020 did ultimately lead to EU concessions – will be the story of the next 12 months.

Brexit in numbers

Line chart of Trade-to-GDP ratio, 2019 = 100 showing Trade intensity of GDP

This week’s chart is familiar – we’ve used it before – and is a favorite of those wanting to point to the impact of Brexit on the UK’s aspirations to become “Global Britain”.

But Raoul Ruparel of Deloitte has posted this intriguing analysis that looks more broadly at the UK’s export performance, finding that exports to the US – or rather a lack thereof, given the post-Covid rebound in US imports – are a big part of the underlying picture here.

This often gets overlooked in the usual Remain-Leave told-you-so Twitter ding-dongs, but as Ruparel notes, it is the bigger picture – and what it says about UK competitiveness on the global stage – that is actually more important.

He concludes: “Given the government has a stated aim to not only significantly increase exports (having set a target of £ 1tn by 2030) but also to build a high-tech, high-productivity economy, this data should raise some concerns.

“It will be interesting to track over the next year or two to see whether various policies the government has put in place have an impact or not. In particular, given the challenges in exports to the US, whether the current negotiations with the US will have any meaningful impact on UK / US trade. “

Indeed. And all questions that I’ll be keeping an eagle eye on.

And finally, speaking of the future, it’s worth recalling that Brexit doesn’t necessarily have to be this way – it can change, with the Trade and Cooperation Agreement up for formal review in 2025.

It’s hard to see a Johnson government taking a different tack, but politicians come and go. So this week Peter Holmes of the UK Trade Policy Observatory at the University of Sussex published a useful analysis of where changes could come – for Brexit wonks, worth your time.

And, finally, three unmissable Brexit stories

Former Monetary Policy Committee member Adam Posen writes that the slowing UK economy “Reflects the realities that Brexit has wrought”. He argues that the UK’s vulnerability to the economic shocks of the pandemic and now the energy crisis and their impact on inflation are amplified by Britain’s departure from the EU.

And the FT’s economics editor Chris Giles reflects on last week’s decision by the Bank of England to raise interest rates. “There can be no doubt,” he writes, “the BoE is giving us all a good kicking when we’re down because it thinks that is the right thing to do”.

The UK government’s move to delay post-Brexit checks on imports of EU food products is an “accident waiting to happen”, farming, veterinary and meat industry groups have warned. The British government announced last month that it was delaying checks on imports of EU agrifood products for at least a further 18 months.

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