By Geoffrey Smith
Investing.com -- The moment of truth is finally approaching.
Four and a half years after Britons narrowly voted to leave the EU, and a year after they resoundingly confirmed that decision at a general election, they will soon be able to live the reality, as their privileged access to the EU’s single market and all its mutual benefits and obligations lapse.
Time enough, you would think, for the leadership of the U.K. and Europe to have figured out what rules they will use in future to govern a trading relationship currently worth $1 trillion a year, and to have made a good start on other issues, such as mutual recognition of standards, reciprocal rights of residency and so on.
And, in fairness, much of that work has been done – around 95% of it, according to negotiators on both sides. That 95% includes provisions for quota- and tariff-free trade in merchandise goods between the two, the bare minimum for any free-trade deal worth the name. But 95% is not 100%, so there is no deal in place yet. And, in the time-honored fashion, nothing is agreed until everything is agreed.
The risks of not sealing a deal on time are substantial. The default no-deal solution, of trade on World Trade Organization terms, would impose tariffs on all manner of products going in both directions, and will in any case impose huge new burdens of paperwork on all importers and exporters.
Delays at choke points such as the ports of Dover and Felixstowe could make trade in perishable goods so risky as to be economically unviable. A new border between the Republic of Ireland and the British province could also badly hit the local economy, fostering new resentments to fan the flames of another conflict between England and its neighbors.
Other issues, such as international flights, cross-border payments and financial contracts, have been temporarily sorted by sector-specific agreements, so the prospects of a truly chaotic “No Deal” scenario have been at least partly mitigated. But even then, the smooth functioning of vital parts of the economy will depend on goodwill between governments which could be withdrawn at any time. That is a desperately poor substitute for the legal certainty that currently underpins relations.
U.K. Prime Minister Boris Johnson and European Commission head Ursula von der Leyen agreed at a dinner on Wednesday to give their negotiators until the end of the week to bridge what are still serious differences over remaining issues such as fishing rights, state aid and dispute resolution mechanisms. French President Emmanuel Macron has repeatedly threatened to veto any agreement that that cuts economically depressed French fishing ports off from U.K. waters too quickly.
Johnson appears to want a deal: his government has dropped controversial parts of a new law that would have broken the Withdrawal Agreement which will form the basis of any free-trade deal. That comes at a big political cost of effectively leaving Northern Ireland’s economy under EU regulation and putting up a customs border within the United Kingdom itself.
U.K.-based lawyer David Allen Green observed this week that Johnson has to choose between being irresponsible, by risking economic chaos with ‘No Deal’, and being unprincipled, by going back on promises of a quick and easy break with the EU. Given that he has been both at various times in the past, Allen Green said, “it is genuinely difficult to work out which route this prime minister will take."