Brexit is back – and Covid has transformed negotiations

We will know in the next few weeks if Britain is to leave the European Union without a trade deal. The ‘high-level’ meeting in June has been earmarked by the UK and the EU as the moment when they decide whether to take the negotiations to the next stage or not. If there is to be a deal, then the contours of it will need to start to become clearer at this meeting. If they don’t, then both sides will need to decide whether their time would be better spent preparing for trading on WTO terms than in unconstructive negotiations.

The Covid pandemic, far from pausing the talks, has made it all the more urgent that an agreement is found quickly. The UK and the EU will spend next year reshaping their economies and it makes sense to do that knowing what their trading arrangements will be in the medium term.

This is why the letter sent by David Frost, Boris Johnson’s chief Brexit negotiator, to his opposite number, Michel Barnier, is so significant. It makes it clear that the two sides are still nowhere near agreement. The British want a free trade deal like Canada’s, so won’t sign up to follow EU rules. The central plank of Frost’s position is that the whole point of Brexit is to ‘take back control’. Impossible, replies the EU: Canada is thousands of miles away. The UK is too intertwined with the EU economy to be offered the same terms. If neither side budges, there will be no trade deal.

Before the pandemic, the EU and the UK negotiators had been meeting alternately in Brussels and London. Since coronavirus, Frost and Barnier’s teams have had to continue the discussions by video-link. The negotiations have been bedevilled by the usual problems with video conferences: the two sides have talked over each other and become frustrated that one can’t understand what the other is saying. The Brits think that the EU doesn’t realise that Johnson means what he says about Brexit and that, unlike Theresa May, he won’t fold under parliamentary or institutional pressure. The EU is amazed that the Brits seem not to recognise the asymmetry: this is 27 nations against one. The physics of trade talks, it assumes, dictate that the smaller party always folds.

The Covid crisis has served only to stiffen No. 10’s resolve. The failure of talks would mean that Britain reverts to the default WTO rules when the transition period ends on 31 December. There would be border checks and tariffs. In normal times, this would be regarded as the biggest economic shift in a generation. But coronavirus has collapsed world trade and travel, dwarfing any changes Brexit might bring. We are over that cliff edge already, along with everyone else.

One member of the cabinet argues that ‘the costs of an Australian-style deal have dropped massively’ (Australia has no free-trade agreement with the EU, but trades on WTO terms with some enhancements) because so many supply chains have already been disrupted. Meanwhile, the benefits of taking back powers to reshape the country’s approach to trade may well prove invaluable as the UK thinks about how to reconstruct its economy after the pandemic has passed. Phil Hogan, the EU’s trade commissioner, has argued that Covid gives Britain the perfect cover for a hard Brexit. ‘They don’t want to drag the negotiations out into 2021, because they can effectively blame Covid for everything,’ he said this month.

That’s one way of putting it. Another is to say that 2021 will be a year of rebuilding after the destruction of Covid, and it makes sense that it should be done in a way that prepares for the coming changes to the global economy. The prospect of extra customs checks are nothing compared to the airport queues, travel quarantine and temperature checks which may ensue once countries come out of lockdown. The shift towards ‘supply chain security’ means that cross-border supply chains will become less important. The prospect of a WTO Brexit has never been less intimidating.

Or is this all just British bluff? It is tempting to imagine that we have seen this movie before. The UK and the EU both ramp up the rhetoric, suggest that the other side is making it impossible to reach an agreement, before compromising at the last possible moment. We saw this happen in October. But this view might be too complacent. Last time, all the Prime Minister had to do was square the issue of the Irish backstop with Leo Varadkar. But every EU leader has an interest in this stage of the negotiations, and it is far harder to stage a Thornton Manor moment where Johnson’s charm and some one-on-one diplomacy can pave the way to a deal.

The view in Downing Street is that the differences between the UK and the EU are so large that they can’t just be resolved by a few more meetings, which is why they are so opposed to any extension. Then there is the politics of the situation. Johnson got away with the last Brexit extension because the delay was clearly not his choice. But this time round, he has a large majority in parliament and any postponement would be on him. One cabinet minister who backed him for the leadership warns that ‘delaying it would be a disaster’.

The Labour party seems to agree. One Tory jokes that Keir Starmer has decided to take a leaf out of David Cameron’s book and ‘not bang on about Europe’. Despite his pro-Remain sympathies, Sir Keir has clearly decided that he doesn’t want to be defined as the politician who wants a Brexit extension, so he won’t be trying to put the government on the spot over this issue.

All over Europe, there’s talk about each country making sure it can produce its own emergency medical supplies and not having to rely on imports. But this approach sits ill with EU law, which sees all member states as one market. This denies to member states what one cabinet minister refers to as the ‘geostrategic premium’ of encouraging domestic production of personal protective equipment. In the single market, the NHS cannot buy solely from British suppliers to try to build up a domestic manufacturing base; it has to accept bids from any company based in the EU.

It would be wrong, though, to think that Johnson doesn’t want a deal. I’m told that in the cabinet discussion on Brexit last week, he was still ‘absolutely convinced we could and would do a deal’. One influential figure explains the mismatch between the PM’s bullishness and the views of others in government by saying ‘Boris is an optimist and a can-do guy. He’s more emotionally attracted to a deal than some of those around him.’

His positivity is based on the idea that everyone will be pragmatic in the end. Yet Johnson’s view of what is pragmatic is very different from the EU’s. On certain issues, he is not prepared to meet the EU halfway. He sees the level playing field as an attempt to undermine the whole point of Brexit: to have the right to determine the rules that govern the economy. Why, he asks, should the EU not give Britain the free trade deal offered to Canada, Japan or South Korea? He would be happier to accept tariffs than sign the UK up to following EU rules in perpetuity. So the talks go around in circles.

Hope for a breakthrough rests on next month’s summit. But change can only come if EU leaders tell Barnier how much flexibility he has in his negotiating mandate. Even Barnier thinks the EU’s demands on fishing are a bit de trop: he has indicated that he would like more flexibility on this. But, in a reminder that EU member states have their own domestic interests, his advice has not been taken on board yet. Coronavirus and the EU’s financial framework are both bigger issues for leaders than Brexit.

The British government’s analysis is that the disruption caused by coronavirus means that the costs of leaving without a trade deal are lower than they have ever been. This will mean that the UK takes a tough line in these negotiations. One of those close to the strategy sums up the view in Downing Street: ‘We are not saying a deal can’t happen. But the sort of deal that the EU thinks it wants isn’t going to happen.’ This time the differences between the two sides may be too great to be settled by an away day at Thornton Manor — even if all the leaders were allowed to travel there.