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[Leonid Bershidsky] Only one side compromised for this Brexit breakthrough

By Bloomberg

Published : Dec. 11, 2017 - 17:41

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After UK and EU negotiators reached a deal opening a path for trade negotiations on Friday, arch-Brexiter Michael Gove declared British Prime Minister Theresa May had “won.” That is a statement worthy of all the now-debunked Brexit slogans. The parties‘ agreement shows the EU has given up virtually no ground, and that’s what‘s likely to happen in the trade talks, too.

In plain terms, the 15-page document that closes the first stage of the talks -- according to a EU-determined sequence -- seals the UK’s agreement to three sets of EU demands.

First, both EU citizens living in the UK and UK citizens in the EU will retain their residence on the softest possible terms: Their status will be fixed on the Brexit date and no earlier; they will be able to bring over spouses, children and parents without any time limits; and if they are required to obtain an additional document to stay where they are -- as the UK wants them to -- officials will be allowed to exercise discretion only in the applicants‘ favor. Europeans’ rights in the UK will be determined by European Court of Justice case law. Though disputes will be adjudicated by UK courts, they will be allowed to refer cases to the ECJ for eight years after Brexit.

Second, the UK agreed that the current state of the border between Northern Ireland and the Republic of Ireland is the default state, and that there will be no checkpoints of other controls on that border. For EU citizens, the Common Travel Area between the UK and Ireland will continue operating under EU rules, including the free movement of people. The document also says talks on the specifics of the border regime will continue in the framework of the trade negotiations, but if no new arrangements are agreed, things will stay as they are.

Third, the UK will keep paying into the EU budget in 2019 and 2020 as if it remained a member. It will also keep funding any long-term liabilities incurred before 2020 for as long as they exist. It will get back its share of the paid-in capital of the European Central Bank and the European Investment Bank. This means that, in total, the UK will pay between 40 billion and 60 billion euros ($47 billion to $70 billion), closer to the EU‘s estimates than the UK’s early offer.

As he announced the deal, European Commission President Jean-Claude Juncker called it a compromise; but Juncker was just being generous. This is no compromise. These are EU positions covered by some linguistic fig leaves meant for the Tory party‘s hard Brexit wing and the Democratic Unionist Party. The only tangible achievement the UK can boast after six months of talks is the partial concession on court jurisdiction which allows UK courts and not the ECJ to settle citizens’ rights disputes. But it‘s largely symbolic: Not many EU citizens living in the UK have the stamina to go all the way to the ECJ with their cases; it’s easier to go back to Europe.

That the UK didn‘t have to spell out exactly how it will avoid setting up a hard border with Ireland -- something the EU initially demanded -- is not really a concession given that the status quo has now been accepted as the default position.

May started the talks insisting the UK didn’t owe the EU anything, offering a less liberal deal on EU citizens‘ rights and discussing “technology based solutions” that would allow the UK to introduce customs controls on the Irish border. The distance May has traveled from these initial positions can be generously described as 90 percent of the way.

Gove may not be entirely wrong when he talks about May winning, though. By trying everything and finally going this distance, she has defeated the hard Brexiters -- not just at this stage of the talks but for their duration. Judging by Gove’s conciliatory remarks, they are now OK with accepting EU demands in more or less their original form. They have little choice but to keep sliding down this slippery slope during the trade part of the talks, in which the EU has all the time in the world to hammer out a deal that favors them.

That would be a deal that keeps UK industries -- for example, car manufacturing -- in seamless European value chains, but doesn‘t allow UK service companies, particularly financial ones, to operate freely in the EU. There is already a blueprint for such a deal -- the Comprehensive Economic and Trade Agreement between the EU and Canada, which doesn’t cover financial services at all.

CETA took seven years to negotiate and sign, but it‘s already there, so it won’t take as long to make a similar deal with the UK. Though the UK covers about a quarter of the EU 27‘s demand for financial services, it would benefit EU countries to have the institutions that do it move over to the scheme already used by insurance companies, which open subsidiaries in their countries of operation. If banks and other service providers do that too, Europe gets a free economic and employment boost, and its member states get more oversight over the financial industry players. That’s the outcome for which EU negotiators will likely hold out. Any concessions they make will be on the same order as the face-saving consolation prizes of Friday‘s deal.

Anyone in the UK still hoping for a favorable Brexit scenario should realize that the UK has minimal leverage in the talks. The UK is, unequivocally, the party that gets fleeced in this divorce. The reasonable decision would be to abandon the whole enterprise, but since that doesn’t appear to be politically feasible, the UK is in for months, perhaps years, of further humiliation at the negotiating table.

By Leonid Bershidsky 

Leonid Bershidsky is a Bloomberg View columnist. -- Ed.