Media  Global Economy  2019.04.15

Brexit, much cry and little wool. Will "the UK remain in the EU"? - House of Commons again rejects revised draft withdrawal agreement after its nominal revision. What will be the way forward...?

The article was originally posted on Webronza on March 13, 2019

The House of Commons rejected Theresa May's draft withdrawal agreement for the second time.

On the evening of March 11, Prime Minister Theresa May and European Commission President Jean-Claude Juncker agreed to revise the May government's initial draft withdrawal agreement that had been rejected by the UK Parliament earlier in January. MPs, however, rejected the revised draft agreement again by a huge margin of 391 to 242.

It was the second time that the House of Commons rejected May's proposed withdrawal agreement. Let us briefly review how this came about and some of the reasons for its defeat.

What many in the UK Parliament regarded as an insurmountable problem was the Irish backstop arrangement (a safety net measure devised in case the UK and the EU fail to reach an agreement on the Irish border by the end of 2020) included in the agreement. According to the arrangement, until an agreeable measure to prevent the re-imposition of strong border controls between Northern Ireland, which is a part of the UK, and the Republic of Ireland is formulated, the whole of the UK would remain in the EU Customs Union (meaning that no tariffs would be imposed on products traded between the UK and EU member states, and that the UK would impose the same tariffs as the EU on products imported from non-EU countries such as Japan (in the case of automobiles, a flat tariff of 10 percent is levied).) In addition, the agreement further stipulated that in order to sustain the EU's single (common) market, Northern Ireland would adopt the same rules and regulations as the EU, while the rest of the UK would adopt similar ones.

The UK Parliament rejected the original withdrawal agreement in January by a historic margin, claiming that the UK would be unable to conclude its own bilateral free trade agreements to lower tariffs with other countries because the EU would maintain the authority to set tariffs based on its own economic considerations. the UK would thus remain bound by the economic regulations of the EU, while having no representation in its decision making bodies after its departure. In addition, MPs strongly rejected theidea that Northern Ireland would be treated differently than the rest of UK economically.

To deflect this criticism, the UK and the EU confirmed under the revised agreement that the UK would not in principle remain permanently bound by the backstop arrangement, and agreed that both of them would exert the utmost effort to avoid invoking the backstop by taking measures to prevent strict border controls from being re-imposed in Ireland by the end of 2020.

Nominal revision of the draft agreement

In reality, the revised withdrawal agreement merely rearranged the wording of the original agreement.

To begin with, the backstop arrangement would be invoked if both parties failed to reach an agreement on the matter by the end of 2020. If they managed to agree, the backstop would not need to be invoked. The revised agreement states that they would make all necessary efforts to develop measures to avoid the introduction of hard border controls through negotiations by the end of 2020. This is essentially the same thing worded differently. While that may admittedly be putting it a little too strong, given that both the UK and the EU wish to prevent the re-imposition of hard border controls, it simply states what should be stated.

The news reporting on the revised agreement reminded me of the Chinese narrative "three for the morning and four for the evening" which originally appeared in the Zhuangzi. For those unfamiliar with this story, a monkey showman during the Song dynasty tells the monkeys that he raised that he would give them three chestnuts in the morning and four in the evening. The monkeys became furious with the showman's offer in response however, saying that it was too few. After some thought, the showman corrected himself and told the monkeys that he would instead give them four chestnuts in the morning and three at night, for which the monkeys were very pleased.

European Commission President Juncker and other EU members had insisted that they would not accept any revisions to the draft agreement. Thus, they simply tried to give Mrs. May a helping hand by agreeing to the revised agreement. It was a cosmetic exercise. The substance of the draft agreement was not altered at all.

UK Parliamentarians were not tricked like the monkeys. It was no wonder that the revised agreement was once again rejected by a huge margin on March 12.

"Brexit" is not compatible with "having no border controls"

Next, MPs will vote on whether or not they support a no-deal Brexit on the 13th. If this is rejected again, they will then vote on whether or not to extend the Brexit deadline the following day on the 14th. If this is rejected, the UK will be required to leave the EU without a deal on March 29th. However, as MPs are generally in agreement that they should avoid a no-deal Brexit, they are likely to vote to support an extension.

In this case, the UK government will again negotiate with the EU, first, on a Brexit extension and, if it is granted, how long the extension period will be.

What is the UK, then, going to do once an extension is granted?

After Brexit, the UK will leave the EU (its Customs Union) and form an independent economic territory in which border controls must be imposed, such as is the arrangement between Japan and other countries. If there were a practical way to evade the introduction of border controls, practically every country in the world, including Japan and the US, would have likely already adopted it. If the UK wishes to prevent the re-imposition of border controls, it should remain in the EU's Customs Union (as prescribed by the backstop arrangement of the draft withdrawal agreement.)

Brexit will require strong border controls. If the UK refuses to impose border controls, the UK government must accept the draft withdrawal agreement (which was voted down for the second time), thereby resulting in a nominal Brexit, or cancel Brexit altogether, meaning that the UK would stay in the EU. "Brexit" is not compatible with "having no border controls."

The backstop arrangement in the draft agreement, which aimed to address both issues concurrently, placed a priority on "having no border controls" which had the effect of virtually denying a full "Brexit." It is no wonder that Brexiteers responded to it furiously.

After all, the draft agreement was rejected twice. Even if the deadline is extended, logically, there are only two options available; a no-deal Brexit or no Brexit. If nobody is willing to go for a no-deal Brexit, no Brexit will be the only remaining option.

There will be no way out for the UK other than "remaining in the EU"

Since a no-deal Brexit became more of a realistic possibility, people have increasingly turned against Brexit. According to Honda, its withdrawal from the UK was not decided on the basis of Brexit. Many UK citizens however tend to believe that the decision was at least strongly influenced by it.

In light of above, the UK government should propose a substantial extension to the Brexit deadline to make the necessary preparations to hold a second national referendum.

If Prime Minister May, who insists on the current draft agreement, does not agree to a longer extension that would involve holding a second referendum, the UK government would have no option other than to exit the European Union with no deal on March 29th. If neither the UK Parliament nor UK citizens are in favor of it, she should either resign voluntarily (the Conservative Party can't dismiss her because she survived a party vote of no confidence last year) or hold a general election to choose a new political leader who will pledge to hold a second referendum. She has no choice but to resign gracefully because the draft withdrawal agreement, which she has been taking the lead in developing and promoting, was rejected twice by huge margins.

The EU has clearly stated its preference that the UK stay in the EU. For this reason, I believe that the EU would not refuse to grant a long extension to the UK if it wishes to hold a second referendum.

Much cry and little wool. The final conclusion will be that the UK remains in the EU.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on March 13, 2019.)