Article Published January 5th, 2021

Jasper Fforde’s dystopian novel, “Shades of Grey”, set in a distant future where social class in the UK is determined by how many colours a person visually perceives, has certain uncanny parallels with today’s political and media class’s black and white perceptions of Brexit. This is most strikingly apparent in the views of the parliamentary Conservative Party’s European Research Group, “the ERG”, regarding the EU-UK Trade and Cooperation Agreement, “the Brexit deal” which was passed into English law as the European Union (Future Relationship) Act, on 31st December 2020.

An EU-Canada +++ deal?

Shortly after Prime Minister Boris Johnson’s tinsel-wrapped Christmas Eve proclamation of a successfully concluded EU-UK Trade and Cooperation Agreement, the ERG’s “Star Chamber” lawyers issued their opinion on the Brexit deal. The ERG’s legal advisory committee described it as one which “reaffirms the sovereignty of the United Kingdom” and “fully respects the norms of international sovereign-to-sovereign treaties”.

Even if this holds true, which is doubtful as discussed below, the Brexit deal is certainly a long way from the EU-Canada-style trade deal that Johnson had been promising since the 2016 referendum.  Instead, being the master of spin that he is, Johnson has coined the deal as a “comprehensive” or “jumbo-sized” EU-Canada-style agreement.

As for the prime minister’s incessant threats of a no-deal outcome leading to trading terms with the EU based on World Trade Organisation rules – camouflaged as an “Australian-style deal” to comfort a demoralized British public by unconvincingly trying to lift their spirits around the idea of mirroring their sun-soaked “neighbours” Down Under – it was always a prospective result which was as distant as the geography between the two countries.  The stark reality was that a “fudged” agreement (see my Federal Trust article, “EU-UK talks look like “tunnelling” towards a fudged deal”), or what Sir Keir Starmer has recently expressed to be a “thin” deal, was always on the cards.

No matter whether characterized as either a fudged or thin Brexit deal, the Agreement does substantially tie the UK to the EU within the context of a sophisticated and subtle set of relations. At the same time, it avoids the concept of making the UK a stark “rule taker,” in contrast to what several commentators have claimed in the media.

The EU’s new approach to economic partnerships and balancing sovereignty

This complex state of future relations, fashioned by the innovative skills of the EU negotiating team, was first signalled in the EU’s press release straight after the Brexit deal was announced.  It stated the agreement “goes well beyond traditional free trade agreements” in the sense that “both parties can engage in cross-sector retaliation in case of violation of the agreement … [which] applies to all areas of the economic partnership”.  The EU’s chief negotiator, Michel Barnier, also referred to the agreement’s level playing field provisions as constituting part of “a new generation of free trade agreements”, meaning the EU could look to replicate its terms in future international trade and investment accords. On this point, the EU’s view was matched by the ERG’s legal opinion which concluded that the “level playing field” clauses go further than in comparable trade agreements” – which, of itself, effectively dismissed the notion of Johnson’s “comprehensive” EU-Canada-style deal.  Issues surrounding the practical exercise of sovereignty also exist beyond the level playing field, to lesser degrees, in other areas of the Brexit deal, such as in fisheries, but also in law and criminal justice arrangements.  In respect of the latter, it is just worth mentioning that the EU will revoke this section of the Brexit deal should the British government renege on its application of the European Convention on Human Rights.  However, for the purposes of this article, the focus will be on the level playing field concept and its interaction with the EU’s key objective of economic integration and how that interacts with sovereignty.

In terms of how aspects of the Brexit deal’s level playing field are implemented in practice, there is merit in the ERG’s position that a degree of sovereignty has been restored.  Any violations of the agreement are subject to independent arbitration (although as mentioned in the earlier October article this was a point which the EU had proposed during the deadlocked negotiations, but which the UK initially remained silent on), rather than the purview of the European Court of Justice and the EU legal concept of “direct effect”. Furthermore, arbitration panels are considered less consistent in their judgements than are courts. This is mainly because, unlike courts, arbitrations do not base decisions on precedents which form principles of jurisprudence, over time, but on the singularity of facts surrounding each particular case.

The future level playing field and rebalancing divergence

The UK’s independence of law-making in terms of the future level playing field, including environment, climate, labour and social policy, and subsidies, is significantly circumscribed by a portion of the agreement’s legal text, referred to as “rebalancing”.  This section of the Brexit deal simply has no equivalent in the EU-Canada trade deal, no matter how “jumbo-sized” a version of the latter the EU-UK agreement may be portrayed by Johnson as being.  Its provisions state that “if material impacts on trade and investment … arising as a result of significant divergences between the Parties [i.e. level playing field] … either Party may take appropriate rebalancing measures [e.g. tariffs on trade or other penalties on various non-trade sectors] … to address the situation”.

The key phrase in the text is that of “material impacts”.  What precisely a material impact may mean is left somewhat open-ended, as it is undefined in the agreement.  Even so, the scope and duration of any rebalancing measures must be strictly necessary and proportionate as to any remedial action.  Otherwise, there are no limitations in the number of EU “rebalancing measures” which can be imposed on the UK where divergences in standards occur.  This is notwithstanding the possibility for the UK or the EU to request a review of the agreement where such measures are applied frequently.

Interestingly, the ERG highlights that full rights of the practical exercise of sovereignty, in the face of the rebalancing provision, essentially rest upon the UK government being “willing to be robust and to defend with vigour any arbitration proceedings launched by the EU”.  In other words, only where the rebalancing mechanism is limited by actions of the British government can the mechanism’s effects not be construed as imposing a serious constraint on practical UK sovereignty.  How successful the British government will be in this endeavour can only be a matter of speculation.

The importance of government robustness in responding to EU measures is reiterated in the ERG’s overall conclusion to the agreement. By that measure, should a future UK government, of whatever persuasion, fall short of this essential robustness in challenging the EU’s measures on policy divergence, let alone one that is inclined to comply in willingly bridging any EU-led divergences, the whole notion of practical sovereignty in respect of the Brexit deal would simply fall by the wayside.

The ERG also places significant emphasis on the rights of both parties to terminate the agreement by giving 12 months’ notice.  But such a provision can be a double-edge sword.  While it could relieve pressure on the UK government where its sovereignty comes under question, it could equally be an opportunity for a new pro-EU UK administration to seek membership at a future date.  Clearly, the chances of a successful re-application would be advanced by the Brexit deal’s having maintained a relatively high degree of economic EU alignment, arising from the rebalancing mechanism,than a no-deal outcome would have favoured.

For the foreseeable future, however, the Brexit deal has imperilled many aspects of the country’s economic livelihood for the dubious objective of “taking back control”. Not the least impacted will be Britain’s giant services economy which has been largely ignored by the Brexit deal.  It now faces an unquantifiable array of non-tariff barriers given the lack of mutual recognition regarding regulation across substantial sectors.  This applies also to trade in goods, where tariff and quota free benefits will not serve to reduce the regulatory hurdles arising from different industry standards between the EU and the UK from 1st January 2021.

EU-China investment treaty and aspects of sovereignty conceding

The economic disadvantages Britain now faces from being outside the EU even extend to the arena of negotiating trade deals.  This was a major platform of the Brexit rationale whereby “unshackling” the UK from the EU’s customs union would lay the groundwork for more flexibly agreeing trade and investment agreements with Britain’s international business partners.  This argument has almost immediately been rendered doubtful, when on 30th December 2020, the EU agreed an in-principle investment treaty with China (see my Federal Trust article “Diverging EU and US foreign policies are pitching up on opposite sides of China’s Great Wall”), just as Johnson and EU Commission President, Ursula von der Leyen,co-signed the Brexit deal.

Given that China is the UK’s third largest trade partner behind the EU and the US, albeit the fastest growing, including even in 2020, the prospective EU-China investment treaty will now leave UK businesses at a significant disadvantage in competing with not only EU counterparts, but also with US companies, given President Trump’s market access accord with China. In both these cases, but more comprehensively  the EU/China agreement  in terms of the depth and scope of sectoral reforms, economic integration with China is being achieved through reciprocal concessions on aspects of sovereignty. These include a level playing field for both treaty states over the regulation of state enterprises, industrial subsidies, technology transfer, market access, workers’ rights being framed in accordance with international labour organisation settings. This gives rise to a de facto pooling of sovereignty on these issues although, in practice, most of the concessions were made by China in reaching an agreement.

Conclusion

How the Brexit deal plays out in terms of the practical exercise of sovereignty will probably require multiple perceptions, rather than just one colour of observation attributable to the lower social classes of Fforde’s novel.  Perhaps, more appropriately, any ascertainment over sophisticated and subtle issues of sovereignty, in its various chapters and extensive text, is best reflected in another book title, “Fifty Shades of Grey” – minus, of course, the subject matter of that novel’s deepening relationship between its two protagonists.