Brexit negotiations: linkages need to be handled with care

negotiations

Predictably, the negotiations over the future relations between the UK and the EU have started with a clash of vision between the UK’s insistence on a ‘right to diverge’ and the EU traditional mantra of access-for-convergence, as reflected in their respective negotiating mandates.

But is “ripping each other apart” really necessary, as French foreign minister Jean-Yves Le Drian recently predicted? One does not need to be, like me, both a French and a British citizen to reject such pessimism.

Reconciling the two sides will require creative legal footwork. In the end, however, the outcome will depend on how parties handle the core ingredient of any complex negotiation: linkages.

Not all linkages are created equal. Some destroy value, others create it. Linkages can be abused to serve narrow interest or block negotiations altogether.

They are likelier to unlock deadlocks when parties care more about absolute gains (we both win) than about relative gains (I must win more or loose less than you). How then should each of the five categories of linkages featuring in the Brexit negotiations – indivisibility linkages, regulatory linkages, policy linkages, bargaining linkages and strategic linkages – be handled?

The first, indivisibility linkages – namely the link between free movement of persons and single market membership. This is the mother of all Brexit linkages that has underpinned the whole affair.

Arguably, it is because the UK had such misgivings about unrestricted access to its shores by EU citizens that it gave up EU membership altogether, and since then, membership of the single market.

Notwithstanding the other obstacles to frictionless trade between the EU and the UK, it can be argued that the other three freedoms (goods, services, capital) became hostage to the fourth (labour or persons) under the principle of indivisibility. While this linkage is in effect “water under the bridge” and accepted by all sides, it will probably reemerge in the negotiations.

The second category, regulatory linkages, is the most legitimate and straightforward. It makes sense for countries to ensure that the intrinsic characteristics of goods and services conform to their standards – on, say, consumer safety, data privacy or financial stability.

Surely, both sides can agree that the UK, mastermind of the single market, is currently the most EU-compatible country in the world, and will stay so for a long time to come – a reality that can be enshrined through various equivalence agreements, since to be compatible is not to be identical.

Continued regulatory compatibility can be subject to the tried and worn triumvirate of trade relations in regulated industries: monitoring (through notice and consult commitments when new rules are envisaged on either side); reliable dispute resolution mechanisms (arguably guided by the jurisprudence of the European Court of Justice short of direct enforcement in the UK); and agreed remedies based on regulatory dialogue (such as reduced market access if regulations diverge beyond acceptable thresholds).

If the UK has little choice but to tolerate the EU’s insistence on ‘divergence watch’, the EU on its part must accept a greater degree of symmetry in its regulatory dealings with the UK than it has with any other trade partners.

Third, policy linkages, infamous these days under the label ‘level playing field’ (LPF) have replaced indivisibility as the core indirect category of linkage insisted on by the EU. They tend to be conflated with the second type, as they also involve the EU granting access to its market as a function of the UK’s willingness to adopt its rules.

But the rules in question relate to policies that only indirectly affect the traded goods or services as part of their production process and environment. So while the same triumvirate applies – monitoring, dispute resolution, remedies – reasonable people can disagree on how labour and environmental standards, or rules over state aid and taxes, affect companies’ ability unfairly to undercut their rivals in other jurisdictions.

The EU cannot expect the UK to agree to formal ‘dynamic alignment’ in any of these areas, even state aid, and it should recognize that UK policies might sometimes be more demanding than its own. The UK, for its part, should grant that ‘non regression’ may not be enough in a changing world, and that it too must demonstrate its commitment to fair competition.

There is all to play for in the space in between, around ideas of equality of outcome, contingent agreements, managed mutual recognition and compatibility. In the longer term, agreement on LPF will need the glue that makes cooperation stick in the trade-regulatory nexus: trust. This, in turn, requires radical abstinence from political posturing.

Fourth, is it easier to strike classic bargaining linkages between issues that are unrelated in substance but where one party’s gain is greater than the other’ loss? “You can access my financial services (or professional services) markets if I can fish in your waters”, is the current trending example. These linkages are precious but must be handled with sensitivity to the other side’s political constraints.

Sadly, there are always flesh-and-blood losers behind every bargaining chip. Which is why to be successful, they need to be framed appropriately: it does not, for example, help to present the tradeoff as retaliation – “we will block your banks if you block our boats.” Better to present them as in the all sides’ interests– “our access to UK fishing waters, for UK access to our fish market,” say the Europeans, “our access to EU clients serves EU corporations well,” say the British.

Finally, and crucially, we should not overlook the ways in which strategic linkages will sabotage or save these negotiations.

The EU may not intend to follow Donald Trump in linking a trade deal with foreign policy, and the UK has from the beginning made clear that cooperation in matters of internal and external security will not be conditional on the trade side. Indeed, both sides have sought to shield the EU-wide and bilateral security partnership from contamination by the rest of the negotiations.

Nevertheless, if the trade deal goes pear-shaped, unhelpful political atmospherics will intrude on external security theaters. It will be hard for Paris to tell London, “I will take your banks, but please also lend me your Chinook helicopters.”

A trade deal must be concluded to the satisfaction of all sides not only because it makes economic sense, but for the sake of a higher purpose, namely our shared interest in confronting Europe’s geopolitical solitude together.

In the end, if the two sides are truly committed to an ambitious agreement reflecting both their shared EU legacy and their common interests, they should handle these linkages with care and creativity. Will they?

By Kalypso Nicolaidis, professor of international relations in Oxford and chair of the Oxford Working group on Brexit.

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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