Stephen Booth: Five years of the International Trade Department. How it’s got on. And what happens next.

15 Jul

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

This week marked the Department for International Trade’s (DIT) fifth anniversary. Established shortly after Theresa May took office as Prime Minister in 2016, its immediate task was to run to stand still. Five years on from the referendum, and with the UK now outside the EU’s economic structures, a distinct UK trade strategy is emerging. However, much of the hardest work is yet to come and will require greater coordination of domestic and international policies.

For over 45 years, the bulk of trade policy was contracted out to Brussels, with largely only competence for export and investment promotion retained by the UK government. Therefore, in the aftermath of the referendum, the newly created DIT was arguably the most genuinely pro-Brexit department, since regaining the full range of trade policy levers was only possible after leaving both the EU’s Single Market and Customs Union. This may also explain why DIT was established as a dedicated standalone department rather than developed as a function within the Foreign Office, which is a configuration that many other, although not all, countries have chosen. 

The UK had to establish the infrastructure required to become an independent trading nation, including putting in place its own tariff regime on imports, which was previously governed by the EU’s Common External Tariff. The UK’s independent regime is more liberal than the EU’s, removing tariffs on many supply chain components and consumer goods, but retains the level of EU protections in several sensitive sectors such as cars, agricultural products, fish and ceramics. The rationale is both to offer continued protection for domestic industries and preserve bargaining leverage in negotiations for new trade deals.

Meanwhile, the UK has built the capacity to negotiate with several trade partners simultaneously. The success in rolling over previous EU free trade agreements (FTAs), should not be underestimated. With markets such as South Korea, Canada, Mexico, Vietnam, and Singapore this meant agreeing the same terms as the UK previously enjoyed under EU agreements. However, with Japan, negotiators sought to build on the existing EU agreement by including more liberal provisions on data and finance. In all, well over 60 deals were secured and virtually all the EU agreements replaced.

At the same time, the UK opened negotiations on entirely new agreements with Australia, New Zealand, the United States, and has taken the initial steps towards accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK has announced it is also preparing to launch negotiations to upgrade the rollover deals with Canada and Mexico – both of which, along with Australia and New Zealand, are also CPTPP members. Equally, the UK-India summit earlier this year set out the ambition to conclude a comprehensive trade agreement, which will be difficult but offers a huge prize.

The first of these new negotiations to bear fruit are those with Australia, which concluded with an agreement in principle last month. The negotiations with New Zealand are also expected to produce a result this year. These deals could be regarded as relatively easy wins, since they are similar economies of limited size, with deep cultural and political links, and shared legal systems. Nevertheless, the negotiations have revealed that trade policy inherently involves trade-offs between sectors and between producers and consumers.

In the referendum debate, much was made of the UK losing the EU’s collective strength in numbers in trade negotiations. This assumed that UK and EU interests were always the same. But it is clear that the UK economy is much more weighted to services than the average or even largest EU economies. Therefore, the UK is well placed to take advantage of the global trend towards faster growth in services trade and the increasing digitisation of international commerce. It should, however, be noted that manufacturing still has an important role to play, particularly since it is less concentrated in London and the South East than the most productive services industries tend to be.

Agriculture is always sensitive in trade negotiations and it is no surprise that it has been the biggest source of contention in the domestic UK debate. The sector was accustomed to relatively high levels of protection within the EU and attracts a political romanticism only afforded to a few other sectors, such as the car industry.

Liz Truss has said that the “Australia deal does not set a precedent on agriculture” for future deals, which will be developed “case-by-case”. Nevertheless, the negotiations were a useful testing ground for developing a sensible UK policy in this area that balances liberalisation with providing safeguards to domestic farming, which will need time to adapt.

The agreement in principle provides lengthy phase in periods for the removal of UK tariffs on the most sensitive products, such as beef and lamb. The government has also confirmed that the UK’s domestic food standards remain unchanged and that, therefore, imports of hormone-treated beef will continue to be banned. The UK may find its position on standards comes under greater pressure in negotiations with the US, but only time will tell and this is ultimately a UK decision to make.

Critics have accused the Government’s trade agenda of prioritising the conclusion of new deals as political theatre at the expense of a wider strategy and long-term vision. However, earlier this year, the Integrated Review (IR) outlined a clear and ambitious strategy, placing trade at the heart of UK foreign policy, including the Indo-Pacific tilt. The negotiations with Australia, New Zealand, the CPTPP, and eventually India, are a manifestation of this approach. The IR also underlined that trade should be viewed as an important economic tool to promote growth that is distributed “more equitably across the UK”.

The challenge is to make this vision a reality in the months, years, and decades to come. Trade deals are only one part of the equation and businesses should be supported in ensuring these agreements deliver benefits in practice, with help offered at home and in navigating foreign markets.

Ensuring that more areas of the UK become attractive to foreign investors and are able to support greater numbers of exporting business and industries is the crucial objective that will really count. It will require long-term commitment across government in partnership with the private sector, and greater coordination of domestic policies on industrial strategy, innovation, skills, infrastructure, and local governance. This will not be easy and ultimately it is a job that extends well beyond the remit of DIT.

Stephen Booth: The Northern Ireland Protocol. A crisis is averted. But for how long?

1 Jul

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Last week marked five years since the EU referendum. It was a seismic political event, and Leave/Remain political identities look set to continue to drive political changes across the country for years to come.

Most polling suggests that, in hindsight, most voters have not changed their minds about their 2016 decision. Nevertheless, both the Labour Party and the Liberal Democrats appear to see little political mileage in reopening the Brexit debate or mooting the prospect of re-joining. Perhaps this is because, while Remain and Leave identities continue to be strong forces in domestic politics, the question of actually re-entering the EU is a different matter.

A poll conducted last week by Opinium found that, when presented with four options, just 27 per cent think that Britain should re-join the EU. Of the other options, 22 per cent think we should negotiate a closer relationship than we have with the EU now, 20 per cent think the current relationship is about right and 22 per cent think we should form a more distant relationship. This suggests that future political debates about the EU are more likely to be about the type of relationship we have with Brussels and the various member states, rather than reopening the fundamental membership question.

In the here and now, the UK-EU dispute over the implementation of the Northern Ireland Protocol continues to rumble on since it came into force six months ago, and still threatens to sour the broader relationship. A range of issues are being discussed, including chilled meats, pet travel, VAT on used cars, tariff quotas on steel, medicines, and customs processes.

Last week, appearing respectively before the Northern Ireland Affairs and Foreign Affairs Committees, Brandon Lewis and Lord Frost repeated the Government’s position that the current state of play is unsustainable, due largely to the “chilling” effect on Great Britain-Northern Ireland trade, and that all options are being considered to deal with the situation.

Yesterday, the EU formally confirmed its agreement to the UK’s request for an extension of the grace period for trade in chilled meats, which has avoided an imminent potential ban on sausages and the like being imported into Northern Ireland from Great Britain. The agreement on the extension avoids a further escalation, which might have occurred if the UK had unilaterally extended the grace period, as it did with other grace periods in March this year. Meanwhile, the EU appears to have taken the view that a further public bust up isn’t in its interests at this stage.

However, the extension merely buys time over the summer rather than fundamentally resolving the situation regarding checks on food, or the wider Protocol, where the UK and EU positions remain at odds in many areas. The EU suggests the time be used for Northern Irish retailers to adjust their supply chains to source products from the Irish Republic and the rest of the EU – a further diversion of Great Britain-Northern Ireland trade. Meanwhile, the UK insists that the time be used to find permanent solutions that respect Northern Ireland’s position within the UK’s customs territory.

On Monday, Maroš Šefčovič appeared before a Stormont committee, and repeated the EU’s position that the long-term solution to reducing or removing checks on food and animals should come in the form of the UK adopting Swiss-style dynamic alignment to EU agri-food rules. This would, he has suggested, remove the need for 80 per cent of checks. The alternative model – a New Zealand-style mutual recognition of standards – would reduce checks but leave many in place, he added.

Yet, the fact that Switzerland and New Zealand each have their own arrangements would suggest that a bespoke arrangement for Northern Ireland ought to be possible. This is what the UK is proposing. Frost has rejected a Swiss-style approach, describing it as an “abrogation of sovereignty”, since the EU would insist on the “ability to police it through its institutions”, such as the EU Court.

Frost outlined to the Northern Ireland Affairs Committee that the UK’s proposal is based on a bespoke equivalence arrangement, whereby both sides acknowledge each other’s current high food safety standards, and if either side diverges from those standards, then the other side can increase checks and controls accordingly. Ultimately, this is likely to require the EU to change its own border rules, which Brussels has fiercely resisted up to now, insisting that any flexibilities must be agreed within the legal confines of the Protocol and existing EU law.

However, in a significant departure form that stance, Sefcovic told this week’s Stormont Committee session that the EU would be prepared to change its own legislation in the particular case of medicines placed on the NI market, which under the current terms fall within the purview of the EU, rather than UK, regulator. “We want to ensure that citizens in Northern Ireland have full access to all the medicines they need,” he said. “This will not be easy, as this would require a change of our EU rules but I am committed to do this important effort if it requires actual legislative change on our side.”

If EU law can be tailored for medicines, why not in other areas, since it is not only medicines that are a publicly sensitive issue under the Protocol.

poll of voters in Northern Ireland by LucidTalk for academics at Queen’s University Belfast, published yesterday, found that, while 67 per cent said they believe that Northern Ireland does need “particular arrangements” for managing the impact of Brexit, 43 per cent agree that the protocol is, on balance, good for Northern Ireland, whereas 48 per cent think that it is not. And, while 57 per cent think the Protocol provides Northern Ireland with a “unique set of post-Brexit economic opportunities”, by providing it access to both EU and UK markets, more than two thirds see the Protocol impacting negatively on political stability.

The UK’s current approach appears to be to grind away at the EU position, rather than adopt further unilateral measures at this stage. However, with the Protocol continuing to cause major problems on the ground, despite the current stop-gap easements in place, this position may be revisited in the autumn if the stalemate continues.

Stephen Booth: Switzerland’s painstaking negotiations with the EU tell us a lot about our future relationship with Brussels

3 Jun

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Is the EU making a habit of alienating its neighbours? Last week, the Swiss government informed Brussels that after seven years of painstaking negotiations it was unwilling to sign a proposed “Institutional Framework Agreement” designed to consolidate and govern the Swiss-EU relationship. The breakdown between Bern and Brussels has obvious parallels with Brexit and has to some extent become intertwined with it.

Switzerland’s bespoke and often fraught relationship with the EU has developed more by accident than by design. In a referendum in 1992, Swiss voters rejected joining Norway, Iceland, and Liechtenstein in the European Economic Area (EEA). At the time, the Swiss government saw EEA membership as a precursor to joining the EU – a Swiss application for full EU membership remained dormant and was only officially withdrawn in 2016.

In the meantime, Switzerland and the EU concluded a patchwork of around 120 bilateral treaties, resulting in a high degree of Swiss integration into the Single Market – a bit less than those countries that joined the EEA but more than under the UK-EU agreement reached last year. Generally, while EEA countries are obliged to dynamically align their legislation to the evolving EU acquis, Switzerland’s arrangements have given it more autonomy over whether to adopt EU law, or equivalent standards, in order to access the Single Market.

The EU has long seen the Swiss arrangement as a problem, since it requires permanent political negotiation and, in Brussels’s words, “leads to a lack of legal homogeneity and uncertainty and ultimately to an unequal treatment of economic operators.”

Switzerland’s prized national independence and system of direct democracy notably clashed with the EU in 2014, when Swiss voters narrowly backed a referendum initiative to impose quotas on EU immigration, in violation of the Swiss-EU agreement on free movement. The Swiss government managed to implement the 2014 vote without too much collateral damage to the EU relationship (critics argued the referendum instruction was watered down), and a subsequent 2020 referendum backed free movement.

However, the 2014 episode spurred the EU into pushing for an overhaul of the Swiss relationship. The Brexit referendum and its aftermath probably encouraged the EU to be even more hard-nosed in its negotiations with the Swiss, particularly since Theresa May’s “Chequers plan” proposed a package of pick-and-choose alignment with the Single Market comparable to the “Swiss model”.

In 2018, after four years of talks, the EU informed Switzerland that it considered negotiations to have concluded. The proposed deal would see Swiss laws change in line with EU legislation, while an arbitration panel would resolve Swiss-EU disputes and, crucially, include a role for the European Court of Justice (ECJ) for the first time.

Mindful that the agreement would likely need public approval in a referendum, the Swiss government asked for more time to consult domestically, which resulted in additional demands, including exemptions from EU state aid and freedom of movement rules.

During the sporadic talks that followed, the EU sought to put pressure on Switzerland to ratify the deal by, for example, letting the “equivalence” status granted to Switzerland’s stock exchanges expire. Guy Parmelin, the Swiss President, said last week, however, that the Swiss government had concluded that the “necessary solutions” could not be reached, which is why it “decided to terminate the negotiations.”

What happens next is unclear. The Swiss say they wish to continue and develop the bilateral approach, even without an institutional agreement, which seems unlikely, since the EU appears confident it can exert further pressure to bring the Swiss back to the table. Brussels has said, that without the deal, new access to the Single Market would be impossible to negotiate and existing access agreements will “erode” over time as the body of EU law develops.

The conclusion of the UK-EU trade agreement has also changed the landscape. The UK does not have the same level of market access as Switzerland, but the UK-EU deal, with the important exception of Northern Ireland, sees no role for the ECJ or dynamic alignment with EU rules. If the post-Brexit UK is seen to be a success, Switzerland may ultimately judge that the “UK model” is better than accepting the EU’s current terms.

What lessons should post-Brexit Britain draw from the Swiss experience? Some Brexiters will feel vindicated in their view that the EU is ideological, uncompromising, and bullying. Some Remainers will no doubt say they always warned that the UK wouldn’t be able to pick and choose its access to EU markets. Ultimately, whatever one’s emotions, the effect is the same.

Unless there is a sea change in Brussels, the EU has demonstrated via its actions that the political bar for substantially closer UK-EU economic cooperation is likely to be a high one for any future UK government to pass. Now that Brexit is fact, few in the UK appear confident to make the political argument that the UK should submit to UK-EU arbitration arrangements involving the ECJ to remove some of the new trade barriers that have arisen.

Therefore, greater divergence with the EU is likely in the future, whether we like it or not. EU law will continue to change without the UK. The UK can seek to coordinate with Brussels but its agreement cannot be guaranteed. The UK should focus on exploiting the levers it can now control, be it using its own subsidy regime to encourage inward investment or to ensure the City is a leading non-EU financial centre (the UK has already reversed the EU ban on trading Swiss stocks).

Meanwhile, the UK must continue to cultivate its diplomatic relationships outside the EU. Among other things, this means implementing the Indo-Pacific tilt by developing the relationship with India and concluding trade deals with Australia, New Zealand, and acceding to the CPTPP. Yesterday, the CPTPP nations agreed to the UK’s bid to begin the formal accession process.

The UK might also find common cause closer to home with the Swiss. Not least in trying to convince EU nations that the European continent would be better served by a less short-sighted policy towards countries that have chosen a different path, but nevertheless should be some of their closest partners.

Stephen Booth: Previous governments under-delivered on improving relations with India. Here’s why this time it may be different.

6 May

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

This week’s summit between Prime Ministers Boris Johnson and Narendra Modi was a significant moment for the future of the UK-India relationship. India’s struggle against a terrible new wave of coronavirus cases meant that the Prime Minister was unable to travel to New Delhi as originally planned, and the summit was conducted virtually. Nevertheless, the two leaders agreed a “2030 Roadmap for a Comprehensive Strategic Partnership”, which provides an ambitious new framework for UK-India relations.

The modern UK-India relationship is based on a shared experience of parliamentary democracy and strong cultural links, including a common language and similar legal systems. It was Modi who coined the term “living bridge” to describe the deep people-to-people connections between the two countries, which includes the 1.6 million British nationals of Indian heritage.

Yet, over the last two decades, previous attempts by successive British governments to strengthen the UK-India relationship have tended to under-deliver on the promise of these strong foundations. This time could and should be different. Both countries have been re-evaluating their geostrategic interests and this has given the relationship fresh impetus.

Policy Exchange, the think tank I work for, presaged the Indo-Pacific “tilt” announced in the UK’s Integrated Review. And it is significant that India’s Minister of External Affairs, Dr Subrahmanyam Jaishankar, will this afternoon give a keynote address to Policy Exchange on “India and the United Kingdom in a Post-Covid World”.

Faced with the challenge of China’s rise, India is seeking deeper relationships with like-minded democracies who share an interest in building a resilient, rules-based order in the Indo-Pacific. The breadth of topics included in the 2030 Roadmap illustrates the potential for deeper UK-India collaboration across a wide spectrum of issues, including trade, health, climate, education, science and technology, space and defence. The UK will not be India’s number one partner in every area but it is one of few countries that can offer serious capabilities in all of them.

India is predicted to overtake Germany and Japan to become the world’s third largest economy by 2030. Greater access to this market has long been viewed as a major economic prize by UK governments. However, it is important that the UK can demonstrate that its ambitions for the relationship are not merely motivated by commercial benefits but reflect a strategic and credible commitment to supporting India’s increasingly important regional and global role.

Brexit has prompted a renewed focus on the UK’s economic and diplomatic relationships beyond Europe and the Integrated Review underlined India’s importance to the success of the Indo-Pacific tilt. The UK is using its rotating presidency of the G7 this year to “intensify cooperation between the world’s democratic and technologically advanced nations”. India has been invited as a guest nation, as have Australia, South Korea and South Africa. It is an important example of the increased intensity of government-to-government contact required to strengthen the relationship.

Equally, the UK’s new status outside the EU enables the UK to conclude trade agreements tailored to its priorities. Reaching a comprehensive trade deal with India is now a strategic priority, alongside accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

This week’s summit saw the launch of two new bilateral agreements, the Migration and Mobility Partnership and an Enhanced Trade Partnership.

India has long desired smoother and more open routes for its citizens to do business and study in Britain. The UK’s post-Brexit points-based immigration system has already made it easier for Indian students and high-skilled workers to do so. This week’s agreement establishes a new scheme allowing up to 3,000 Indian graduates and professionals aged 18-30 to come to the UK for a period of up to two years, and vice versa. The agreement also provides for stronger cooperation on the enforcement of immigration rules in both countries. Altogether, these steps suggest that the movement of people is unlikely to be the insurmountable barrier to a UK-India trade deal it was previously perceived to be.

Meanwhile, the Enhanced Trade Partnership is a strong signal of intent from both sides. It is a practical first step towards a comprehensive trade agreement and includes a target to double trade flows over the next decade.

In truth, the UK-India trade relationship has been underwhelming in recent years, but this means it also represents enormous untapped potential. Bilateral trade has grown from around £5 billion in 2000 to £23 billion in 2019, driven largely by increases in UK imports from India. However, this hasn’t kept pace with India’s global trade growth and, as a result, the UK now has a smaller slice of a much bigger pie. The UK has fallen from being India’s third most important trade partner in 2000 to fourteenth today.

The bilateral investment relationship is stronger. The UK was the sixth largest investor in India from 2000-2020 and Indian investment in the UK is growing. India was the second most important source of inward investment into the UK in 2019-20 and fourth in 2018-19.

Developing the trade relationship will not be straightforward. India has liberalised its economy but some international firms continue to find the business and legal environment challenging. For example, Vodafone has been embroiled in a long and complex dispute with the country’s tax authorities, which demanded €3 billion in back payments. An international arbitration court ruled in Vodafone’s favour last year, but New Delhi has since appealed against the decision.

It is sensible, then, that the Enhanced Trade Partnership should lay the groundwork for a comprehensive deal and also focus on potential early wins. The deal has already eased certification requirements for the sale of UK medical devices in India and the UK will also hope India can be persuaded to reduce its 150 per cent tariff on Scotch Whisky.

The £1 billion of deals announced this week includes a £240 million investment by the Serum Institute of India into the UK health and sciences sector in order to provide additional funding for clinical trials, vaccine development and research. The ongoing collaboration on the AstraZeneca Covid-19 vaccine – which was developed at Oxford University and produced at the Serum Institute – highlights the importance of science and research to the bilateral relationship.

Looking to the future, India offers huge opportunities as a technology and data hub and represents an obvious partner in the UK’s bid to become a “science and tech superpower.” For example, growing demand for UK infrastructure and technology services is being driven by India’s smart cities project, and India’s digital transformation offers further prospects in fintech and cyber security.

Overall, there are many reasons to believe this new era of UK-Indian relations has a far greater chance of fulfilling its potential, where others have failed.

Stephen Booth: Merkel’s departure is Macron’s opportunity – an opening for his dreams of an even closer Union

8 Apr

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

When Angela Merkel’s 16-year tenure as German Chancellor comes to an end this autumn, the political landscape is set for a major change. Her legacy is likely to be viewed as a mixed bag, but Merkel has been a fixture of EU politics, and her departure after September’s federal elections leaves a vacuum that poses important questions for Europe’s future.

Globally popular, Merkel’s style is often described as centrist and consensual. Yet German domestic politics is increasingly displaying the same fragmentation we see elsewhere across the continent.

In 2005, the two post-war volkspartei – the centre-right CDU (which governs with its Bavarian sister party, the CSU) and the centre-left SPD – secured roughly 70 per cent of the popular vote. After four terms of Merkel-led governments, three of which, including the last two, have been CDU/CSU-SPD grand coalitions, their combined vote share has fallen to well under 50 per cent in recent polls.

Viewed by many as a pragmatic, incremental crisis-manager throughout the Eurozone’s struggles, she kept the show on the road. However, she has also been reluctant to grasp the nettle of fundamental Eurozone reform or lead a candid debate about the options for the bloc’s future.

She has also made bold, and some would argue impulsive, decisions. The most notable include opening her country’s borders during the 2015 refugee crisis and closing Germany’s nuclear power stations following the 2011 Fukushima disaster. The political fallout from Merkel’s refugee policy, and the decision to reposition the CDU on what was traditionally SPD ground, has created a significant opening to the right, which has seen the AfD enter the Bundestag. The party enjoys a steady 10 per cent vote share in opinion polls.

Meanwhile, the turn against nuclear power has contributed to the German government’s support for the Nord Stream 2 gas pipeline, intended to bring Russian natural gas via the Baltic Sea, bypassing Ukraine and Poland. Berlin had hoped that Joe Biden’s White House might soften US opposition to the project. However, earlier this month, the US Department of State issued a statement describing the pipeline as “a Russian geopolitical project intended to divide Europe and weaken European energy security” and warning any firms involved risked US sanctions.

The dispute illustrates that transatlantic strains over German and EU foreign policy were not simply a phenomenon under Donald Trump. Attitudes to China have proven to be another example, although efforts are being made to increase US-EU coordination.

In recent weeks, the CDU/CSU has seen its support decline significantly due to a pandemic procurement scandal involving some of its MPs and growing dissatisfaction with the government’s wider handling of the pandemic. There are now several potential governing coalitions in play, the most likely of which include two or three parties from the CDU/CSU, Greens, SPD and the liberal FDP. It is conceivable that the CDU/CSU loses its grip on power altogether.

Either way, the high likelihood of the Greens entering government should prompt our Government to consider how to reach out to key figures in the party. The UK’s hosting of the COP26 in November presents an excellent opportunity to do so.

It should also be noted that there is still a long way to go in the campaign. The CDU/CSU has yet to announce its Chancellor candidate and, although the vaccine programme has faltered, Merkel’s government has promised to offer a first dose to all adults who want one by September 21, a week before the election is due.

It is therefore still unclear exactly what the German election will mean for the future of the EU as it continues to wrestle with the pandemic and its aftermath.

Nevertheless, Emmanuel Macron undoubtedly hopes that Merkel’s departure will pave the way for him to become the EU’s most influential leader and present an opportunity to reboot his ambitious vision for European integration.

Macron faces his own electoral test in next year’s French presidential elections. Current polling suggests he is again likely to face Marine Le Pen in a second-round run-off and it could be a closer contest than in 2017, when Macron beat Le Pen by 66 per cent to 34 per cent. Le Pen has sought to further detoxify her party and moderated her euroscpeticism by abandoning proposals to leave the euro or the EU.

Macron’s domestic economic reforms have been stalled by the gilets jaunes protests and now the pandemic, so his electoral hopes would benefit from demonstrating that he is able to steer the EU in a direction that he believes amplifies France’s power. However, to date, Merkel’s response to Macron’s grand visions for European reform could largely be described as lukewarm.

The jointly-financed €750 billion EU recovery fund, agreed in response to the pandemic, is potentially a major integrationist step, since it would allow mutually-issued debt for the first time. However, despite receiving support from a large majority of German MPs, ratification has been held up pending a decision from the German Constitutional Court, where its legality is being challenged. Any hopes that a pan-EU response to the pandemic would vindicate his ideas have been dashed by the poor vaccine rollout.

The next German Chancellor is likely to want to be seen to be helpful to Macron, in fear of what a Le Pen presidency would mean for the EU. Germany’s Greens are likely to find this easier as they are instinctively pro-EU integration and open to many of Macron’s ideas, but a coalition led by the CDU/CSU could retain much of Merkel’s reluctance to make the great leaps forward Macron has proposed.

Stephen Booth: The Integrated Review – a further step towards the wider world and away from the European Union

25 Mar

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

A “Global Britain” needs to ensure it is relevant in and to all three of the world’s major economic and geopolitical hubs – Europe, North America, and the Indo-Pacific. Brexit or no Brexit, it is clear that the economic and political weight of Europe is in relative decline and that global power is shifting, predominantly due to demographics and the rise of economies in Asia. 

Brexit has only emphasised the need for the UK to diversify its international relationships and that it must be prepared to do so across a wide spectrum of areas. It was significant, therefore, that last week’s Integrated Review (IR) emphasised such coherence across government, mirroring a world where the boundaries between prosperity and security, trade and development, and domestic and foreign policy are increasingly intertwined. 

The IR reflects several concepts and recommendations that have featured prominently in the think tank I work for, Policy Exchange’s, research. Arguably, the most significant is the “Indo-Pacific tilt”. Trade policy was not highlighted alongside security, defence, development and foreign policy in the official title of last week’s IR, but did feature in its conceptual development and it is a key strand of the document. It has emerged as a key component of the UK’s new strategic approach and is central to the “tilt”.

The UK intends to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and become a Dialogue Partner of ASEAN. The UK has already secured a deal with Japan. Bilateral trade negotiations with Australia and New Zealand would be expected to bear fruit this year, while talks with the United States could take longer. 

India is an increasingly important part of the UK’s Indo-Pacific economic strategy and the IR confirmed that a potential comprehensive trade deal is a long-term ambition. We may expect to hear more about the roadmap to a deeper UK-India economic relationship during the Prime Minister’s planned visit to the country next month.

Individual free trade agreements will provide important economic benefits, particularly for certain sectors of the economy, but their aggregate impact on UK GDP is likely to be limited in the short-term. Trade deals are best viewed as important elements of a long-term strategy of diversification away from – rather than immediate replacements for – the EU market and increasing the UK’s links to the economic and political developments of the world’s faster-growing markets. 

The key to taking advantage of these opportunities will be to marry the twin aims of outwardly projecting “Global Britain” and “Levelling Up” those regions of the UK that have most struggled to adapt to globalisation. The IR recognises that for Global Britain to be a success, more of the UK must become integrated and competitive in the global economy.

For example, the government is launching new UK Trade and Investment Hubs in Scotland, Wales, Northern Ireland, and the North of England. This is a complex and long-term challenge. British businesses, smaller ones in particular, will need to be supported and encouraged to make the most of new opportunities which will take time.

It is welcome, then, that the IR acknowledges that the UK’s new trade policy is not simply a commercial endeavour. It is, rightly, viewed as an important part of a geopolitical toolkit that should be deployed to reinforce the wider economic, political and security relationships, upon which a successful Global Britain will rely. 

It is noteworthy that the IR underlines the UK’s ambition to “move from defending the status quo within the post-Cold War international system to dynamically shaping the post-Covid order.” An important aspect of this means using “regulatory diplomacy” and working with like-minded partners to influence global rules.

This is particularly relevant in emerging technologies, as systemic competition intensifies, in particular with China. This is an often-underappreciated benefit of concluding trade agreements, particularly with platforms such as the CPTPP. It helps to embed and promote high-quality rules. 

The IR’s emphasis on the UK “as a global services, digital and data hub” highlights that the UK’s natural economic strengths often sat uneasily within the wider EU’s order of priorities, where the UK’s approach in these sectors has often differed from the other big players, France and Germany.

In my previous column, I noted that the UK is now able to put forward a distinct voice and approach that plays to its competitive advantage and confronts head-on the political reality that global power is shifting away from Europe, particularly in these innovative fields. France, Germany and the Netherlands have all adopted their own national strategies for the Indo-Pacific, prompting the EU to signal that it will set out a common vision in the “coming months”. The challenge for Brussels will be to produce something pragmatic that rises above the lowest common denominator.

Several commentators have remarked that the IR says relatively little about how the UK views its long-term relationship with the EU developing, both in terms of future cooperation and competition. This is perhaps unsurprising given the proximity of the publication of the IR to what has been a turbulent Brexit process.

In recent days, we have seen examples of both forces at work. The UK and the EU, along with the US and Canada, have co-ordinated new sanctions against China over its treatment of Uighur Muslims. However, the threat of an EU vaccine export ban, chiefly targeted at the UK, illustrates that any UK strategy for national resilience must now consider the prospect of an uncooperative EU.

The EU acting as a bloc can have the advantage of economic scale and collective weight but, due to internal tensions, it can lack coherence and focus, often particularly evident in its efforts to implement a collective foreign policy.

There follows a strong argument that the advantages of the EU were better suited to the relatively benign international order of the late twentieth century – an order underpinned by the US security guarantee – and its drawbacks less so to a world increasingly characterised by great power rivalry and systemic economic competition. Many within the EU have historically been reluctant to acknowledge that the transatlantic relationship, based as it is on NATO, is fundamentally asymmetric.

It is also worth recalling that during the Brexit negotiations, it was the EU that held out hope of a formal agreement with the UK on foreign and security policy. The UK ultimately decided it would not pursue such an agreement. The UK has made it clear in the IR that its commitment to European security is “unequivocal”, that it “will continue to be the leading European Ally within NATO”, and will “actively support” EU-NATO exercises.

However, in terms of direct engagement with Brussels, the IR highlights the opportunity for a “distinctive approach to foreign policy” outside the EU and the advantages of flexibility and coherence from acting independently. The UK has also committed to finding “new ways of working with” the EU on “shared challenges” and “where our interests coincide”.

There remains no sign that the UK is interested in any formal agreement with Brussels in this area. The implication is that the merits of cooperation will continue to be assessed on a case-by-case basis and therefore cannot be taken for granted, particularly if the economic relationship were to be further soured.

Stephen Booth: Opportunities for an agile, creative Britain from Brexit – as endorsed by former Remainers

11 Mar

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

The new UK-EU relationship reflects Boris Johnson’s government’s mandate for national independence. The UK secured an unprecedented zero-tariff and zero-quota deal, but “taking back control” inevitably meant some new costs on UK-EU trade. The EU made it clear that the only way to reduce these costs significantly was to accept the worst of both worlds: to cede vast swathes of regulatory control to Brussels, but without the representation in EU institutions enjoyed by a member state.

The new arrangements do place some limits on UK action. In particular, the terms of the Northern Ireland Protocol are proving to be onerous, and are the subject of a growing dispute between London and Brussels. Elsewhere, the UK-EU trade agreement’s level-playing field provisions stipulate that neither side will unfairly distort trade and investment by unfairly subsidising industry or lowering standards on employment and the environment. The UK does, however, have the capacity to amend existing rules in these areas as long as the effect is not trade distorting.

The question now facing the UK is what to do with its independence from the EU to best succeed over the long-term. This is not simply a narrow legal issue of what the UK could or couldn’t do as an EU member state. It is a much broader political question: the difference between tailoring policy to the UK’s specific set of interests rather than those of 27 members (and the European Parliament), whose interests can be either shared or disparate. 

A new Policy Exchange report – drawing from its research units on Law & Constitution, Trade & Economics, Immigration & Policing, Energy & Environment, Health & Social Care – examines a range of freedoms and choices open to the UK post-Brexit.

It is for seasoned analysts of Conservative Party politics to debate the wider significance of Sir David Lidington, the UK’s longest serving Minister for EU affairs and self-described “unrepentant Remainer”, contributing a foreword to the paper. In it, he notes that: “The UK has the potential to be world-leading in areas such as fintech, life sciences, artificial intelligence and genetic modification – and to move with more agility and creativity than the EU in the decade ahead.”

The UK’s vaccine rollout has already provided an illustration of first-mover advantage. While the UK could have opted out of the EU vaccine procurement scheme had it remained a member state, the UK’s decision to go it alone has provided an early example of the benefits of being able to move with greater speed and suppleness than a bloc. Indeed, the recent behaviour of some EU leaders has underlined their insecurity about the UK’s success in doing so.

Similarly, the UK could have theoretically liberalised its system for non-EU migration whilst an EU member. However, the political reality was that an almost unlimited supply of labour from Europe meant that policy towards the rest of the world became increasingly restrictive. In treating EU and non-EU migrants equally, the new points-based system can be geared towards attracting highly skilled workers and applicants for occupations where there are shortages. It also represents a liberalisation for workers from the rest of the world, which could help the UK to forge deeper international relationships beyond the EU, including with important potential markets such as India.

Meanwhile, there are several examples of financial regulations the UK would have approached differently independently of the EU. For instance, the EU’s Solvency II rules for insurance firms do not adequately reflect a UK market where insurers tend to play a bigger role in providing long-term savings, such as annuities, than in most other EU countries. The government is sensibly focussed on ensuring the UK continues to play to its strengths and remains a leading financial centre, commissioning reviews into the UK’s listings regime and fintech sector.

Services account for around 45 per cent of total UK exports, making it the most specialised exporter of services in the world – the corresponding EU average is only 26 per cent (in the US, it is around 33 per cent). An independent trade policy can prioritise the liberalisation of trade in services to a greater extent than the EU did on the UK’s behalf. For example, the recent UK trade deal with Japan improved on the existing EU agreement by incorporating the most comprehensive and cutting-edge digital provisions.

EU state aid rules no longer apply (with some exceptions in Northern Ireland) and a new UK subsidy regime could make it easier for the government to pursue several of its key policy objectives. These include boosting research and development spending in economically underperforming regions, incentivising development of green technologies, subsidising transport infrastructure, assisting small businesses or reforming public procurement. Greater freedom on subsidies comes with potential pitfalls, such as the temptation to support unsustainable companies. But successfully designing such a regime, which is less bureaucratic and more flexible, is a significant opportunity.

The UK also now has the freedom to set rates and narrow or widen the value added tax (VAT) base. The UK has already removed VAT on women’s sanitary products. There is an environmental case for zero VAT on electricity bills, but maintaining the rate on gas and other fuels, in order to help the transition to low-carbon forms of heating, as well as to electric vehicles.

There is some ambiguity in what EU rules allowed regarding the ban of petrol/diesel vehicles and local electricity pricing. It is clear that outside the EU, the UK could ban the sale of new petrol/diesel vehicles and it could adopt an electricity market design based on local electricity pricing, following the example of Texas, Singapore, New Zealand and others. 

In the healthcare sector, the UK can reconsider how EU employment law and the jurisprudence of the EU court has impacted on the training of junior surgeons and doctors working in acute specialisms, introducing an inflexibility in working patterns. The UK could amend the Working Time Regulations so that there is more flexibility for training – a change that the Royal College of Surgeons has called for.

Against these opportunities, it should be acknowledged that EU membership offered the advantage of operating at scale, which had its benefits. However, when your viewpoint is the outlier among the group, as Britain’s – under both Labour and Conservative governments – surely often was, the compromises required can become democratically unsustainable.

Personally, I was in favour of remaining and trying to reform the EU. However, it is increasingly difficult to disagree with the commentator Wolfgang Münchau’s description of the EU referendum and its aftermath as a debate, fundamentally, between: “Leavers who oppose European integration and Remainers who were in denial that integration was happening.” The passage of time is only likely to reinforce just how differently the vast majority of the UK public and the EU’s political elite view the destiny of the European project.

Ultimately, the Brexit question has been settled and it is time to focus on the future. The choices outlined above will be debated and contested in UK politics, as they should be. As Sir David notes in conclusion to his foreword to Policy Exchange’s new report: “Leavers and Remainers alike have an obligation to the country to haul themselves out of the trenches of the past five years and contribute to hard-headed, pragmatic debates about where our national interest lies.” 

The UK must now take advantage of the opportunity to do things differently and more nimbly. Just as importantly, Brexit offers clearer lines of democratic accountability and potentially, in time, a healthier public discourse about the EU. UK governments can no longer blame their failings on Brussels and Remainers can no longer pretend the EU is something it is not.

Stephen Booth: The challenges awaiting Lord Frost, who will take charge of Europe policy, and joins the Cabinet on Monday

25 Feb

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

David Frost will on Monday take his place in Cabinet, in charge of coordinating the UK’s new relationship with the EU as Minister of State in the Cabinet Office. The appointment – irrespective of the speculation about what it means in the context of the recent Downing Street shake-up – makes good sense.

The new Cabinet-level role – which highlights that the EU will continue to loom large in UK political life – usefully draws the different elements of the UK-EU relationship into one place in government. Frost will take the UK seat in the Partnership Council, which will supervise the operation of the UK-EU Trade and Cooperation Agreement (TCA), and in the UK-EU Joint Committee, previously chaired by Michael Gove, which oversees the implementation of the Withdrawal Agreement and Northern Ireland Protocol.

Frost was the chief negotiator of both the reworked Northern Ireland Protocol and the TCA, so knows the detail of the agreements and the strategic thinking driving the bargains that were reached. He is clearly trusted by the Prime Minister and is a known quantity in Brussels.

In addition to representing the UK in these two key EU-facing committees, the role includes “co-ordinating relations with the EU institutions and the 27 member states, working closely with the FCDO and other Departments”; “working on domestic reform and regulation to maximise on the opportunities of Brexit”; and “leading on central coordination and policy resolution on international trade policy, working closely with DIT”. These are wide-ranging duties that overlap with others’ turf but they reflect the breadth of the strategic landscape facing post-Brexit Britain.

Some may have hoped that the conclusion of the TCA will pave the way for an early rapprochement with the EU and a chance to rebuild closer ties. There may come a time for that, there might not.

However, the recent rows over vaccines and the Northern Ireland Protocol have demonstrated that simply implementing, rather than supplementing, the new relationship envisaged under the TCA will be a tricky task, due to the strained political atmosphere. As Frost recently told the House of Lords EU Committee: “the EU is still adjusting somewhat, as we thought it might, to the existence of a genuinely independent actor in its neighbourhood.”

And having fought so long and hard to gain sovereign independence from the EU, one would suspect that this government’s primary objective for European policy will be to stabilise and bed down the new relationship with Brussels, in order to allow it to focus on the domestic and non-EU strands of the UK’s post-Brexit future. Indeed, while Frost recently acknowledged that various technical challenges arising from the new relationship needed tackling, he added, “We like to think that there is not much more negotiating to do for the time being about new elements to come into this.”

Of the various issues with the TCA that have been raised by industry groups, some can be addressed by the government unilaterally – such as helping ports and businesses adjust to the introduction of UK import checks on EU goods. Resolving others inevitably requires solutions agreed with the EU, and recent evidence suggests these will not necessarily be easily forthcoming.

Some recent good news is that, on Friday, the European Commission granted preliminary approval for transfers of personal data between the EU and the UK. Once approved by member states, this “data adequacy” decision, would replace interim measures that are due to expire on 30 June 2021 and provide smooth and cost-effective data transfer mechanisms for businesses and law enforcement. The European Commission’s press release announcing the decision notes that “EU law has shaped the UK’s data protection regime for decades.” The decision will be reviewed in four years, when the EU will determine whether UK rules retain adequate data protection.

The same logic – that the current UK rules have been shaped by EU rules – should apply to the EU’s decision on whether to grant the UK “equivalence” status for most areas of financial services, which would allow greater access to EU markets. This status has been granted in various forms to Canada, the US, Australia, Hong Kong and Brazil. The UK and EU are currently holding talks on a “memorandum of understanding” but EU drafts, leaked last week, suggest this is unlikely to pave the way for equivalence and is more likely to result in informal mechanisms for dialogue between regulators.

Inevitably, this is a political process and the EU has insisted that the UK must outline its plans for future regulation of the City before it can consider granting equivalence. The Governor of the Bank of England, Andrew Bailey, recently complained that, “This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself.” Brussels appears to be equivocating in the hope that it can pressure as many firms as possible to relocate to the continent.

However, Lord Hill, the ex-European Commissioner for Financial Services, who is leading an independent review into the UK’s listing regime, notes that despite four years of Brexit turmoil and European efforts to attract business, nowhere in the EU has proven capable of seriously rivalling London. “That says our competition is American and Asia, so let’s see what they are doing,” he said. The EU’s approach illustrates that the UK needs to be prepared to cut the limited losses to EU markets and focus on the UK’s competitive position relative to the rest of the world. Frost may judge this applies to other fields as well.

The most difficult challenge to resolve is the ongoing argument about the Northern Ireland Protocol. The Government is simultaneously trying to find technical fixes with the EU and facing increasing calls from Northern Ireland’s Unionist parties to scrap the Protocol altogether – including a potential legal challenge under judicial review. Lord Trimble, who was awarded the Nobel Peace Prize for his role in the Good Friday/Belfast Agreement, has said that he would join the action if it ended up in court.

A UK-EU veterinary agreement could alleviate GB-NI trade friction when it comes to food and plants, where much of the worst practical disruption has been felt. But there are different models of veterinary agreements. Switzerland’s agreement with the EU requires regulatory alignment, whereas New Zealand’s is built on the concept of equivalence, where rules can differ so long as the outcomes are similar.

The UK is likely to resist anything which requires alignment and Unionists’ objections to the Protocol are not limited to this point. Meanwhile, Maros Sefcovic, vice president of the European Commission and EU representative in the Joint Committee, has said the UK must exhaust all flexibilities available within the Protocol before the EU will discuss further easements. Ultimately, the Prime Minister hasn’t ruled anything out, including overriding parts of the Protocol via Article 16. This debate may still have a way to go yet.

It has always been clear that Brexit is a process rather than an event. The UK left the transition period at the turn of the year. But the legacy of nearly fifty years of European integration means that the EU is still both “foreign” and “domestic” policy – in the short-term at least. The TCA offers the UK the freedom to diverge but charting a successful course outside the EU will unavoidably require some triangulation between the government’s domestic agenda, the non-EU trade relationships it is seeking to develop, and implementing the new relationship with Europe.

All of which underlines the need for a joined up and strategic approach, co-ordinated across government.

Stephen Booth: The main benefits of joining this Pacific trade partnership would be strategic

11 Feb

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

The end of the transition period means that the UK is now in full control of its trade policy for the first time in nearly 50 years. Understandably, since the referendum, the majority of the Government’s trade diplomacy has focused on securing legacy market access arrangements with the EU – to the extent possible – and beyond it.

The Department for International Trade has worked successfully to ensure that the UK retains preferential access to the non-EU markets previously covered by EU trade agreements. As of 1 January, the UK had signed agreements with the vast majority of these markets – over 60 countries. Mirroring the last-minute rush to secure a trade deal with the EU, the UK clinched deals with Norway, Iceland, Canada, Vietnam, Singapore, Mexico and Turkey all in the month of December 2020. All are important trading partners for the UK.

In the last week, the UK has added two more to the list, finalising agreements with Albania and Ghana. This leaves only Algeria, ­­Bosnia and Herzegovina, Montenegro and Serbia, where the UK has yet to replicate or improve upon the previous arrangements. Overall, virtually all trade previously covered by EU agreements continues to be subject to preferential terms.

The majority of these deals faithfully replicate the existing EU agreements. However, some of these UK-only deals have contained innovations. For example, the UK’s trade deal with Japan went substantially further than the EU deal in the area of digital trade and includes other additions such as seeking to simplify the procedures for licensing financial services firms.

Having secured the EU legacy agreements, the UK now faces the opportunities and challenges of the post-Brexit environment. This seems to be a particular moment of flux, with long-term demographic and technological trends affecting the global economy starting to bite. Equally, the pandemic has introduced a short-term shock that has brought long-term geopolitical and structural questions about national resilience to the fore. This has primarily centred on China with regard to the supply of sensitive products, such as personal protective equipment, and technology with a security dimension.

Meanwhile, Brexit is altering the UK’s economic and political relationships in its immediate neighbourhood. The recent rows with Brussels over vaccine export bans, the Northern Ireland Protocol and UK exports of live shellfish demonstrate that the UK cannot necessarily expect many favours from the EU in the short- to medium-term.

Therefore, it is important to take both a strategic and long-term view of UK trade relationships. Europe will always remain important to the UK by virtue of geography and shared core values, but long-term trends (reinforced by Brexit) mean that the UK must accelerate efforts to diversify its trade to the rest of the world and limit its exposure to UK-EU pinch points, such as the Dover-Calais trade route.

There is some evidence that this is already happening. Liverpool, the UK’s fifth-biggest container port, is reportedly gaining traffic from southern ports as logistics companies try to avoid congestion at the busier roll-on, roll-off Channel crossings.

Future trade deals will be important but they should be viewed as a means to an end rather than an end in of themselves. Trade agreements rarely result in overnight economic transformation. The UK has sensibly prioritised trade negotiations with like-minded countries: Australia, New Zealand and the United States. The recent development of the UK-India Enhanced Trade Partnership, illustrates the strategic priority the UK is placing on the Indo-Pacific region and in deepening ties to the world’s largest democracy.

The Australia and New Zealand negotiations are important stepping stones to the wider 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the UK has now formally requested to join. The CPTPP also includes Brunei, Canada Chile, Japan, Malaysia, Mexico, Peru, Singapore and Vietnam.

Sceptics say that the immediate economic benefits of CPTPP are likely to be marginal, since the UK expects to have individual bilateral trade agreements with all but Malaysia and Brunei by the time it accedes. There is some truth to this argument, but this overlooks the benefits to business from operating under one set of rules rather than various individual bilateral agreements.

Nevertheless, the primary benefit of CPTPP accession is likely to be strategic. As Policy Exchange’s Trading Tigers paper noted in 2018, it provides a platform and a coalition through which the UK can engage in an increasingly important region of the world, where the global rules on trade are being debated and shaped, particularly on digital trade and services. Japan, the biggest economy in the CPTPP, faces similar strategic challenges to the UK. It too is seeking to diversify and reduce dependence on its large neighbour, China.

We don’t yet know what approach Joe Biden will take to trade agreements, including with the UK, but there is a good chance that the US will re-engage with the CPTPP after stepping away from it in 2017 under Donald Trump. If the US were to re-join the CPTPP, it would be far better for the UK to be on the inside than in the queue to join.

It is worth noting that the impetus for the CPTPP, which came into force in December 2018, came from a 2005 trade agreement between a small group of countries comprising Brunei, Chile, New Zealand, and Singapore. It is a case-study in long-term strategic thinking by those countries.

The world’s economic centre of gravity is shifting decisively. McKinsey estimates that, by 2040, Asia is expected to account for 40 per cent of the world’s total consumption. Traditionally, the UK has struggled to gain market share in fast-growing emerging markets, relative to the likes of Germany and the United States. In large part, this is due to the UK’s specialism in services.

But, over the long-term, this is an opportunity for the UK to seize. The UK currently has the second largest share of total global services trade, after only the US. Services account for around 45 per cent of total UK exports, making it the most specialised exporter of services in the world – the corresponding EU average share, excluding the UK, is only 26 per cent (for the US it is 33 per cent). Though currently dwarfed by trade in goods, trade in services has grown more than 60 per cent faster than goods trade over the past decade – and Asia’s services trade is growing 1.7 times faster than in the rest of the world.

The UK was an EU member for nearly half a century. Truss recently noted that UK membership of the CPTPP is about putting in place strategies that would “deliver for Britain in 2030 and 2050”. This seems a sensible time horizon upon which to base, and ultimately judge, the UK’s new trade strategy.

Stephen Booth: Now our own Government may trigger Article 16 in Northern Ireland. Is the move a bluff? Or is it for real?

4 Feb

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

After the relief of reaching a deal with the EU at virtually the last minute, it would be fair to say that the new UK-EU relationship is off to a somewhat rocky start.

The immediate impact of the new relationship on UK-EU trade has been hard to gauge, in part due to the effects of earlier stockpiling and depressed volumes as a result of the pandemic. Nevertheless, predictions of long queues at cross-Channel ports have not been borne out and traffic has moved relatively freely.

Some disruption was to be expected, given that traders had little time to prepare for the details of the new relationship. Larger firms tend to have the systems in place to deal with the change, whereas smaller businesses, or those without experience of trading beyond the EU, face a bigger challenge. Some of the issues seen in recent weeks will be ironed out as traders adapt to the new requirements for checks and paperwork. However, there are also likely to be changes to some supply chains, with firms onshoring or offshoring operations, to accommodate the UK’s exit from the Single Market and Customs Union.

The surprise spanner in the works has been the ongoing political fallout from the differing performance of the UK and EU Covid-19 vaccine programmes, which has this week spilled over to the Northern Ireland Protocol.

It would be fair to say that the success of the UK’s vaccine programme appears to have rattled some senior figures in the EU, which is coming under increasing scrutiny from European media, given its rollout is also lagging behind the United States and Israel.

Emmanuel Macron’s accusation that the AstraZeneca vaccine is “quasi-ineffective” on over-65s – just hours before the EU’s drugs regulator approved it for use on all adults – has understandably angered UK ministers and officials. Meanwhile, Ursula von der Leyen has this week doubled down by effectively suggesting the UK compromised on vaccine safety.

Aside from aggravating the British, these comments are deeply unhelpful to the wider vaccination effort in the EU, where vaccine scepticism is a real issue. The latest YouGov tracker finds that only 46 per cent of French and 59 per cent of German respondents say they will take a Covid-19 vaccine. The figure for the UK is 81 per cent.

This has all been compounded by last weekend’s EU decision to impose export controls on vaccines (although the power doesn’t yet appear to have been used). This caused extreme controversy because the original regulation also contained a provision to invoke Article 16 of the Northern Ireland Protocol – a provision later described as a “mistake” and revoked within hours. Article 16 allows either the UK or the EU to unilaterally override the Protocol if its application leads to “serious economic, societal or environmental difficulties”.

Not only was the triggering of Article 16 unnecessary because, due to the UK having more doses than the EU, it is more likely that vaccines would move to the EU via Northern Ireland than to the UK. The EU has also ceded the moral high ground to Unionists that have long felt that the EU instrumentalised the Good Friday/Belfast Agreement (GFA) to achieve its primary objective of defending the integrity of the Single Market at all costs. The EU invoking Article 16 effectively imposed (however briefly) the North-South border that the EU has spent the last four years saying it is essential to avoid in order to respect the terms of the GFA.

It is worth remembering that the GFA neither mandated, nor in practice established, an all-island economy. The most recent statistics illustrate that, of the goods purchased from outside Northern Ireland, £10.4 billion were from GB and £2.4 billion from the Republic. The disparity for services is similar: £3 billion were purchased from Great Britai and £0.4 billion from Ireland.

Overall, this means that Northern Ireland purchases from Great Britain were worth 4.7 times more than Northern Ireland imports from Ireland and 1.7 times more than all imports from Ireland, the EU and the rest of the world combined. Great Britain-Northern Ireland trade is the activity that most impacts Northern Ireland society and its economy. As Matthew O’Toole, the SDLP MLA for South Belfast, notes, the economies in the North and the Republic are likely to diverge rather than converge in the many areas not covered by the Protocol, including all services.

Nevertheless, despite various easements negotiated between the UK and the EU late last year, there are growing concerns that the Protocol is causing real issues for East-West trade from Great Britain into Northern Ireland. In a troubling sign of increasing tensions, this week Mid and East Antrim Council withdrew staff from Brexit inspection duties at Larne Port over security concerns.

Meanwhile, there have been reports of disruption to fresh produce reaching supermarkets, Amazon has stopped sales of alcohol to Northern Ireland, and certain horticultural products, such as seed potatoes, soil and others, are now banned from crossing from GB to NI. The existing disruption could get worse as various grace periods on checks expire in the coming months.

The DUP, which has long been opposed to the Protocol in principle, has been under pressure to toughen its stance. It has this week launched a campaign to “free us from the Protocol”. The DUP want the UK to invoke Article 16 until these problems are resolved and argues that the EU’s recent actions have “lowered the threshold of how the mechanism can be used.” Arlene Foster also complained that some of the issues were due to UK officials “looking at the regulations and implementing it to the Nth degree.”

Michael Gove, who yesterday met with Maros Sefcovic in the Northern Ireland Protocol’s UK-EU Joint Committee, has said that the problems with the Protocol are not merely “teething problems” but “significant issues”. The UK hasn’t ruled out invoking Article 16 if problems cannot be addressed via negotiation with the EU. And given that Article 16 can be invoked as a result of a “diversion of trade”, it remains unclear how much disruption to Great Britain-Northern Ireland trade would be tolerated.

However, in the first instance, the UK has asked the EU for the current grace periods for checks on certain supermarket goods, pharmaceuticals, chilled meats and parcels crossing from Great Britain to Northern Ireland to be extended. The UK should also use this opportunity to explore with the EU longer-term fixes, such as permanent derogations for Great Britain-Northern Ireland trade allowing for agri-food products to be imported with fewer checks and restrictions.

Ultimately, the consent mechanism contained within the Protocol offers the Northern Ireland Assembly the right to terminate the arrangements after four years. This episode has highlighted that it is very much in the EU’s, and especially the Irish Republic’s interest, that the Protocol retains consent in Northern Ireland – and not just of a simple majority but broad cross-community consent. If not, the Protocol is inherently unstable.

It is encouraging that the Irish government has been quick to recognise there are genuine issues to address. While blaming Brexit as the root cause of the problems, Irish Foreign Minister Simon Coveney told the BBC that “there are elements of the Protocol that are causing problems and we need to focus on improving the Protocol where possible within the parameters of the agreement.” He noted that his aim was to “try to ensure that trade from GB into Northern Ireland, in particular, can be as smooth as possible.”

The EU’s missteps over the last week have provided the UK with an excellent opportunity to seek changes to the Protocol that might provide for a more durable settlement.