Brexit: No light ahead of the tunnel – RTE.ie

On 7 October last year, there was a defining phone call between Boris Johnson and Angel Merkel.

It had been a turbulent week. The EU had rejected Johnson's plan for a hi-tech customs border on the island of Ireland.A no-deal exit was just over three weeks away.Donald Tusk, President of the European Council, accused Johnson of engaging in a "stupid blame game".

But it was how a Downing Street source had characterised the phone call that sent the political temperature soaring.

The source had told journalists: "Merkel said that if Germany wanted to leave theEUthey could do it no problem, but the UK cannot leave without leaving Northern Ireland behind in a customs union and in full alignment forever."

Blood was boiling. The DUP leader Arlene Foster accused the EU and Dublin of wanting to "trap" Northern Ireland. Officials in Brussels and Berlin questioned whether the notoriously circumspect Merkel would have used such language. A Downing Street source suggested a deal was now "essentially impossible, not just now but ever".

However, senior sources close to developments that week say Merkels interventionwaspivotal. Ireland, the European Commission, and other member states had been insisting Johnsons plan - a blend of customs processing centres near the Irish border, streamlined by technology and derogations from EU law - was not acceptable. Now the German Chancellor was telling Johnson directly it would not work.

"It has a different type of weight when it comes from Merkel," says one key source. "It played a role, definitely."

The role it played was to force Johnson to abandon his Irish border plan. Three days later he met the Taoiseach Leo Varadkar at Thornton Manor near Liverpool. To considerable surprise, they emerged after 90 minutes proclaiming a "pathway" to an agreement.

Gone was any suggestion of checks or controls on the Irish border. Northern Ireland would remain in the UKs customs territory, but apply EU customs and regulatory formalities. Stormont would vote on the arrangements every four years, but there would be no unionist veto.

That was how the deal ended up. Officials had to hammer out the details in time for an EU summit on 17 October, with the agreement only getting over the line as EU leaders were arriving in Brussels.

However, very few changes were required of the existing Withdrawal Agreement, which the House of Commons had rejected on four occasions.

"It looks pretty much like the deal of last November [2018]." says one source. In the final deal the UK-wide customs union was removed, as was any reference to how the future relationship would make the backstop fall away.

Officials then inserted paragraphs to facilitate the Stormont consent clause, to create a rebate system for tariffs on goods coming from Great Britain, and to provide for EU state aid rules continuing to apply in Northern Ireland.

Why is this significant now?

It is instructive of what can happen when one negotiating partner is on the back foot and things are down to the wire.

Now we are confronting a deadline of 31 December to agree the EU-UK future relationship. The final frenetic days of the Withdrawal Agreement suggest it is difficult to start changing texts wholesale at the last minute.

"They learned from the last occasion that they shouldn't go down to the wire," says one senior EU source.

Another source close to the negotiations says: "The UK will be worried if they leave it too long, that time pressure will be mostly on their shoulders. It will be the same as the Withdrawal Agreement. The longer you leave it, the less time there will be to change texts. Then you just have to go off-the-shelf."

British sources dismiss any suggestion that London wants to avoid a repeat of last Octoberper se, pointing out that getting an agreement sooner rather than later is in everyones interest.

Either way, as the fourth negotiating round drew to a close last week it was clear both sides were far apart on the big issues, and even on smaller ones.

Just like in the closing stage of the divorce negotiations, a "tunnel" is now beckoning, an intense period of negotiations with no media briefings and no briefings either of member states or the British cabinet.

But when the tunnel will be is itself the subject of division.London has been pushing for July.

On Tuesday, Cabinet Office minister Penny Mordaunt told the House of Commons: "There is no point in us arriving at an agreement at the 11th hour. We have to arrive at agreement to enable it to be implemented, ratified but also for our citizens and businesses to prepare. That is what is dictating the timetable here and that is why we must have renewed focus."

However, on Wednesday, Michel Barnier told EU ambassadors July was out of the question.

"Barnier is firmly of the view that that sort of approach can't happen until theres some sign of movement on the key issues," says one EU diplomat. "You cant go into it in the current situation where theres really been no movement. It was firmly: no, were not going to do it in July."

Barnier did offer to change the format. "You would still have negotiating 'table rounds," says the diplomat. "But hes talking about smaller negotiating teams, meetings happening intercessionally, small technical working groups. Hes put all these ideas to the British and he wants to continue into the summer."

On Thursday, both sides duly reached agreement on a new format. "There will be talks each week of the five weeks between the week commencing 29 June and the week commencing 27 July," a UK spokesperson said.

But this does not mean a tunnel. Diplomats and EU officials say London has been lobbying hard in national capitals for a July tunnel and for member states to relax the negotiating mandate they have given Barnier.

"There is a very strong push to accelerate things in July, and that the autumn will be too late," says one diplomat. "[UK officials] have been saying this in [EU] capitals as well. There is an element that they dont want to be backed into a corner, to mix metaphors, at a cliff edge, when everything is last minute."

The rejection of a July tunnel is not a solo run by Barnier. German officials have made it clear that when Berlin takes over the rotating EU presidency on 1 July their first priority will be the seven-year EU budget, known as the MFF (Multiannual Financial Framework), and the coronavirus recovery plan.

"There is an entrenched view in the EU now that the MFF comes first and Brexit second. Nobody is willing to engage in a detailed discussion, or a review of the negotiating mandate, now. That's all being looked at in September/October," says the diplomat.

Critics will say the EU can run down the clock until the autumn in order to keep the pressure on London.

However, officials in Brussels point out that Michel Barnier must bring member states and the European Parliament along at every stage.

"The only way to be able to evolve and refine positions," says one EU official, "and to engage in concessions, is to have full trust between the member states, the Commission and the European Parliament. So an early tunnel is way too premature."

Member states are, if anything, more dogmatic about the process than Mr Barnier.

"The structure reflects the fact that we want to control what the commission does [in the negotiations]," says a diplomat from a large member state.

"Not because we dont trust them, but because thats how the EU works. The EU is, yes, a bureaucratic construction but its very much also a democratic construction. And the fact that we take time is because there are democratic controls at every level. It makes it slow but it gives us [the member states] a sense of ownership."

As for the substance of what is holding up the negotiations, the difficult areas are well known: the level playing field, fisheries, police and judicial cooperation and how disputes can be resolved by both sides in the future (known as the "governance" issue).

The rhetorical back and forth on the level playing field boils the issue down to the following: the EU wants to make sure Britain follows EU regulations so that a large industrial power on its doorstep does not undercut European firms.

The UK says this is an intolerable breach of its new-found sovereignty and that the EU does not ask the same of third countries with whom it has recently concluded free trade agreements (FTAs), namely Japan, Canada and South Korea.

The issues are more complex than that, of course.

The EU says the UK must abide by the commitments made by both sides in the Political Declaration, the non-binding blueprint for the future relationship which accompanied the Withdrawal Agreement.

It commits both sides to "robust commitments to ensure a level playing field" to ensure fair competition between both sides and to "prevent distortions of trade and unfair competitive advantages".

Both parties, the document says, "should uphold the common high standards" which will apply on the date the transition period ends in the areas of state aid, competition, social and employment standards, environment, climate change and taxation.

The UK argues that the Political Declaration is a "framework" for the final treaty, and that not everything in it needs to end up in the treaty. Officials repeatedly say the UK is committed to the "vision" of the Political Declaration.

When it comes to what the EU is pushing for precisely on the level playing field, the formal negotiating mandate granted to Michel Barnier by national capitals provides some room for manoeuvre.

It states: "The envisaged agreement should uphold common high standards, and corresponding high standards over time."

Officials say this is not a demand that on everything the UK has to follow EU rules. It talks of "common" and "corresponding" high standards, with EU standards merely as a "reference point".

Both sides would sign up to so-called non-regression clauses, committing the parties not to lower the standards that they share right up to the point of the transition ending on 1 January.

"We also see the possibility of deciding together to increase that high level," says one EU official. "So in 2023, the parties could agree together to put a new floor, for example, in their commitments to the environment and climate change."

The mandate is tougher on state aid rules, however. The EU is determined that a future UK government cannot rig the system by bailing out uncompetitive companies.

The EU negotiating mandate states the treaty should "ensure the application of [European] Union State aid rules to and in the United Kingdom" with the UK setting up an independent authority to make sure EU state aid rules are applied.

The UK sees this as asking Britain to harmonise its laws with the EU over time.

It would, chief negotiator David Frost wrote to his counterpart Michel Barnier: "require the UK simply to accept EU state aid rules; would enable the EU, and only the EU, to put tariffs on trade with the UK if we breached those rules; and would require us to accept an enforcement mechanism which gives a specific role to the European Court of Justice. You must see that this is simply not a provision any democratic country could sign".

Following the last round of negotiations, Michel Barnier hinted at a more flexible approach, talking about an "appropriate" way of dealing with state aid and the level playing field: "We need to work together," he told reporters, "in order to come up with the appropriate toolbox, the robust commitments. What we care about is how effective these mechanisms can be so they ensure long term, fair sustainable competition between the EU and UK. But we're not there yet."

EU officials have not spelt out what this "toolbox" involves. British officials say they are "keen" to hear more and believe that the EU has now accepted that the hostility to following state EU aid rules is a principled position and not a negotiating tactic.

As is so often the case in the tortured relationship between the EU and UK, both sides want fundamentally different things.

Member states believe that a mutual promise not to lower environmental, labour, social, taxation and climate change standards is one thing. Committing not to intervene in your economy is another. The UK, on the other hand, sees everything through a lens of sovereignty and insists that international standards on a host of issues, including state aid, that both sides sign up to will be sufficiently robust.

EU officials say that by its very nature competition and state aid law is constantly evolving, and, as the Covid-19 pandemic has graphically illustrated, subject to sudden changes in gear (the EU has largely suspended its state aid rules during the emergency).

"State aid has always been about coordinating and synchronising approaches," says one EU source. "Over time its got to be dynamic. It cant be static. You cant be using state aid rules from 15 years ago. Some of the economic actors might not exist, some of the sectors might not exist. So its got a logic and dynamic of its own."

EU officials say member states understand the sovereignty concerns of the UK over state aid.

"It's not that were dogmatic on dynamic alignment," says one official. "We want something that stands the test of time, that works for specific sectors and that at the same time preserves our strategic autonomy. Obviously its fair enough for the UK to want to keep its strategic autonomy. The question is, what kind of Venn diagram has sufficient overlap so that you can find a landing zone."

Where there appears less scope for compromise is on granting the UK access to the single market in areas where it has a built-in advantage.

During a speech this week, Michel Barnier claimed the UK had been able, during its membership of the EU, to establish a commanding presence in granting certifications to third country firms so they could access the single market. He asked: "Is it in the EUs interests in the UK to retain such a prominent position? Do we really want to consolidate the UKs position as a certification hub in the EU, knowing that it already controls 15-20% of the EUs certification market?"

Addressing EU ambassadors this week, Barnier also focused on a UK demand for what is called "diagonal cumulation".

In simple terms, this would allow the UK to source component parts from around the world from countries that have a free trade agreement with the EU and then to assemble those parts into products that would be sold into the EU as "British".

To British complaints that this is intransigence, the EUs chief negotiator perceives pure self-interest on the UK side.

"There are tens of thousands of jobs behind this," says one EU diplomat. "Its a threat to the EU and hes determined to resist this."

London argues that the EU already embraces diagonal cumulation in other FTAs and other international fora. Sources suggest such an arrangement would work for both sides when it comes to the manufacture of electric vehicles, since the batteries they use are often made in countries with which both sides will have FTAs.

"The UKs rules of origin proposals are appropriate and modern," says a UK official. "They are based on substantial dialogue with UK and EU industry on their needs, and would facilitate legitimate trade under the FTA without circumventing the payment of tariffs. Cumulation already features in many of the EUs FTAs, such as its agreement with Singapore."

Both teams have now left the pitch after a goalless, bad-tempered first half. Very few observers believe Mondays High Level Conference, bringing together Boris Johnson and the heads of the three main EU institutions, will yield any great breakthrough.

Will the second half be different?

Michel Barnier made it clear that the EU can shift if the UK comes back to the letter of the Political Declaration. "We can find the necessary compromises on the condition that the UK changes its approach and accepts a proper balance of rights, benefits, obligations and legally binding constraints based on the respect of the agreed Political Declaration of last October," he said in a speech in Brussels this week.

While Barniers offer of compromise is linked to a return by London to the commitments of the Political Declaration, it seems clear that such a shift will not come in July or August. With the EU grappling with the devastation of the coronavirus pandemic, no-one is in the mood to start opening up the single market willy-nilly to a competitor.

"On the level playing field," says one diplomat, "I dont see a desire among any of the member states to give the UK a free highway into the single market without commitments."

Furthermore, Londons dogged rejection of an extension to the transition period has left member states highly unsympathetic to any desperate pleas to speed things up.

However, the diplomat adds: "Nobody wants the UK not to thrive economically. This is not what were interested in. Its an important market for us. But it cannot thrive at our expense.

"There is significant distance on a few major issues, but I dont think we are too far apart on others. These are the logical consequences of proximity, the interconnection, and the fact that the UK does not want to burn bridges in the areas they are interested in."

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Brexit: No light ahead of the tunnel - RTE.ie