Economy & Business
Great Britain or Little Britain?
What is the future for the United Kingdom following its messy divorce from the EU?
by Mike Jewell
Image by Tumisu from Pixabay
"The long bad dream of our EU membership is over. The British renaissance has begun."
Lord Frost, UK Brexit Minister
On the other side of the world a bizarre piece of theatre is taking place, the epic saga of Brexit and the fallout from the United Kingdom’s momentous departure from the European Union. Part Korean soap opera, part French farce, part Greek tragedy, but how will it ever end? As Zhou Enlai (周恩來) famously remarked when asked about the 1968 French student riots, "it’s too early to tell!"
One thing’s for sure, it’s far from easy going at the moment.
Brexit – some context and history
The EU originally came into being after WW II as the European Economic Community, A bloc of six nations – France, West Germany, Italy, Belgium, Luxemburg and the Netherlands – with the aim of promoting economic co-operation and trade between countries to stop them from going to war again. Today, the economies of the 27 member states are integrated around a single market allowing the free movement of goods, people, services and capital. 19 of the member states use a single currency, the euro.
The EU has its own institutions and passes laws affecting many issues across the union. It highlights the benefits of membership as securing peace, promoting freedom and prosperity as part of the single market, safeguarding food and environmental standards, consumer benefits, protecting human rights, and enhancing Europe's global power.
The UK was finally admitted to the EEC in 1973, 12 years after its initial application. At the time, public opinion in Britain was very much pro-Europe and a referendum in 1975 voted 2-to-1 in favour of being a part of the community.
However, the UK’s membership was a constant source of debate in political circles in London. After decades of increasing hostility to the European project, whose "freedom of movement" principle led to millions of EU citizens moving to the UK to work and settle, another referendum was held in 2016. This time, the result was a narrow majority for leaving, with the campaign message from the pro-leave campaign, led by now Prime Minister Boris Johnson, that the country wanted to "take back control" of its borders, money and laws resonating with voters.
The UK left the EU on 31 January 2020, under the terms of the Trade and Cooperation Agreement (TCA), struck after months of bitter wrangling. This came into force after an 11-month transition period on 1 January 2021, providing for tariff-free, quota-free access to each other's markets for goods – but not services – and also covers immigration, future competition, fishing rights, and cooperation on matters such as security.
The UK in and out of the EU – timeline
The UK’s attitude to the rest of Europe has been at best ambivalent for centuries. Adolf Hitler observed, "England had always felt itself to be an insular power. It is alien to Europe, or even hostile to Europe."
In a lighter vein, one of the most telling commentaries came in a much-loved British comedy series, ‘Yes Minister’, when fictional senior civil servant, Sir Humphrey Appleby, explained the situation to his minister this way:
"Minister, Britain has had the same foreign policy objective for at least the last 500 years. To create a disunited Europe!"
Tongue-in-cheek certainly, but perhaps containing a grain or two of truth, especially in the light of the comments made by senior British politicians over the entire span of the UK’s EU membership.
Even when a part of the group, the UK could never be described as totally committed to the pan-European ideal, regularly opting out of major initiatives, such as the single currency and the borderless travel scheme introduced under the Schengen Agreement and frequently complaining about unfair treatment and excessive interference by the European Commission. "I want my money back!" Margaret Thatcher famously railed as far back as 1979 and then again nine years later.
"We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level, with a European super-state exercising a new dominance from Brussels."
There has been a clear pattern of mistrust and discontent coming out from Westminster over a prolonged period. Prime Minister Tony Blair said this about the British perspective in 2001:
"The tragedy for British politics – for Britain – has been that politicians of both parties [the ruling Conservatives and the main opposition Labour] have consistently failed, not just in the 1950s but on up to the present day, to appreciate the emerging reality of European integration. And in doing so they have failed Britain’s interests."
The immediate aftermath of Brexit
So now the UK’s exit from the EU is complete but disentangling itself from almost 40 years of joint legislation and adapting society and the economy to the new realities of life on the outside is proving a real headache.
It’s intriguing to see how the British public feel about the whole shemozzle after the divorce was finalised. Even though they voted in the 2016 referendum to leave, and still today most people’s opinions have not changed, a YouGov poll in January this year found that only one quarter of Brits expected Brexit to be good for the economy, while 54% anticipated a negative impact. This shows just how far out of touch the Remain campaigners had been with their messaging. Arguments about the negative economic consequences of Brexit had little effect in parts of the UK where unemployment, deprivation and poverty were already high. The vagaries of customs unions or single market membership were barely relevant.
More recent events, on the other hand, have started to turn public opinion more negative. Rolling supply-chain issues have seen empty shelves in some supermarkets and widespread shortages at petrol stations and even though the Covid pandemic is more to blame, the fickle mood of the people is pointing the finger at Brexit.
On the business front, it’s also far from plain sailing. The bare trade statistics look fair, with a steady recovery in imports and exports to and from the EU, following a huge drop right after leaving the single market. In January this year the value of exports fell by 41% and imports by 29%.
The broader trend is less easy to identify, with trade flows badly impacted by the pandemic. However, the signs are negative rather than positive. Britain’s Office of National Statistics has nominated 2018 as the last "normal" year and trade flows between the UK and EU in July this year versus 2018 were significantly lower. Meanwhile, recent official German figures show imports from the UK dropping by 11% in the first half of this year.
"The UK’s loss of importance in [Germany’s] foreign trade is the logical consequence of Brexit. These are probably lasting effects," said Gabriel Felbermayr, the president of the Kiel-based Institute for the World Economy. Overall, the UK’s Office of Budget Responsibility forecasts that leaving the EU will shrink the UK economy by around 4%.
4% may seem small but the impact of Brexit is being keenly felt by individual businesses. Surveys published in the Financial Times (FT) showed almost a third of British companies that trade with the EU had suffered a decline or loss of business once the post-Brexit rules came into effect.
Several months after Brexit, companies complained they were still struggling to comply with new costly checks, customs controls and extra paperwork mandated by the Brexit agreement. The UK government has estimated that the new red tape will result in an extra 215 million customs declarations each year at an annual cost of about £7 billion (NT$266 billion).
Although many firms acknowledged that they were gradually getting used to the new "system", further problems are foreseen in 2022, when some of the temporary measures introduced to ease the transition are removed, including the introduction of import controls at British borders with the EU. As many as two-thirds of businesses said in an Institute of Directors (IoD) survey that new customs controls would have a negative effect on trade when implemented.
For many companies (17% according to the FT) the hassle of the new bureaucracy already introduced has been enough to convince them to give up on EU business, especially when increased costs are also factored in. Some firms report that the cost of shipping a single consignment to the EU has risen from about £300 (NT$11,400) to more than £1,300 (NT$49,400), while others complain that their costs to customers in the EU have jumped by 30-40%, leading to big drops in sales, as EU customers look elsewhere for more competitive deals.
Other business leaders said they were having problems recruiting staff, following the end to freedom of movement. The IoD noted that a quarter of UK companies have had difficulty hiring staff from the EU, often leading them to set up operations in the EU to serve the European market, but this has led to higher costs and the transfer of jobs from Britain to the EU.
The UK’s flourishing services sector makes up 80% of the UK economy and almost 50% of UK exports. It, too, is suffering in just the same way as manufacturing, with companies facing new and hugely increased volumes of paperwork and real difficulties with doing business in the EU. The UK government is trying to address the problems, but the changes that came in on 1 January are posing considerable problems for many firms.
The Northern Ireland Protocol
Anyone who thought the compromise cobbled together over this particular issue would be the end of it, must have been living on a different planet. During Brexit negotiations, all sides agreed that protecting the 1998 Northern Ireland peace deal was an absolute priority. That meant keeping the land border open and avoiding new infrastructure such as cameras and border posts.
The EU requires many goods to be inspected when they arrive from non-EU countries, while some products, such as chilled meats, aren't allowed to enter at all. Under the protocol it was agreed that Northern Ireland would continue to follow EU rules on product standards as though it was still a part of the EU, to eliminate the need for checks along the border. Checks would instead take place on goods entering Northern Ireland from England, Scotland or Wales. This has prompted criticism that a new border has effectively been created in the Irish Sea between mainland Britain and Northern Ireland.
Boris Johnson signed up to the agreement in 2019 and promised during that year's general election campaign that it would not create any checks on goods moving between Great Britain and Northern Ireland. Now the government says the protocol represented a huge compromise by the UK, and, given that checks are being made, it is hardly surprising that the government in London is whingeing.
The Brexit Minister, Lord Frost, has submitted proposals to change the protocol. They include getting rid of customs checks between Great Britain and Northern Ireland and relying on businesses to be honest about what they are doing (an honour system – are you kidding???).
The government also wants to remove the role the European Commission and the European Court of Justice (ECJ) have in overseeing how the protocol works.
The EU has said a renegotiation of the protocol is out of the question, insisting that "both sides are legally bound to fulfil their obligations under the Agreement", but it has set out proposals that it says would lead to an 80% reduction in checks on food products arriving in Northern Ireland, as well as halving the amount of paperwork involved. However, the role of the ECJ is not up for discussion.
So far there is little sign of agreement between Brussels and London and many commentators see an ulterior motive in the actions of Britain’s ruling party, fearing that the UK may be hoping to provoke an all-out trade war. Writing in The Guardian, long-term political journalist Polly Toynbee wrote:
"His [David Frost] mission from Boris Johnson is to stir up Brexit trouble, and keep stirring… Let Brexit never be done if it can keep alive the antagonisms that shot Johnson into No 10.
Johnson…may be hoping that EU trade wars against the despots of Brussels can distract voters from his pile-up of crises: shortages of HGV drivers and butchers, port blockages, NHS and social care at tipping point, music and arts crippled for lack of EU visas, soaring energy bills."
What is the UK’s future place in the world order?
"The United Kingdom will be a beacon of democratic sovereignty and one of the most influential countries in the world, tackling the issues that matter most to our citizens through our actions at home and overseas."
Prime Minister Boris Johnson’s vision for the UK in 2030
With its newfound freedom, the priority for the UK is to rebuild trade links around the world and government agencies have been very active in driving this process. Despite the problems encountered by businesses, the last-minute deal with the EU was critical, as the EU is Britain’s biggest trading partner. In addition, trade deals and agreements have been signed in principle with 69 countries, the majority of these being "rollover" deals, copying the terms of deals the UK already had when it was an EU member. At the time of Brexit, the EU had about 40 trade deals covering more than 70 countries, which the UK was automatically included in. Rollover deals have been negotiated with 63 of these countries.
Further agreements have been concluded with Japan, Australia and New Zealand, but the big prize is a bilateral deal with the US, which already represents 16% of Britain’s foreign trade. However, President Biden’s stance is much the same as that of his previous boss:
"It's fair to say that maybe some point down the line there might be a UK-US trade agreement, but it's not going to happen any time soon because our focus is in negotiating with a big bloc, the European Union, to get a trade agreement done... the UK is going to be in the back of the queue."
President Obama, April 2016
Taiwan is on the UK’s radar, too. Bilateral trade between Taiwan and the UK has been growing steadily and in 2020 totalled £6.1 billion (NT$232 billion), with Taiwan in particularly keen on having a formal bilateral trade agreement. The most recent round of trade talks last month "progressed market access ambitions in a range of sectors including energy and offshore wind power, financial services, pharmaceuticals, agriculture and whisky" according to the UK Government website.
On its own Taiwan represents less than 1% of the UK’s international trade, but, coupled with the Japan deal, it suggests Britain is focusing more intensely on East Asia. Another indication is the interest being expressed in becoming part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Japan’s attempt to build a regional trading bloc following the US withdrawal from its predecessor the Trans-Pacific Partnership (TPP). Interestingly, Prime Minister Shinzo Abe said the UK would be welcome "with open arms", despite the big geographic separation. That was two Japanese Prime Ministers ago, but if the current administration in Tokyo takes the idea forward, particularly hand-in-hand with Abe’s wish to align the CPTPP with Japan’s bilateral agreement with the EU, this would create a formidable trading (and geopolitical) force. The normal pace of negotiations, though, means that any such developments are years, if not decades away and China will surely have something to say on the matter, while the current exclusion of Taiwan and South Korea is also likely to complicate matters.
Apart from the trade imperative, the strategy of looking beyond Europe gives some insight into the vision London has for Britain post-Brexit. Under the title ‘Global Britain’, the country is seemingly taking Winston Churchill’s advice to "leave European integration to the continental Europeans" intending instead to turn the UK back into a global military and foreign policy power.
‘Global Britain’ looks back fondly 100 years and more to when Britannia ruled the waves, and the British Empire covered a quarter of the earth. If there was a problem somewhere in the world, the mantra was "send in the gunboats!" The UK was a great power. Fast forward to 2021 and the Ministry of Defence has just deployed a naval task force to the South China Sea, led by the UK’s brand new aircraft carrier. See the parallels?
The Integrated Review of Security, Defence, Development and Foreign Policy, published earlier this year, shows the UK wants to be at the very heart of the liberal democratic order in its intensifying struggle against authoritarian regimes such as China and Russia. It also aims to be a science and tech superpower and renowned for leadership in security, diplomacy and development, conflict resolution and poverty reduction.
2021 has given Boris Johnson the perfect platform for assuming this role. First, Britain hosted the G7 foreign ministers, also bringing in ministers from Australia, India, South Korea, South Africa and the presidency of ASEAN, perhaps paving the way for the new D10 group of democracies that Johnson has often talked about.
Then, there was the full G7 heads of state meeting, where PM Johnson positioned the UK as the convenor of democracies, tackling every conceivable challenge and using its diplomacy to set the agenda and generate most of the good ideas.
Now, we have Johnson pitching up in Scotland as the host and driving force behind the COP26 UN climate conference. This coincidence of the UK heading all these high profile events right after Brexit gives an image that British diplomacy has lost none of its momentum even though the country is now outside the EU framework, but it remains to be seen how much of the ‘brand equity’ will remain once Britain’s leadership turn ends, and the spotlight moves elsewhere.
The G7 meeting showed where Global Britain would like to be: the medium-sized power that punches above its weight and that everyone likes to work with. Trouble is Johnson has picked too many fights with other leaders to be trusted (viz. the recent AUKUS affair) and his decision to slash Britain’s international aid provision by £4 billion (NT$152 billion) annually has not endeared him to the world’s poorer nations.
The Integrated Review talks about an "Indo-Pacific tilt" in the UK’s focus as it attempts to distance itself from Europe and embrace a significant role on the world stage. On the plus side, Britain is still a formidable international presence – the world’s fifth largest economy (for now), one of five permanent members of the UN Security Council, a member of the G7, an influential participant in the Five Eyes international intelligence network and the operator of the world’s fourth largest diplomatic network. This special attention to East Asia and the Pacific region seems mostly related to seeking access to the region’s fast economic growth. However, many commentators point out that Britain’s influence on the economies in this part of the world can only be limited, given the dominance of the likes of China, Japan, and ASEAN.
Despite turning towards the eastern hemisphere, the reality is that Britain will find it nigh on impossible to divorce itself from Europe. For now, Europe represents over 50% of the UK’s foreign trade and it will be a long time before any major reorientation comes about. Furthermore, the fact is that Britain is part of Europe and a key partner in the NATO alliance, dedicated to protecting the security of Europe. Russia’s belligerence occupies minds in London much more than China’s sabre-rattling over us here in Taiwan and its ambitions in the South China Sea.
Viewed from afar, the rational perspective is that the UK remains very much part of the wider system of European integration and is a rather unlikely candidate for immersion in East Asian or Pacific affairs. Foreign policy experts are calling for a recognition from the UK government that, for all its historical influence, the nation is now one among several medium-sized powers in an arena dominated by larger ones.