Why Theresa May Can’t Figure Out Brexit

For months, the British government has been trying to square a seemingly impossible circle, and more instability seems inevitable.

Expert comment Published 16 July 2018 Updated 7 December 2018 3 minute READ

Thomas Raines

Former Director, Europe Programme

Theresa May speaks to her cabinet at Chequers on 6 July. Photo: Getty Images.

Theresa May speaks to her cabinet at Chequers on 6 July. Photo: Getty Images.

During his visit to the UK, President Donald Trump seemed to take sides on Brexit, telling the Sun Thursday that UK Prime Minister Theresa May ‘is striking a much different deal than the one the people voted on’. While harshly critical of May, it raises the key question: What should Brexit look like?

Last Monday, Boris Johnson, Brexit’s most high-profile champion, followed the Brexit secretary David Davis in quitting the government, believing its proposed new approach does not deliver on the promises made to the country by the Leave campaign, which he helped lead.

In his resignation letter, Johnson mourns that the ‘Brexit dream is dying’. His diagnosis of the cause is ‘needless self-doubt’. He believes the UK is headed for a semi-Brexit, with the UK locked into the EU system even after its departure. But rather than a lack of confidence, Brexit is floundering on the rocks of its own contradictions, and the very real trade-offs and compromises it necessitates.

For months, the government has been trying to square a seemingly impossible circle, in which Britain formally leaves the EU’s single market and customs union, avoids a border between the Republic of Ireland and Northern Ireland, and ensures there is a deal for the whole of the UK (i.e. making sure that there is no separate deal for Northern Ireland). May remains steadfastly committed to leaving the single market, and to avoiding a hard border. Yet leaving the single market would necessitate the need for checks on the Irish border, or specific arrangements for Northern Ireland, which she (and the Northern Irish Democratic Unionist Party, which props up her minority government) have already excluded. These positions appear mutually incompatible.

The Irish border has in many ways become the Achilles’ heel of the Brexit process. At present, there is no border infrastructure between Northern Ireland and the Republic. EU membership and 20 years of peace have obviated the need for any physical infrastructure on the border. Both sides worry that a hardening of that frontier could undo two decades of political and economic progress, and so are committed to avoiding this outcome. But this severely limits the scope for the UK to diverge from the EU.

Johnson’s resignation came three days after the cabinet agreed on a new UK position on the future UK-EU relationship, which tries to find a way to solve this riddle. The government’s proposal is to remain in the EU’s market for goods but not for services. Leaving the services market does not create the same border problems, and the government believes, rather ambitiously, that there is scope to liberalize service trade with other economies outside of the EU.

Alongside this, it proposes a convoluted customs arrangement under which the UK will collect tariffs on the EU’s behalf for all goods that enter the UK but are bound for the EU, but apply a (potentially lower) UK tariff for goods intended just for the UK. Again, this complicated process is in part designed to avoid a border in Ireland, while maintaining some freedom of manoeuvre in trade policy. Critics – coming from both sides – view this as accepting the rules while losing influence over them, while also questioning whether the customs plan is workable in practice.

There are two important things to know about this proposal. The first is that it is the product of a negotiation within the Conservative Party, rather than a negotiation with the EU. May has sought to sketch a form of Brexit which reflects the Leavers’ desire for restored sovereignty and trading independence, with the concerns of Remainers (and business) that the economic dislocation of withdrawal is minimized, all the while preserving the status quo on the island of Ireland. Johnson and Davis’s views could not be accommodated. Many of the more hardline Brexiteers are angry, but for now May appears to have the support of the majority of her MPs.

The second is that it is very unlikely that this approach, in its current form, will pass muster in Brussels. The EU has its own red lines in this negotiation. Its key principle is that the integrity of the EU’s single market – and the four freedoms (goods, capital, services and labour) that underpin it – is not undermined. It will interpret the ambition for a single market in goods only to be a form of cherry picking, a selective attempt to retain the benefits of membership without full obligations. EU leaders see the market in more holistic and legal terms, believing its indivisibility is a necessary part of the political balance of the union. Unpick one part, give Britain a special deal, and the whole thing could unravel.

On a more practical level, the European Commission questions whether goods and services can really be separated in the way the UK hopes. And while there might be some advantages to the EU of a single market in goods (the EU has a goods surplus with Britain, but a services deficit, and supply chains are integrated across the continent), this does not overcome the political priority of preserving the market. More broadly, EU leaders see a union facing multiple political challenges and divides. In such conditions, preserving unity, and the EU system’s integrity, is paramount.

Where does Brexit go from here? The current government compromise is likely to be diluted further in negotiations in Brussels. The question of how a common rulebook will be governed when the UK wants to leave the EU’s legal jurisdiction is not fully answered. The politically sensitive issue of UK–EU immigration is likely to create further divisions.

The EU may try to nudge the UK toward an arrangement comparable to Norway’s, in which it remains fully in the single market, but with an enhanced customs arrangement, which sceptics would view as Brexit in name only. Even with some softening on the UK side, it is possible, even likely, that by 29 March 2019, the scheduled departure date, the UK and the EU will still only have agreed on the outlines of this future relationship, with the detail to be determined in the transition period afterwards.

Meanwhile, the Brexiteers will need to decide if it is more important for the UK to leave in the way they would like, or to leave full stop. Do they accept a less ‘pure’ version of their dream or back a compromise to ensure Britain actually leaves? Michael Gove, another prominent Brexiteer who has remained in the cabinet, is reported to take the longer view: get out by March and the relationship can be shaped and evolve in the future. Others take a more hardline stance, accusing the government of betrayal. They are a minority though, and it is not clear if they are willing or able to topple May and unleashing further political chaos.

Such instability seems inevitable at some point in the autumn. There is a crunch EU summit in October. The UK and the EU have yet to agree on the form of the so-called ‘backstop’ arrangement, an insurance policy against a hard border in Ireland if other customs systems don’t work. The UK has agreed to a backstop, but views the EU’s proposals on this as a risk to the constitutional integrity of the union. And any deal will also need to pass through the UK and European parliaments. With a minority government and a sizeable portion of her party opposed, May might seek support from some in the opposition to avoid a calamitous no-deal scenario. In short, Britain’s era of political instability will not end soon.

This article was originally published in Fortune.