Salzburg, Austria, the charming baroque city best known as the birthplace of Wolfgang Amadeus Mozart, was the setting in late September for one of the ugliest diplomatic encounters in the history of the European Union. At a session of the European Council, British Prime Minister Theresa May was humiliated by the leaders of the Union’s other 27 member states and two of its five Presidents. The topic of the meeting was Brexit, and May’s 104-page plan, adopted in July at her country residence Chequers, for defining relations between the European Union and the United Kingdom after the latter’s withdrawal from the Union early next year.
In the view of British officials, May was ambushed and betrayed. European Council President Donald Tusk had met privately with May on the eve of the meeting and had given no indication of the brusque rejection of her plan that would follow. In the plenary session, French President Emmanuel Macron was the most aggressive attacker, calling those members of May’s Conservative Party who had backed Brexit “liars” and ridiculing those who had suggested that Britain could “easily live without Europe.” After the meeting Tusk issued a statement characterizing the British stance as “uncompromising” and rejecting the Chequers Plan. Proving that Donald Trump is not the only world leader to conduct diplomacy by social media, Tusk posted to his Instagram account a picture of himself offering May a pastry, underneath which was the caption, “A piece of cake, perhaps? Sorry, no cherries.” The latter was a reference to alleged British “cherry-picking” of benefits of the EU single market and was widely perceived in Britain as a calculated insult.
As May returned to London, newspaper headlines blared “humiliation,” the pound fell, and politicians from all sides piled on. Some murmured of a second referendum to reverse the original Brexit decision of June 2016, with Macron and Labour Party leader Jeremy Corbyn especially active in stirring this pot. May recovered her dignity and bolstered her political fortunes somewhat with a forceful statement demanding that EU authorities treat the United Kingdom with respect, engage seriously, and work toward a compromise. All eyes are now on preparations for another session of the European Council scheduled for October 18, when, according to the timetable proposed by Tusk, an agreement could be reached and then finalized at another extraordinary summit in November. Time clearly is running out, however, and the odds are rising of a messy British exit from the Union on March 29, 2019—without the conclusion of a withdrawal agreement providing for an orderly disentanglement of the two sides’ affairs, and without an agreed framework for future UK-EU relations.
The United States, as would be wise for any outsider observing a bitter divorce, has been reserved regarding the Brexit negotiations. Prior to the 2016 referendum, President Barack Obama warned that the United Kingdom would go to the “back of the queue” when it came to negotiating a free trade agreement with the United States, and called for British voters to choose Remain—advice they clearly ignored. Trump did the opposite, welcoming the Brexit vote, appearing at a campaign rally in Mississippi with the leader of the Brexit movement and talking up the prospects of an early free trade agreement with the UK. The U.S. government has since muted its support for such an agreement. Following May’s meeting with Trump in New York the week after the Salzburg debacle, Downing Street issued a statement claiming that the two leaders “agreed that Brexit provides a wonderful opportunity to strike a big and ambitious UK-U.S. Free Trade Agreement.” The White House was more cautious, saying only that the two had “discussed a variety of global challenges.”
The United States has an enormous economic and political stake in the Brexit outcome. A chaotic British exit would dampen economic growth in the United Kingdom and the European Union, with blowback on U.S. exports and corporate profits. NATO solidarity would be undermined, undercutting U.S. efforts to encourage Europe to do more for its own defense. The Good Friday Agreement, which the Clinton Administration helped to broker and which finally brought peace to Northern Ireland, would be put at risk were Ulster and the Republic of Ireland to find themselves on opposite sides of a “hard border.”
Break-up of the United Kingdom itself remains a possibility. An agreement on the terms that the EU leadership is demanding risks dividing the country across the Irish Sea. On the other hand, the permanently estranged relations between the United Kingdom and the European Union that might follow a no-agreement Brexit risks rekindling movements for independence in Scotland, special autonomy arrangements for Wales, and even, as Mayor Sadiq Khan has demanded, for cosmopolitan, pro-Remain London. Break-up effectively would mean the end of Britain as a major power, the winding down of its (Scotland-based) nuclear deterrent, and the loss by the United States of its most important ally since 1941.
The long-term political and psychological effects of a failed Brexit are also difficult to predict. Timothy Garton Ash has warned about the emergence of a “rancid, angry Britain: a society riven by domestic division and economic difficulties, let down by its ruling classes, fetid with humiliation and resentment.” Some measure of the bitterness that already is creeping into UK-EU relations was on display at the recent annual Conservative Party conference in Birmingham, where Foreign Minister Jeremy Hunt compared the European Union to the Soviet Union, provoking outraged reactions from politicians on the continent. Lasting British estrangement from Europe inevitably would affect Transatlantic relations and feed back into the American political scene. As Walter Russell Mead has observed, even members of Trump’s base who are hostile to U.S. involvement in the affairs of Europe have instinctive feelings of solidarity toward the United Kingdom. Perceptions of a vindictive Brussels punishing Britain for asserting its independence would poison American attitudes toward the European Union, opening the way to a full-scale trade war and a weakening of the U.S. defense commitment to the continent.
So what is likely to happen and what can be done?
In her March 2018 Mansion House speech in which she laid out her vision for a future UK-EU relationship, May rejected as models both Norway and Canada, meaning Norway’s relationship to the European Union as a member of the European Economic Area, and the Canada-EU relationship established by the 2016 Comprehensive Economic and Trade Agreement. Norway has full access to the EU single market, in exchange for which it must accept EU law, accept the de facto jurisdiction of the European Court of Justice, accept the free movement of people, and contribute substantially to the EU budget. May rejected such an arrangement as incompatible with British sovereignty and the spirit of the 2016 referendum. Canada takes on no such obligations, but it has far less access to the single market. May rejected this model as well, which she saw as moving too far from the unlimited access to the EU market that Britain currently enjoys as a member state. Instead, she called for a new type of arrangement, “the broadest and deepest possible partnership—covering more sectors and cooperating more fully than any Free Trade Agreement anywhere in the world today.”
For EU leaders, May’s attempt to combine the access Norway enjoys with the more limited political and legal obligations associated with the Canada agreement constituted cherry-picking. In contrast, May’s critics in the Conservative Party saw her as veering much too far toward the Norwegian model in an effort to make her proposals palatable to Brussels. Brexit Minister David Davis and Foreign Minister Boris Johnson both resigned two days after announcement of the Chequers Plan.
EU complaints about cherry-picking have the ring of veracity, but they should still be taken with a grain of salt. Turkey has a customs union with the European Union, but no free movement of people. Norway has free movement of people, but no customs union. In its free trade agreement with South Korea, the European Union has mutual recognition of standards for cars, whereas in its agreement with Canada it does not. The reality is that the Union can accept a wide variety of trading arrangements when doing so serves its interests.
Since its founding in 1958, the European Union and its predecessor organization, the Common Market, have relentlessly cherry-picked the global trading system, setting up a Common Agricultural Policy that almost certainly was incompatible with the GATT and concluding preferential trade agreements with countries near and far that played a major role in undermining the Most Favored Nation (MFN) principle on which the postwar trading order was built. The result of these policies has been what Columbia University economist Jagdish Bhagwati called the “spaghetti bowl” phenomenon, as numerous overlapping free trade agreements cause trade-diverting effects. These policies cast a long shadow over the Brexit negotiations. As a RAND study has shown, fallback to global WTO rules is the most disadvantageous outcome from among no fewer than eight alternatives. In the curious world of 21st-century trade arrangements, MFN has become least favored treatment. The European Union knows how to bend rules—its own and others’—when it wants to.
All this aside, Tusk probably is correct in claiming that Chequers is unworkable. Elements of the plan are extremely complex, as, for example, the proposed Facilitated Customs Arrangement whereby the European Union and the United Kingdom would collect customs revenues for each other—depending on the final destination of imported goods—and settle accounts later, thereby obviating the need for a customs union or complicated rules of origin. Tusk and his colleagues no doubt also hope to wring further UK concessions in the endgame of the negotiations. The problem, however, with any further movement toward a Norwegian solution is that it lacks support in May’s Conservative Party, raising the prospect that any deal she concludes would be torpedoed by Conservative defections and by the opposition of the Labour Party, which as yet has no clear policy on Brexit but which sees political chaos and the fall of May’s government as politically advantageous. That in turn could open the way to elections and the left-wing Corbyn becoming Prime Minister—a frightening prospect that would set off just the kind of panic in the business community that the “Remainers” had initially predicted for Brexit.
The Chequers Plan preserves British access to the EU market, but it makes the United Kingdom permanently subject to EU rules. Britain would participate in the various committees and regulatory bodies that set such rules, but as a non-voting member. It would retain the right to conclude trade agreements with third countries but, as critics point out, its ability to do so would be hampered by its being tethered to the body of EU rules, including on agriculture. Quite apart from the problem of near-term opposition in Parliament, it is hard to see how a Chequers arrangement would be sustainable over the long term. If its provisions on “common rule books” and the like turn out to be a mere fig leaf for EU control over the UK economy, it would likely break down. It is one thing for Brussels to administer Norway as a non-voting vassal state, quite another to do so with a country of the size, economic dynamism, and national traditions of the United Kingdom. If, on the other hand, May’s proposals provided for real British input into EU decision-making, they would introduce yet another level of complexity into the EU system, the last thing the Union needs as it seeks to reform and revitalize its own structures.
The solution that May’s critics offer is a sharp break from Norway and a turn to what Johnson calls Super Canada, a free trade agreement that would unmoor the United Kingdom from the European Union but preserve market access through mutual recognition agreements and other more sovereignty-respecting means. Time to negotiate any such agreement is getting short, however, and EU leaders might claim such an approach would be cherry-picking on an even grander scale. Short-term loss of market access would be a problem for a British economy already experiencing slow growth, rising trade deficits, and the growing inequalities of income that gave rise to the Brexit result in the first place. Not least, the European Union retains the Irish border issue as a stick to beat the British government if it chooses to do so. Any move in Johnson’s direction would require the United Kingdom to show that a harder Brexit did not mean a hard border in Ireland. Against these formidable odds, most observers predict that May will stick with her plan and remain in power long enough to reach some kind of compromise with the Union. Whether that compromise will be approved by Parliament and how sustainable it would be over the long run are unclear.
What might the United States do? Washington is not in a great position to exercise influence. Brexit is to an extent embedded in America’s own domestic political strife. The American academic community has long been enamored of the European Union and its self-proclaimed role as a leader of global multilateralism, a wielder of “soft power” that advances bureaucratic solutions to all the world’s problems. The establishment media generally has followed this line, seeing Brexit as a blow to the vaunted “liberal international order” said to be under assault by Trump. Defense of the European Union thus has become part of the anti-Trump resistance, as a reversal of Brexit and a chastened return to Europe by the United Kingdom would be a defeat for the populist forces that Trump has embraced. For their part, Trump and many of his supporters continue to see the European Union as the cutting edge of the globalism they deplore and welcome the reassertion of national sovereignty reflected in opposition to the Union. There is no easily recognizable honest broker in all of this.
At the very least, Americans in and out of government should make it clear that they are watching, and that they expect the least destructive outcome, one that will require greater coherence on the part of the British and more generosity on the part of Brussels. Americans in both the policy and the business communities for the most part would regret a further fragmentation of the Union. But neither would they like to see a great Atlantic democracy driven into the ground by a vindictive Brussels bureaucracy that remains theologically committed to “more Europe” and astonishingly tone-deaf to the populist rumblings that gave rise to Brexit and that are in evidence in most EU countries.
The United States has held informal talks with the UK government about how to broaden and deepen bilateral ties post-Brexit. These could be stepped up and given higher visibility, provided they were not portrayed as directed against the European Union. The conclusion by the United States and Canada on September 30 of a compromise deal that preserves the essence of the North American Free Trade Agreement is a positive step. It will enable the United States to coordinate with Canada on a positive Brexit outcome and possibly establish the basis, over the longer-term, for EU-UK-North American trade arrangements that would alleviate many of the challenges posed by Brexit. The agreement now needs to be ratified by Congress.
Where Brussels shows itself to be petty and vindictive toward London, Washington should do what it can to compensate. If the United Kingdom is excluded from the European Union’s Galileo satellite system, for example, there may be opportunities for it to work more with the United States on GPS and other projects. If the United Kingdom is excluded from EU-sponsored academic and research programs, new opportunities might be opened for ties with American institutions. No doubt there are other compensating steps that could be taken.
For the most part, however, the United States is likely to be on the sidelines. It will have watch and wait, counsel moderation, hope for the best, and stand ready to help pick up the pieces should the UK-EU negotiations fail.