◼ POLITICS Bloomberg Businessweek December 23, 201941“They’llhave
tobeplayinga
kindofdouble
game—what
cantheyagree
withtheEU
andwhatdoes
thatdotolimit
theirroom
formaneuver
onother
agreements”PHOTO
ILLUSTRATION
BY
JOHNSON:
HOLLIE
ADAMS/BLOOMBERG.
*FORECASTSINCLUDEIMPACTONPRODUCTIVITY.DATA:UKINACHANGINGEUROPE●Forecast10-year
percentage-point
changein U.K.income
percapitaforeach
Brexitscenario*May’s deal
Johnson’s dealWTO terms-4.9-6.4- 8 .1
before. How he uses his power will determine the
kind of Brexit—and future—Britain gets.
Brexit would end 46 years of close economic
integration with the European Union, so that’s
not exactly normal. But like Brexit itself, nor-
mal can mean different things to different peo-
ple. For some, it means simply not discussing the
B-word at all—preferably ever again. For others,
it may mean a return to a time when wages were
growing, shopping centers were buzzing, and the
country was admired around the world instead of
pitied or ridiculed.
“The backdrop to this election was a feeling of
gloom and pessimism,” says Deborah Mattinson,
co-founder of strategy consultant Britain Thinks,
which ran the focus groups. Normalcy is about a
sense of calm and purpose. “It’s more of a mood
state than to do with any economic specifics.” That,
at least, gives Johnson some room to work with.
In the most basic sense, delivering Brexit through
Parliament is now straightforward. Johnson is
expected to get his terms for the divorce—known
as the Withdrawal Agreement—through in short
order, which means the U.K. will leave the EU offi-
cially by Jan. 31 and enter into a transition period.
The hard part, however, is what comes next in
the relationship with the EU. “The whole focus
in the election was on the next months and get-
ting the Withdrawal Agreement through. That’s
not a problem anymore,” says Jill Rutter, a senior
research fellow at a think tank called UK in a
Changing Europe. “It’s much less clear where he
wants to end up long term.”
Rutter lists a range of trade-related questions
that will have to be sequenced and discussed, all
with an eye to other agreements Johnson wants
to do, particularly with the U.S. “They’ll have to
be playing a kind of double game—what can they
agree with the EU and what does that do to limit
their room for maneuver on other agreements,” she
says. “Most of these other countries will reckon that
the U.K. is not worth spending this time and effort
on until it sorts out its relationship with the EU.”
Johnson’s room to maneuver is limited, that
is, if he intends to honor some of the checks he
wrote along the way to victory. To appease the
hard Brexiters in his own party and win over sup-
porters of Nigel Farage’s Brexit Party, Johnson
pledged to conclude a trade deal by the end of
2020 rather than take advantage of a provision that
allows him to extend the negotiating period by up
to two years. Most trade agreements take years to
put together; but even assuming both sides law-
yer up and sit down in short order, serious nego-
tiations are unlikely to begin before March. Thatleaves very little time to work out the future of a
trading relationship worth more than £648 billion
($856 billion).
Johnson also vowed to give the U.K. maximum
freedom to pursue its own rules and regulations
post-Brexit, resisting the EU’s demands for a
so-called level playing field, which include align-
ing on areas like environmental regulations and
state aid. The Union fears that a low-tax, regula-
tion-lite Britain will rise—Singapore-like—from the
ashes of Brexit to suck talent and investment away.
The easy part of a trade deal, relatively speak-
ing,isgoodstrade.TheEUwouldlikelybepre-
paredtoremovetariffsandquotasongoodswith
somecommitments on level-playing-field provi-
sionsfromtheU.K.AndJohnsonmaybewilling
tomakesomeconcessionsinthenameofa quick
deal.Butzero-tarifftradedoesn’tmeanzero-hassle
trade. Customs and regulatory checks impose a
new layer of costs. Rules-of-origin requirements—
limits on what portion of a good entering from
another country must have been made in that
country to qualify for zero tariffs (or whatever has
been agreed)—could be devastating for a number
of British industries, including the auto sector,
which contributes £18.6 billion to the economy
and supports 168,000 workers.
Raoul Ruparel, May’s former special adviser in
Europe, notes in a recent paper for the Institute
for Government that the data for levels of “local
content” isn’t even available for many goods. In
the existing manufacturing supply chains between
the U.K. and the EU, goods can cross borders mul-
tiple times before they’re complete without any
rules-of-origin documentation. How will negotia-
tors even know what to ask for in different sectors
without that information?
Then there’s services trade, which is generally
excluded from trade deals, or barely covered. The
U.K. has a trade deficit with the EU in goods, but
a £28 billion surplus in services, which accounted
for 41% of exports to the Union in 2018. The U.K.’s
coveted financial-services sector, which makes
upjustoverhalfofBritishservicesexportstothe
EU,supportsmorethana millionjobs.Thenon-
binding political declaration that forms the basis
of the future trade negotiations makes only a brief
mention of financial services. It’s unlikely the EU,
which is eager to build up its own financial cen-
ters, will concede much on the issue.
Johnson has signaled his determination to stick to
a quick exit, even rewriting part of the Withdrawal
Agreement Bill to “legally prohibit” a delay beyond
the end of next year. That will limit the scope of
any agreement and means much of the time will