The past week saw the publication of the first official trade figures by the Office for National Statistics (ONS) since the end of the Brexit transition period on January 1st, 2021. As could be expected, the figures show a steep decline in trade with the EU since January and further obstacles to trade are still to be introduced from the EU side next month. This has sparked a debate between the UK government and UK businesses over whether or not the slump is a permanent effect of Brexit or rather a transitory phenomenon, with the government insisting the slump was due to inevitable ‘teething problems.’

 The UK government’s defiant stance is not limited to its relationship with British businesses, but also increasingly marks its interactions with the EU. Different statements and actions by the UK government and David Frost – its minister responsible for EU relations – have led to tensions between the two sides escalating further. The EU is now preparing for a more conflictual approach to managing its relationship with the UK, which may be in the interest of the current UK government, but is likely to damage both the UK economy and the integrity of the United Kingdom in the short- and medium-term.

 Trade: Slump in trade with the EU, delays, and more red tape to come

 The ONS figures on trade show a 40.7% drop in exports of UK goods to the EU, while imports from the EU dropped 28.8%.  Trade with other countries does not show a similar decline over the same period, which indicates that much of the drop is indeed due to Brexit rather than the economic impact of the pandemic.

However, a controversy has erupted over the interpretation of these figures. The UK Government insisted that trade volumes went back to normal in February and that the January slump was largely due to companies’ stockpiling ahead of Brexit as well as some teething problems. Yet, certain sectors – Food producers and hauliers in particular – contest the governments’ figures and interpretation and urge the government to take business concerns over increased barriers to trade seriously. The FT quoted the Chief Executive of the Cold Chain Federation of perishable good producers as saying “I wish the government spent as much time listening to business concerns as they do searching for ways to spin the trade figures.”

 The food industry has already been particularly hard it by Brexit. Thus, seafood exporters for instance reporting a 83% drop in sales to Europe and producers of Stilton cheese have discovered that exporting to the EU is no longer economically viable. Some have started reorienting their business towards North America instead. However, more trade barriers on food-products are still to come. From April 21st the EU – following the agreed timetable – will introduce additional checks on shelf-stable products containing dairy and eggs. This is expected to lead to a very significant increase in paperwork including the need for vet-stamped export health certificates for such products. The consequences will include increasing costs for firms (up to £300,000 a year according to one estimate), and a shortage not just of veterinarians but also customs agents.

The UK governments has reacted by delaying additional sanitary and phytosanitary (SPS) checks on products imported from the EU, because the necessary border control posts will not be in place by the original July deadline. Other than that the government mainly reacted by promising support and appeal to the EU – in the words of a spokesperson for the Department for the Environment, Food and Rural Affairs (Defra) – ‘to act pragmatically.’ The Defra’s reaction is representative of other parts of the UK government’s approach to the UK businesses and the EU.

The UK Government’s Post-Brexit Strategy: Nationalism dominates economic and political interests

The differences between the Government and some UK businesses was illustrated this week by calls from business groups and exporters for Brexit Minister David Frost to abandon his abrasive style in dealing with the EU.  

Lord Frost’s first weeks in his new role as Berxit Minster were indeed marked by what EU diplomats and member states perceive as outright “provocations.” The PM’s unilateral decision to extend ‘grace periods’ for the introduction of additional customs checks on supermarket goods and parcels exported from Britain to Northern Ireland was followed by an article by Lord Frost in the Telegraph where Lord Frost accused the EU of ‘sulking’ and of ‘ill will’ towards the UK. Lord Frost’s confrontational style was further illustrated by EU Commission Vice President Maroš Šefčovič, complaining about Frost not using the ‘hotline’ that was established under Frost’s predecessor Michael Gove to facilitate communication between the UK government and EU commission.

The EU reacted to the extension to the ‘grace periods’ by initiating legal action, but has also started considered other retaliatory measures to prevent the UK government from reneging its commitments under the Trade and Partnership Agreement. According to news reports, EU diplomats chose undiplomatic language to voice their discontent with the UK government’s current approach. One diplomate is quoted as saying  “We can’t accept that we are being taken for granted or being taken for idiots.”

Reportedly, the EU is considering various retaliatory measures, including denying the UK membership of a European legal co-operation pact, further delaying market access for the City of London, and rejecting the UK’s request to join the Lugano Convention, which would ensure the UK’s civil and commercial court judgments are recognised abroad.

 While these possible retaliatory measures are currently only being discussed informally, they do illustrate just how fraught the relationships between the UK and the EU have become. Between the pressures from UK businesses, the EU, and the pro-Brexit Tory constituency that brought Boris Johnson to power, the government resolutely chooses the path that keeps the latter happy – whatever the impact on its relationship with two former.

 The Johnson government’s abrasive relationships with business is in keeping with the attitude its most senior representatives have adopt for some time. During his time as Foreign Secretary in the May government, the now PM made it clear that business interests were secondary; famously replying ‘F**k business’ to a question about business interests under his favoured hard Brexit strategy.

 UK businesses themselves, however, remain divided over Brexit and over the best approach for the UK government to take. Unsurprisingly, depending on how reliant different businesses are on the Single Market, or how vulnerable to competition from the EU in the home market, businesses seem to be more or less supportive of a hard line towards Brussels. Recent academic research found that the fragmentation and division of the UK business elite over its stance towards Brexit is a key reason why Brexit happened in the first place.

 The UK government’s seemingly unheeding approach towards its relationships with the EU is not necessarily irrational though. One businessman is on record saying “Adopting a ‘madman’ negotiating strategy might be great politics, but it’s terrible for food supply chains."  A senior Tory goes as far as suggesting that Lord Frosts appointment was a deliberate attempt by the PM to have “a row with the EU.” It is indeed hard to avoid the conclusion that many of the Government’s actions towards the EU – such as denying full diplomatic status to the EU’s mission in the UK – were motivated by anything else than an attempt to provoke a strong reaction. Keeping emotions running high allows the UK government to continue the strategy that brought it to power in the first place and that crucially hinged on portraying the EU as a “bully” and the source of the UK’s problems. Thus, sabotaging the emerging relationship with the EU post-Brexit constitutes a way of maintaining popular support for the government without having to find a new source of legitimation now that Brexit has happened.

So far, the strategy seems to work. Together with a successful Covid19 vaccination campaign, stirring nationalistic resentments against the EU may help the government regaining some of the popularity lost due to the initially botched Covid19-response. According to YouGov ratings of the PM’s performance have gone up from 34% in October to 41% in February 2021 with the number of people answering that he is doing badly as PM declining from 59% to 52%. The strategy also receives strong support from within the party: Tory grandees like Ian Duncan Smith blame the EU for ‘bullying’ Britain and support Lord Frost’s tough stance.

 The ultimate consequences of this political strategy may be dire for two reasons, however.

 For one, the UK government’s repeated violation of international agreements that it signed only a few months earlier – as happened before with the Internal Market Bill and now again with the unilateral extension of the ‘grace periods’ – undermines its credibility as a reliable partner respectful of the rule of law. Beyond the moral issues involved, this may ultimately have very concrete consequences of the UK-EU relationship post-Brexit. While the post-Brexit relationship with the EU will always be subject to re-negotiation and regular updating of agreements, the current TCA was signed for five years, which provides citizens and business on both sides with some planning certainty. Yet, the UK government’s continuous disregard for various provisions contained in the TCA, means that Brexit is more likely to become a situation of constant political negotiations and legal action, rather than a more stable and certain state where the relationship is settled and governed by international treaties for a number of years.

 For the other, and more immediately, if the UK persists with the extension of ‘grace periods’ for goods shipped from Britain to Norther Ireland, the EU might find itself very soon manoeuvred into a corner where it faces the choice between imposing border checks on the border between Northern Ireland and the Republic – and thus jeopardising the achievements of the peace process –, or refraining from imposing such checks and thus undermining the integrity of its Single Market regarding product standards. The latter move would arguably constitute a major overstepping of the EU’s own ‘red lines’ and an existential threat to its Single Market. Conversely, jeopardising the peace process in Northern Ireland is something the EU wanted to avoid at all cost – not least because of US pressure to save the Good Friday Agreement. Given that legal action over the breach of the TCA will take between one and two years, we are headed towards a first ‘moment of truth’ where the EU is pushed by the UK government into making a very difficult choice.

 This situation may be the result of a conscious strategy the UK government. The PM visited Northern Ireland this week in an attempt to mend the strained relationships with the unionists. The Democratic Unionist Party (DUP) First Minister Arlene Foster increasingly insists that the Northern Ireland Protocol (NIP) needs to be abandoned to protect the integrity of the UK. In this context, forcing the EU into making a choice between the integrity of its Single Market and abandoning the key stipulation of the NIP that there cannot be a physical border on the Island of Ireland, may be an attempt  by the UK government to force the EU into renegotiating the NIP.

 Whatever happens to the extension of the grace periods, it is likely that the relationship between the EU and the UK will worsen in the coming months. As long as the nationalist fringe of the Tory party remains in control, it is also likely that political interests will continue to dominate economic ones – unless of course the economic pain resulting from the hard Brexit strategy becomes too acute.