Many EU states need trade deal with UK

Michael Gove, Secretary of State for Environment, Food and Rural Affairs, speaks at a Policy Exchange conference titled The Union and Unionism - Past, Present and Future, in central London. PRESS ASSOCIATION Photo. Picture date: Monday May 21, 2018. See PA story POLITICS Union. Photo credit should read: John Stillwell/PA Wire
Michael Gove, Secretary of State for Environment, Food and Rural Affairs, speaks at a Policy Exchange conference titled The Union and Unionism - Past, Present and Future, in central London. PRESS ASSOCIATION Photo. Picture date: Monday May 21, 2018. See PA story POLITICS Union. Photo credit should read: John Stillwell/PA Wire

With most events in Brussels it is possible to guess the final outcome. This was the case for successive years of CAP reform, which always culminated in a big final package where everything was agreed at the eleventh hour. Ministers and the farm commissioner then appeared as dawn broke over Luxembourg or Brussels to celebrate to claim the deal had delivered what they wanted all along – even if there was a large degree of political spin in such comments.

With Brexit, however all bets are off – and as the process unfolds it is becoming more difficult to see when and in what form the final deal will emerge. That process was given a further twist when Theresa May published her compromise customs arrangement, which then triggered two of her senior minsters to leave the government. In reality the departure of Messrs Johnson and Davis was no surprise, the surprise being that it took so long for it to happen.

Time will tell how big a threat they will be from the back benches. They will be a lightning rod for eurosceptic Conservatives, but that will also show how much of a risk this group will take with their party’s future. Toppling Theresa May to get a more pro-Brexit prime minister would be a risky strategy. It could trigger a general election, with Conservative prospects of success potentially less certain than in the 2017 election that left Theresa May dependent on DUP support.

One interesting thing with the resignations is that two of the Brexit ‘big beasts’ chose, for now, not to resign. They are Liam Fox, as international trade minister, and the DEFRA Secretary, Michael Gove. Both are giving Brussels a chance to prove it is willing to compromise over the UK’s exit terms. Despite the rhetoric from the European Commission, many of the EU-27 member states need a deal that maintains UK trade, because of its importance to their respective economies. The new cabinet can call the bluff of Brussels. If they fail and a hard Brexit is the result they will at least be seen to have tried. If there is a change of leader, Messrs Gove and Fox will win credit for demonstrating loyalty to a party more at odds over Europe than ever.

If Gove remains at DEFRA it will give agriculture some welcome continuity in an increasingly uncertain political climate. The May compromise plan makes clear that the UK will be leaving the CAP. That is no surprise, but it specifically cites agriculture and food as areas where common standards with the EU will be maintained. That could be a sensible idea, but it is how standards are decided that could create difficulties. The worst possible outcome would be if the EU insisted UK farmers had to fully meet the rules of the CAP as the price of trade. It is easy to imagine a situation where angry French farmers, seeking to block imports, would use that argument. This could create a bizarre situation where farmers had to respect EU rules they thought they had escaped, while at the same time having to meet new UK rules that will transfer funding to the delivery of public goods.

The result could be more, rather than the less red tape hoped for when many farmers voted in the referendum to leave the EU. This however would be a case of the EU shooting itself in the foot. It is a net food exporter to the UK, and if it doggedly insists on us meeting CAP standards, the UK could then make the delivery of public goods its basis for common regulation. This is one of many areas where common sense could prevail, but for now there is not much evidence of that being applied in the Brexit negotiations.

There is a long list of ‘what if’ questions, beginning with whether the government will survive the internal party tensions now ripping it apart. Ultimately the UK may have to decide between a compromise customs arrangement and a no deal hard Brexit. This would shift trade in food with the EU-27 from a free trade basis to World Trade Organisation tariffs. This would make imports from EU member states more expensive. Theoretically this could raise prices for UK-produced food, but WTO tariff rules would also leave food from outside the EU cheaper. That is why, despite the political risks it brings, compromise remains the better option for farming.