Wriggling Out of a No-Deal Brexit

The solution is simple. Both sides need agree to disagree on the few remaining issues. They need to give each other enough space so that both sides can fairly claim their fundamental principles were not sacrificed. This means a measure of flexibility and scope for periodic review and amendment as conditions change.

This weekend is crunch time for the UK and the EU to reach a trade deal in order to avert a No-Deal Brexit. Unless the negotiators can find a way to bridge the remaining gaps, effective 1 January all transitional arrangements between the UK and the EU expire and World Trade Organisation (WTO) terms apply to all trade between the EU and the UK.

Boris Johnson and EU Chief Executive Ursula von der Leven had a long dinner this week in Brussels and both apparently walked away empty handed. They talked about fundamental principle issues that must be upheld, even at the expense of the trade agreement both sides have been working toward for the past two years. And yet, ironically, they both pledged to have the negotiators work through this weekend to make at least one more attempt to resolve differences that both sides say are too far apart.

After their dinner they issued separate statements saying more or less the same thing. Diplomats would call that a bad omen. If the meeting had gone well they would more likely have issued a joint statement.

The other worrying sign is the absence of direct and frank diplomacy at the highest political levels. If compromise were in the offing, a high level political meeting would have paved the way forward.

So what is the way forward? I'll tell you. But first I'll give you fair warning. I don't profess to be an expert on the ins and outs of international trade deals. I'm a simple investment manager and corporate financial advisor.

My proposal is straight forward. The two sides should agree to disagree and sign a deal the leaves each side able to fairly claim they stuck to their basic principles and didn't cross the infamous red lines.

The UK is most concerned its national sovereignty. Politically, that's what BREXIT was all about. The Brexiteers wanted to regain control over immigration, worker migration and territorial waters. Further the UK didn't want to be beholden to regulations coming from Brussels, especially since going forward the UK won't even have a say in which EU laws are made and repealed.

The EU is concerned freedom of movement the integrity of the internal market. That is to say that all EU member states must abide by the same set of rules when it comes to socio-economic issues. No member state in the free market should be allowed to gain competitive advantage by altering the regulatory landscape or by providing subsidies to industry. It's well worth remember that that each member state sets its own tax rates and that the cost of labor and real estate varies enormously throughout the EU hardly it can be claimed that the playing field is a level as some in the EU would like to believe. Subsidies to the farming sector are a staple of EU policy with each member state determining its own subsidy policy. The EU also has a suite of mechanisms that enable each government to support its national industries during times of stress.

The reality is that within the EU the playing field is not nearly as level as policy makers would like us all to believe.

Let's be clear. For the past two years the UK and the EU have been negotiating this trade agreement and these issues have been points of discussion the whole way through. Both sides insist they want a trade agreement. Both sides also want what they call free and fair trade. The WTO rules are a fall back position at best and both sides say free trade is better than WTO rules, which are complex and call for tariffs.

For the past two years both sides have expressed their optimism that a deal would be made. They presented numerous points that had been agreed. Now we are coming down to the wire and both sides are saying the gaps are too big and a deal does not look likely. Both sides also say there are sacred fundamental principles at stake. And yet, they somehow think that maybe if they talk for another couple of days maybe they can find a deal.

The reality is that a No-deal Brexit would be disaster for the EU and the UK. Leaving aside the short term disruptions, the result would be less trade, economic slowdown and jobs lost in the EU and the UK. The only question is which jobs will be lost, which businesses will close, and how long, if ever will it be until those displaced find new economic activity. The timing couldn't be worse. We are in the middle of a global pandemic that has already cost jobs and forced people out of business.

It's time for the UK and the EU to agree to disagree.

On the subject of fishing rights, the UK waters should be open to EU vessels as was the case when Britain was a member state. The only change should be that for national security purposes Britain maintains its sovereign right to close it waters.

On the subject of level playing field, the EU should not insist that the UK mirror the economic regulatory initiatives. Once every 3 years the EU and the UK should have a review, industry by industry, to see if due to rules and regulations the playing field has become unbalanced. They should then hold discussions about what should be done. Solutions can range from one side making changes to imposition of tariffs or quotas.

As for state-aid and subsidies, the general principle should be maintained that neither the EU nor the UK will provide government assistance in a way that puts the other a competitive disadvantage. Having said this, the reality is that when a systemic crisis emerges governments in the EU and the UK have shown time and time again the willingness to prevent those too big to fail from failing. Governments have also been a lender of last resort to small businesses and have provided tax relief and investment incentives in many forms during times of economic hardship. Any trade deal must leave scope for governments to act freely according to the will and needs of their people.

On the subject of enforcement and monitoring, there has been a set of mechanisms and reporting in place for decades. This should not changes. Both sides should admit that coming up with a menu of implications and penalties would overly burden the trade agreement and create too many technical complexities.

Finally, no agreement should be set in stone, never open for adjustment or repair or amendment. The EU and the UK should agree a periodic review overall at regular intervals of 3 to 5 years with scope for negotiating adjustments.

Boris Johnson and the Tory government must understand that in this particular case it is incumbent on them to look at the needs of the nation as a whole rather than make decisions based on winner take all politics.

Likewise, the EU needs to understand that it cannot expect that the UK will blindly follow EU legislation that it no longer has a chance to influence. That doesn't however mean the EU cannot raise grievances and seek adjustments to the agreement periodically. The agreement should be made subject to periodic review. While this creates potential friction and instability, both sides would do well to remember that WTO is no picnic in this respect. WTO terms are a matter of continual multilateral review and negotiation.

The EU and the UK have maintained for the past two years that a deal was a better option than no deal. They say the deal is 98% done. They spent two years and millions of tax payer money working toward it. All the is needed is for both sides to give the other enough room to claim fairly that their political narrative and sovereign rights and ability to maintain common sets of rules were not sacrificed in the process.

In a nutshell the art of negotiating deals like this, where the stakes are high for both sides and a failure to agree will be damaging for all concerned, is to create just enough room to avoid a head on collision. That's what I call "Wriggle Room,"

Michael Sonenshine is CEO of Symfonie Group, which manages the Symfonie Angel Fund and the Symfonie Lending Fund and provides consulting services in marketing, corporate strategy and finance. www.symfoniegroup.com. Comments are appreciated by e-mail at [email protected].