They Lost the Brexit War But U.K. Remainers Are Still Fighting

Alex Morales and Olivia Konotey-Ahulu

(Bloomberg) --

When the U.K.’s Brexit chief accused the European Union of threatening democracy with its outrageous demands, his target audience was his opponents in trade talks in Brussels. But the alarm bells from David Frost’s stinging attack this week will reverberate among businesses back in Britain, too.

After leaving the EU on Jan. 31, the U.K. government is about to embark on 10 months of talks over future trading arrangements with the bloc. Pro-EU campaigners and business leaders fear a violent rupture of the kind Frost and his boss, Prime Minister Boris Johnson, are contemplating could spell disaster. And while they lost the war to stop Brexit, the remnants of the “Remain” campaign are not giving up the fight to stay close to the EU’s single market.

“It’s a bit like guerrilla warfare,” Alistair Carmichael, whose Liberal Democrats fought December’s election on a platform to cancel Brexit, said in an interview as he contemplated how his party can influence the government in its arguments ahead with the EU. “You have to pick your battles.”

Johnson says he wants a free trade agreement similar to Canada’s with the EU, and to use negotiations due to last until December to determine the level of cooperation on everything from fisheries to security and data protection.

The Brexit package Johnson’s government crafts will have an impact on the economy for decades to come -- affecting the ease of trade in goods and services with Britain’s closest neighbors worth about 650 billion pounds ($850 billion) a year, and also commerce with global powers including the U.S. and China. And those who didn’t want the U.K. to quit the block still have skin in the game.

Holding Firm

This week, Johnson’s administration doubled down on its negotiating position: it wants to be able to diverge from EU rules on competition policy, subsidies, social protection and the environment from next year. That clashes with the EU position of wanting close regulatory alignment.

“We must have the ability to set laws that suit us,” Frost said in a speech in Brussels on Monday. He warned that the EU position threatened to undermine democracy itself. “It isn’t a simple negotiating position which might move under pressure -- it is the point of the whole project.”

Johnson earlier this month set out his stall for a Canada-style deal with the EU his administration admits will lead to increased friction for goods at the border. But given the EU’s insistence on regulatory alignment -- which is not a feature of Canada’s deal -- the premier also says he’s prepared to fall back on Australia-style arrangements, which include tariffs and quotas, if he can’t secure what he wants.

The tension makes businesses which trade with the continent edgy.

“You will see businesses affected significantly by additional costs at borders,” British Chambers of Commerce Director-General Adam Marshall said in an interview. “Inevitably when you have any form of change, in terms of trade flows and trade arrangements, some will be able to respond well, and others will find it more difficult.”

Business Risk

Businesses are pushing for an EU trading relationship that keeps commerce as free of hurdles as possible. Johnson’s Canada-style deal involves extra paperwork, even if tariffs are eliminated on almost 99% of goods. Both that outcome and the premier’s fall-back plan for a far looser agreement with the EU would strain existing commercial ties.

“Regulatory alignment is crucial,” said James Greenham, managing director of EMS Physio Ltd., a 96-year-old medical appliances manufacturer. He warned that the effect of Brexit could be perverse: If new U.K. regulations differ vastly from EU ones, he will still manufacture to EU standards because they’re internationally-recognized and help him export globally. And if British rules are too expensive to comply with, “we may have to consider not selling into the U.K. market,” he said.

It isn’t just businesses that are waiting for the new relationship to take shape. The terms Johnson and his team negotiate also will have an impact on U.K. academia. British universities and other institutions are historically among the biggest beneficiaries of EU research funding, but that’s set to end on Dec. 31, when an 11-month post-Brexit implementation period comes to an end. Johnson has said he won’t extend it.

A case in point is the Joint European Torus project at Culham, near Oxford in central England, which aims to develop nuclear fusion technology. If it’s successful, it could revolutionize the energy industry, producing carbon-free power with less toxic waste than nuclear fission currently produces. But 88% of the project’s funding comes from the EU, and that’s set to expire in December.

‘Not Particularly Helpful’

Ian Chapman, who as chief executive of the U.K. Atomic Energy Authority oversees the JET project, said the timing of Brexit -- just as another round of European funding is renewed -- is “not particularly helpful.” While he expects the government to find a solution, “there’s some risk” to funding, he said.

To gain EU funding for projects such as JET from 2021, the U.K. must renegotiate its place in Horizon Europe, the EU’s science program, by the end of the year. Mike Galsworthy, co-founder of Scientists for EU, said ensuring the U.K. continues to participate is his post-Brexit priority.

“If you’re not prepared to put in the money and if you’re not prepared to respect the rules, then it’s hard to get participation in that,” Galsworthy said in a phone interview.

When Britain escapes the EU’s single market rules, including the free movement of people, Johnson will introduce a new Australian-style immigration point system that prioritizes talented individuals -- with details to be announced on Wednesday.

“Our new immigration system will turn off the tap of cheap, foreign low-skilled labor,” Home Secretary Priti Patel wrote in the Sun on Sunday newspaper.

That’s raised the concern of industries as diverse as agriculture and hospitality, which rely on lower-skilled workers from the EU to fill roles that Britons typically won’t do.

Why Immigration Down Under Appeals to U.K.’s Johnson: QuickTake

Former Immigration Minister Caroline Nokes, a self-described “Remainiac” who served Johnson’s predecessor, Theresa May, said she’s concerned the prime minister is rushing to implement a new system at the end of the year, rather than phasing it in over time as businesses want.

‘Incredibly Challenging’

“It is going to be incredibly challenging at pace to introduce and implement a system that is going to work across a whole raft of sectors of the economy,” Nokes said in an interview. “You have to have a points-based system that’s going to work as effectively for the banking industry as for the care industry.”

In Parliament, the main opposition Labour Party is immersed in an internal leadership contest until April. But all three of the candidates -- Keir Starmer, Rebecca Long-Bailey and Lisa Nandy -- have in the past indicated they want U.K. standards on the environment and workers’ rights to keep pace with the EU’s. Starmer -- the favorite -- has said he wants EU workers to continue to be able to move freely to the U.K., with those already here being given the right to vote.

Some exhausted campaigners have decided to walk away from the battlefield. “I’ve been at this for the last four years,” said James McGrory, one of the founders of People’s Vote, the most visible pro-European group. “I’m a bit tired.”

For others, it’s only a matter of time before the battle kicks off again.

“Pretty much everyone under the age of 45 voted to remain in the European Union,” said Mike Buckley, a director for Labour for a Public Vote, another pro-EU lobby group. “We will rejoin the EU at some point.”

--With assistance from Thomas Penny and Joe Mayes.

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net;Olivia Konotey-Ahulu in London at okonoteyahul@bloomberg.net

To contact the editors responsible for this story: Tim Ross at tross54@bloomberg.net, Stuart Biggs

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.