Saturday, 9 September 2017

Juncker's Wallonia bypass could save Brexit

Next week the Commission is expected to outline a plan in which governments will no longer have veto power over most EU trade deals. It could be a game-changer for the Brexit negotiations.

One year ago, as Canadian Prime Minister Justin Trudeau prepared to board a plane tp Brussels to sign a landmark free trade deal with the European Union, he had a bone to pick with some fellow Francophones 4km to the south of the EU capital.

The deal was done and all 28 EU national governments had agreed to it. But the tiny region of Wallonia, the French-speaking, politically far-left Southern part of Belgium, was threatening to wield a veto. A region of 3.5 million people was about to unilaterally kill the trade deal agreed by the other 509 million. 

The premier of Wallonia asked Trudeau to cancel the visit, saying it would be a "provocation" to do so while Wallonia had not yet given its assent. The Canadian PM cancelled his flight, but he was not pleased. "If, in a week or two, we see that Europe is unable to sign a progressive trade agreement with a country like Canada, well then with whom will Europe do business in the years to come?" he asked.

"In this post-Brexit situation where there are a great many questions about Europe's usefulness, if Europe cannot manage to sign this agreement, then that sends a very clear message not just to Europe, but to the whole world, that Europe is choosing a path that is not productive for its citizens or the world. And that would be a shame."

It was a low blow, targeting the most acute sensitives of Europe at the time. And it rattled European leaders. Something in the system wasn't working. It would be as if the city of San Francisco was able to unilaterally veto a trade deal between the United States and Japan.

Though EU member states give the European Commission exclusive competence to negotiate free trade deals on behalf of the entire EU, those agreements must then be ratified by the 28 national governments. However, because of a quirk in Belgium's constitution, all three of its federal regions must agree before the national government can sign off (it is the only EU country in which this is the case).

Lessons for Brexit

In the end, Wallonia relented. The deal was salvaged, and Trudeau finally made his long-awaited visit to Brussels to sign what will be the largest free trade deal in human history.

But the experience rattled leaders in the EU, seeing a system in which one tiny region could hold the rest of the bloc to ransom (Wallonia only relented after being given some domestic concessions that had nothing to do with the treaty - welcome to Belgian politics). 

It also rattled London, and with good reason. The British are hoping to work out a post-Brexit trade deal with the EU that would give it access to the single market without being in the bloc. But the Wallonia veto experience highlighted just how difficult it would be to get such a deal approved.

As I wrote last year, the tortured debate in the UK over whether to have a "soft" or "hard" Brexit was and is a false choice, and the Wallonia experience showed why.
While a "hard" Brexit favored by Prime Minister Theresa May would be a clean break from the EU with no privileged access to the EU market, a "soft" Brexit would see the UK maintain its access in exchange for concessions (which, the EU insists, would have to include freedom of movement - the right of EU citizens to live and work in the UK).

Any soft Brexit deal that is seen to be giving privileged access to the British would be extremely unpopular with EU citizens across the bloc. Why should the Brits, reviled on the continent these days, get special rights? Even if such an arrangement could be approved by the European Parliament, it would still need the assent of 27 national parliaments - and three Belgian regions. 

Someone, somewhere, would object. Maybe it would be Wallonia. Or maybe tiny Malta, as a final act of revenge against its former colonial overlord. Or maybe Spain, as a threat to wrest Gibraltar from the British. Or maybe France, keen to finally rid the EU of British influence.

Two-track free trade

But this roadblock may imminently be cleared. According to Commission sources, in his annual State of the European Union speech in Strasbourg on Wednesday President Jean-Claude Juncker is set to announce a change to the way free trade deals are ratified in the EU.

A recent decision by the European Court of Justice made a distinction between those areas of free trade deals that must have national approval, and those that do not. Juncker's idea is to split free trade deals into two tracks right from the beginning, based on this ECJ distinction.

Track One, which is expected to be the larger one, could be negotiated and approved only with the approval of the European Parliament. Track Two, the smaller but more controversial one that touches on issues of national sovereignty, would need approval by the 27 national parliaments and three Belgian regions. 

Even if one country or region decided to veto, the rest of the free trade deal could still go through. Thus, a post-Brexit free trade deal - considered by many to be necessary for the UK's economic survival - could be salvaged even if a national parliament objected.

Is this the motivation behind Juncker's move? It's hard to tell. It's an open question whether this change would be in place by the time the post-Brexit free trade deal would need to be approved. Specifics on the timing would be outlined by the Commission on Wednesday.

One might think that the Commission is not looking for ways to make Brexit easier at the moment. But the fact is that in the face of a refusal to accept reality by May's government, it is left to the EU to worry about a cliff's edge in March 2019. Falling off that cliff could cause a sudden collapse in the British economy and take the EU down with it. 

The Commission does not want to be in a situation where, even if an agreement can be reached against the odds after a year of painful negotiations, that agreement can be scuppered by a tiny parliament in Namur, Belgium. 

Brexit is very likely providing part of the motivation for this change. But it is also meant as a signal to other countries like Japan and the United States that the Canada debacle will not be repeated. Trudeau's words went straight to the bone in EU capitals. They hurt. The EU wants to send the message that it is open for business and has the systems in place to sign new free trade deals speedily - regardless of what happens with Brexit.

Even with this new system in place, Brexit is going to be an uphill struggle. It now looks nearly impossible that the original timetable to start discussing the post-Brexit free trade deal in October can be kept. I have posited that the talks will not have started by next year, prompting a panic that will lead to the UK joining the EEA - the fastest and easiest way to maintain single market access. But even this will need approval by national governments.

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