Britain’s road to becoming the EU’s Canada

The UK government’s red lines rule out other post-Brexit trading options

Martin Wolf

So where, when the dust has settled, will the UK end up? It will become Canada. It will have a trade relationship with the EU similar to Canada’s. It will relate to the EU in a way not dissimilar to Canada’s relationship with the US. It will remain a middle-of-the-road democracy, like Canada, and not become, as David Davis, secretary of state for Brexit puts it, a “Mad Max” dystopia leading a regulatory race to the bottom. Finally, like Canada, it can seek a modestly positive global influence.

Martin Wolf grid chart

Michel Barnier, the EU’s chief negotiator, has explained why the UK’s future trading relationship with the EU will be similar to that in the EU-Canada Comprehensive Economic and Trade Agreement, or Ceta. This agreement allows both sides to enter into separate deals with other partners. It also puts Canada outside the EU’s customs union and single market.

Thus Ceta provides limited benefits to providers of services.

As Mr Barnier notes, the UK’s “red lines” — no jurisdiction by the European Court of Justice, no free movement, no substantial ongoing financial contribution, and regulatory and trade policy autonomy — preclude membership of the European Economic Area. These red lines also rule out an agreement similar to that with Switzerland. The UK’s opposition to ECJ jurisdiction and the demand for regulatory autonomy precludes an association agreement like Ukraine’s. The demand for an independent trade policy preclude even a customs union agreement, such as the one with Turkey. When everything impossible is ruled out, what is left is an agreement like that with Canada.

Mr Barnier is likely to be proved right. One reason for believing so is that he usually is. Another is that the red lines are deeply embedded in the UK. Malcolm Rifkind, a former Conservative foreign secretary, is correct to say that the UK is unlikely to accept an obligation to follow EU regulations without a voice in them. If it were prepared to do so, it would make more sense for it to withdraw its application to leave the EU.

The Ceta model would impose real economic costs. In particular, UK suppliers of goods to the EU would have to meet rules on local content, while British suppliers of services would lose existing favourable access. But to avoid these outcomes, the UK would need to change its red lines or persuade the EU to change its position on essential matters.

On the former, the UK might abandon its desire for trade policy autonomy in order to join a customs union agreement. It might accept free movement and so have an agreement similar to Switzerland’s. It might even accept a substantial role for the ECJ. But none of this currently looks at all likely.

On services, the government hopes for a process of “managed divergence”, in which new UK regulations are recognised by the EU as equivalent in aim, if not in detail, to the EU’s own. The EU is likely to reject this: it smacks too much of the UK’s having its cake and eating it; it would set a dangerous precedent; it would be complex to agree and monitor such divergence; and it would demand trust in the UK’s good intentions — a trust that its own debate makes hard to sustain. Too many laud the opportunity to eliminate burdensome EU regulation, without being precise on what needs to go.

Some in the UK believe the country’s financial services industry brings such great blessings to the EU that the latter should go out of its way to keep it inside the single market. That was easier to argue before the financial crisis. Moreover, access to UK-based wholesale markets would remain, even if UK-based suppliers lost “passporting” privileges.

The most likely journey, then, via a temporary standstill of up to two years, is to a Canada-style deal. True, that might leave the problem of the Irish border unresolved. It would also impose substantial costs.

The recently leaked UK government analysis concludes that, under such a deal, UK gross domestic product might be 5 percentage points lower than it would otherwise be, after 15 years — a loss of about a fifth of the potential increase in output by that time. In this respect, of course, the UK’s position is very different from Canada’s: Ceta benefits Canada; such a post-Brexit deal would harm the UK. But that is the result of the decision to leave.

Once outside, the UK would, like Canada, have greater freedom over its regulatory regime. But it is a safe bet that a bonfire of UK regulatory, tax and public spending commitments is not going to occur. In the UK, as in Canada, little support exists for such radical policies.

Again, like Canada, the UK will want to strike new trade deals. It will seek to join existing free trade agreements and create new ones. The difficulty here is that the important deals (with the US, China or India) will be tough and the easy deals (with, say, Australia or Canada) will be unimportant. Furthermore, the iron law of trade applies: other things being equal, trade halves as distance doubles. That explains why the UK is as important a trading partner to the EU as the US, and the EU, in turn, is the UK’s dominant partner. New deals cannot offset what it will lose. Moreover, contrary to views advanced by the Legatum Institute in London, the UK will not be the new leader in global liberalisation. It is not big enough for that.

The UK will still need a fruitful relationship with the EU. It is also more powerful, relative to the EU, than Canada relative to the US, partly because it has a bigger economy than Canada’s (almost twice as large) and partly because the EU is not a federal state with huge armed forces. But the UK will often find its neighbour frustrating and overbearing. The price of being an outsider will be palpable and permanent. But big choices have big consequences.

The Clear and Present Danger of Trump

His weekend Twitter outburst calls into question his ability to discharge his powers.

By William A. Galston

President Donald Trump and Russian President Vladimir Putin during the Asia-Pacific Economic Cooperation leaders' summit in the central Vietnamese city of Danang, Nov. 11, 2017. Photo: jorge silva/Agence France-Presse/Getty Images 

In business, it is said, the customer is always right. Politics is more complicated, because citizens are called upon to be more than consumers.

“The people commonly intend the public good,” Alexander Hamilton wrote in Federalist 71, “but their good sense would despise the adulator who should pretend that they always reason right about the means of promoting it.” 
In November 2016, 46% of the American people made a mistake, elevating to the highest office in the land a man incapable of discharging its duties. Now our country and our friends around the world are wrestling with the consequences.

President Trump’s out-of-control weekend Twitter storm has raised these concerns to new heights. Our European allies no longer know what to believe. “Is it deeds? Is it words? Is it tweets?” asked Germany’s foreign minister at the annual Munich Security Conference. While senior administration officials offered reaffirmations of traditional American positions, our allies did not know whether they were speaking for the president and if so, for how long.

We know what is required of every American citizen. It is enshrined in the oath that every naturalized citizen must take—to “defend the Constitution and laws of the United States against all enemies, foreign and domestic.”

Surely no less is required of the president. But when his own national security adviser stated that “the evidence is now incontrovertible” that Russia worked to undermine our most basic constitutional processes during the past election, Mr. Trump slapped him down with a tendentious tweet. He has repeatedly chosen to take the word of Vladimir Putin, the autocratic ruler of Russia and a former KGB agent, over the judgment of the entire U.S. intelligence community. 
Mr. Putin’s Russia, which is waging war in Eastern Europe and propping up Bashar Assad in Syria, has become an enemy of the U.S. Can any fair-minded person say that the president is doing what he should to defend our Constitution and laws against this threat?

He isn’t, and the reason why should be clear to all: President Trump regards any affirmation of Russian electoral influence as an attack on the legitimacy of his 2016 victory. He cannot distinguish between the national interest and his own insecurities, making it impossible for him to acknowledge the nature of the Russian threat.

That Mr. Trump thinks this way poses a clear and present danger. The question is what to do about it.

Article II of the Constitution gives the president broad powers in foreign affairs. Law, custom and congressional dereliction of duty have expanded these powers further. But no president can act alone, which is why those who serve him have power as well.

It is time for the secretary of defense, the secretary of state, and the national security adviser to confront Mr. Trump, collectively and directly, to inform him that unless he publicly affirms the reality of the Russian threat and authorizes the strongest possible response to it, they will have no honorable alternative to resignation. They swore an oath of loyalty to the Constitution, not to Mr. Trump.

There is a starker alternative, which no one should contemplate lightly. Section 4 of the 25th Amendment gives the Vice President, supported by a majority of the cabinet, the authority to declare that the president is “unable to discharge the powers and duties of his office.” If the president contests this determination, as Mr. Trump surely would, Congress is empowered to settle the matter.

Taking this step would create a political crisis. But if the alternative is leaving our country undefended against an attack on the foundation of political legitimacy—free and fair elections—invoking the 25th Amendment would be the lesser evil.

The drafters of the amendment contemplated the president’s physical incapacitation, as when a stroke felled Woodrow Wilson. With Mr. Trump, we face the incapacitation of character—an inability to master his passions sufficiently to distinguish between the country’s well-being and his fathomless self-regard.  
Our Founders did their best to devise institutions that would defend us against the frailties of our nature. But they understood that these institutions formed an imperfect bulwark. When the people go badly astray, ordinary checks and balances may not suffice to protect them against themselves.

The Americans who supported Mr. Trump in 2016 had genuine grievances that both parties had neglected for far too long.

But he is a deeply, dangerously flawed instrument of their purposes. In choosing him, they made a mistake that threatens America and the world.

It is no violation of democracy to say that the people are not always right. To claim that they are is to cross the line from democracy to flattery, and to surrender the liberty of independent judgment on which democracy ultimately depends.

The Dangers of Militarization

Javier Solana

MUNICH – Multipolarity is back, and with it strategic rivalry among the great powers. The re-emergence of China and the return of Russia to the forefront of global politics are two of the most salient international dynamics of the century thus far. During Donald Trump’s first year in the White House, the tension between the United States and these two countries increased markedly. As the US domestic political environment has deteriorated, so, too, have America’s relations with those that are perceived as its principal adversaries.

When China’s President Xi Jinping rose to power just over five years ago, he presented the idea of a “new type of great power relations” based on cooperation and dialogue, as well as respect for one another’s national interests. But China does not always live by what it preaches as far as cooperation is concerned, as its unilateralism in the South China Sea indicates. Likewise, the relative loss of influence of the Chinese diplomatic corps contrasts with the emerging symbiosis between Xi and the People’s Liberation Army. Xi has even shown a surprising predisposition to wear a military uniform.

Russia, for its part, has invaded two former Soviet republics in the last decade, and its military spending as a share of GDP has been increasing almost exponentially. On top of this, the US and Russia have accused each other of violating the Intermediate-Range Nuclear Forces Treaty, the only Cold War-era agreement on armaments between the two countries that remains in force.

While it makes sense to recognize the current challenges, we should refrain from exaggerating them. In the past few months, the US administration has published three important documents: the National Security Strategy, the National Defense Strategy, and the Nuclear Posture Review. In all of them, China and Russia are explicitly identified as serious threats to the international order. But the principal threat to the US today does not come from China or Russia; it comes from the confusion characterizing its own policies, owing to Trump’s rejection of the very international order that the US helped forge and defend for decades.

It is worth remembering that when Trump tries to intimidate North Korean leader Kim Jong-un by boasting of US military power, the facts are – for once – on his side. US military spending is by far the world’s highest, almost three times that of second-place China, and almost nine times that of third-place Russia. Indeed, the US spends more on defense than the following eight countries combined, and possesses the world’s most sophisticated nuclear arsenal. But, despite the Trump administration’s frequent (and often ungraceful) declarations of military superiority, its actions imply that this superiority is not enough.

The Nuclear Posture Review is the best example of this cognitive dissonance. The new US doctrine stipulates an increase in the number of tactical nuclear arms with relatively small explosive potential. The objective of this measure is to neutralize Russian capacities in this field, thus “denying potential adversaries any mistaken confidence that limited nuclear employment can provide a useful advantage over the United States and its allies.” But if the confidence is indeed mistaken, why respond as if it were not?

In contrast to the Pentagon’s view, the costly development of more tactical arms would in fact lower the threshold for nuclear conflict. And, as Brookings expert Robert Einhorn explains, the Nuclear Posture Review includes another doctrinal provision with a similar effect: the statement that the US could use nuclear arms in response to “non-nuclear strategic attacks” that are only ambiguously defined.

To lower the nuclear threshold increases the risk of a global catastrophe, a risk that the Bulletin of the Atomic Scientists currently places at its highest level since 1953. Even in the highly improbable event that an uncontrolled escalation could be avoided after “a limited nuclear employment,” one tactical weapon alone could generate an explosion comparable to those that destroyed Hiroshima and Nagasaki.

Nine years after Barack Obama’s famous speech in Prague, in which he committed to seeking a world free of nuclear weapons, disarmament has ceased to be a strategic priority for the US (which, as the world’s biggest power, should lead efforts in this area). Obama’s Nobel Peace Prize now seems a relic from the past, and the one awarded to the International Campaign to Abolish Nuclear Weapons last year has a sad, anachronistic ring to it. A new arms race, for which Trump has expressed his support, appears to be underway, though for now it may focus more on perfecting arsenals than on increasing their total size.

Moreover, the Trump administration has just presented a budget proposal that would increase military spending, while cutting funds for the State Department by 25%. Although congressional support for the proposal is weak, Trump’s budget is yet another symptom of his aversion to diplomatic channels. This is one of the causes of the notable degradation of America’s international image, a trend that doesn’t seem to trouble the current administration much.

What really worries the Trump administration – aside from Iran and North Korea – is the strategic competition represented by Russia and, above all, by China. But, given mounting Russian and Chinese militarization, it is critical to avoid adding fuel to the fire. A great-power conflict is not inevitable – unless these powers act as if it were.

What should alarm the US most is not the multipolarity that has been evolving throughout this century. Rather, the greatest risk to the US is that it could forget the principles and institutions that have shored up its global leadership. If the Trump administration continues emphasizing a narrative of confrontation, it could end up creating a self-fulfilling prophecy.

Javier Solana was EU High Representative for Foreign and Security Policy, Secretary-General of NATO, and Foreign Minister of Spain. He is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.

In the South China Sea, US and UK Navy Deployments Won’t Change Anything

By Phillip Orchard


The turbulent waters of the South China Sea will get a bit more crowded over the next month. This week, a U.S. carrier strike group led by the USS Carl Vinson docked in Manila – the first visit by a U.S. carrier to the Philippines since 2014. In mid-March, the Vinson will head to Da Nang for the first such visit to Vietnam since the end of the Vietnam War. This comes a week after the U.K. Defense Ministry announced that a British frigate, the HMS Sutherland, would swing through the South China Sea in the coming weeks to assert the right of freedom of navigation in the contested waters.

The United Kingdom’s announcement sparked a flurry of headlines asking why London was keen to provoke Beijing with such a stunt. It also raised concerns that the voyage would erase any progress made toward an elusive trade deal with China during British Prime Minister Theresa May’s trip to Beijing last month.

But on Feb. 17, a U.S. commander aboard the Vinson made the case that the U.S. visit was important precisely because of how normal it was. According to the commander, merely conducting routine operations – flying and sailing wherever international law allows – reassures U.S. allies and security partners and underpins regional stability. Framing the Vinson’s activities this way is standard practice for the U.S., which wants to portray itself as serving an indispensable function in the region.

But it raises the question: When does a warship tooling around in hotly disputed waters and making courtesy calls to littoral states really matter, geopolitically? The short answer is that it matters primarily when it’s a demonstration of expanding capability or when it signals a shift in strategic intent. And in this case, routine operations by the British and American warships are unlikely to move the needle.
The Royal Navy’s Symbolic Gesture

The British cruise will almost certainly serve as a case study in strategic irrelevance. The visit will not demonstrate any kind of leap in naval capability that the Chinese would find threatening. The Royal Navy is grappling with setbacks stemming from budget cuts in 2010 that have left it short on both warships and manpower. The Royal Navy’s 12 Type 23 frigates and five Type 45 destroyers in service are the fewest the navy has had in modern times, for example, and are considered insufficient for the surface fleet to sustain a substantial global presence. At least two frigates are currently demobilized, reportedly because of a lack of qualified personnel. Its handful of distant surface fleet deployments recently have been marred by embarrassing breakdowns.

Some of the budget cuts have since been reversed, and the Royal Navy has major projects in the pipeline. But for the foreseeable future, the U.K. will have little desire or ability to sustain even the sort of semi-permanent presence in East Asia that would demonstrate an ability to more forcefully challenge Chinese assertiveness or intervene on behalf of the U.S. and its regional allies should push come to shove with the Chinese. This trip doesn’t signal any kind of shift in strategic intent in London.

At most, the U.K. could seek to symbolically discredit Beijing’s legal claims to the disputed waters. It would do this by having the HMS Sutherland conduct what the U.S. calls a “freedom of navigation operation,” or FONOP, where, for example, a warship sails within 12 nautical miles of one of the seven disputed reefs the Chinese have turned into remote military outposts. The goal would basically be to assert that Chinese claims are out of line with international maritime law. The Britons have said they will assert their right to sail through the South China Sea. Doing so isn’t necessarily provocative; foreign warships do it all the time, and China doesn’t object to this kind of activity out of hand, in part because it’s trying to tamp down fears that its rise will threaten the free flow of traffic in the waters.

The Britons would have to go out of their way to make it about Chinese assertiveness, and even if they did, it’d likely be met with a shrug. The Chinese already know most of the West rejects their claims. The matter comes down to whether any of them are willing to try to do something about it. For the time being, the U.K. can’t and won’t.

The U.S. Keeps Southeast Asia at Arm’s Length

The Vinson’s arrival in the South China Sea matters more, of course. This is, in part, because the U.S. has the ability to sustain a regular presence in the waters, as well as the ability to forcefully challenge expansionist Chinese activities if it chose to do so.

It’s common for a U.S. carrier group to sail through the waters. The choice of port visits is notable, given the strategic importance of both the Philippines and Vietnam. The Philippines is bearing the brunt of Chinese encroachment. It is the closest country to most of China’s militarized, man-made islands, which could be used to harass Philippine fishermen and block attempts to develop new sources of oil and natural gas that the Philippines desperately needs. The Philippines also happens to be part of a chain of islands that the U.S. and its regional allies could use to block China’s access to its vital seaborne trade routes south to the Indian Ocean and east toward North America. To secure its trade routes, China is using a mix of naval and coast guard sticks and economic carrots to lay the groundwork for a political arrangement with Manila that would allow Beijing to be certain the Philippines wouldn’t side with an outside naval power in a major conflict. Manila cannot block the Chinese militarily on its own. At the moment, however, Manila is wondering just how willing the U.S., its treaty ally, might be to come to the defense of Philippine interests.

Vietnam is in a similarly uncomfortable position. The Vinson docking in Da Nang will mark the latest in a string of high-profile visits and landmark agreements that highlight the increasing alignment of U.S.-Vietnamese interests. Unlike the Philippines, Vietnam boasts substantial and growing naval capabilities. It does not have the forces to go toe to toe with the Chinese, say, in an attempt to dislodge them from the disputed Paracel Islands or to prevent Chinese harassment of Vietnamese drilling in disputed waters. But second only to Singapore among the Association of Southeast Asian Nations, Vietnam would have the military chops to play a valuable role in a future U.S.-led effort to contain the Chinese.

But recent bouts of low-level confrontation with China, particularly drilling incidents, have exposed a high degree of paralysis in Hanoi. This stems, in part, from Vietnam’s dependence on the Chinese economy, as well as its deep-seated unease about aligning itself closely with any outside power. But it also stems from its own skepticism about the U.S. willingness to confront the Chinese on its behalf – perhaps even more so than the Philippines, considering Hanoi doesn’t have a defense treaty with the U.S. or a long history of robust military cooperation.

The Philippines and Vietnam are unlikely to find much comfort in the Vinson’s visit. The U.S. can use the trip to demonstrate its capabilities and reassure countries about U.S. attention to the region. And they matter when accompanied by landmark agreements such as the Obama administration’s 2016 decision to lift the U.S. ban on arms exports to Vietnam or its pivotal 2015 basing agreement with the Philippines. But a visit alone doesn’t change the facts on the ground or signal a shift in intent by the U.S. to more forcefully confront the Chinese – and therefore it won’t automatically address the underlying concerns in either country.

Neither would another string of U.S. FONOPs timed to coincide with the Vinson’s visit. The U.S. Navy intends to increase FONOPs in the South China Sea; it quietly conducts scores of them around the world each year, including in waters controlled by allies, only publicizing them, with minimal detail, in an annual report. When conducted near disputed islands controlled by the Chinese, they are intended as a show of support for a 2016 international tribunal ruling that discredited most of China’s sweeping claims. They do not alter the balance of power in the region or do anything that might give China second thoughts about militarizing its man-made islands or blocking attempts by other claimants to reap the material rewards of the resource-rich waters.

Manila and Hanoi see the United States (along with key allies like Japan and Australia) as a stabilizing force over the long term – one that will aid their own military modernization and serve as a check against Chinese economic coercion. But right now, the U.S. is loath to risk getting dragged into a war by entangling itself in the South China Sea dispute, especially at a time when it has bigger fish to fry in Northeast Asia. Neither Chinese man-made islands nor Chinese drilling threaten the U.S. position in the region directly. And as Chinese maritime capabilities develop, the cost to the U.S. of wading into the disputes will only increase. This reality plays into the Chinese narrative that Southeast Asian states would be wise to accept its ascension as regional hegemon. And it’s a reality that routine deployments of U.S. warships to the South China Sea cannot change.