The Fundamental Misunderstanding of Brexit

Pascal Lamy was director-general of the World Trade Organization from 2005-2013. He is also a member of the Berggruen Institute’s 21st Century Council. What follows is adapted from a speech he gave at the British House of Commons on April 29.

An E.U. flag is left at an entrance to the British Houses of Parliament on March 23, 2019 in London, England. (Dan Kitwood/Getty Images)

LONDON — Brexit is a bit of a mess. My own view, for what it is worth, is that it was always going to be at least a bit of a mess but maybe not as big a mess as it is now. I want to try to answer the question of “what’s next” — but to do so we need to understand why Brexit is such a mess.

My answer to this question is very simple: Brexit is a mess because of a fundamental misunderstanding in the United Kingdom, and to some extent on the continent, about the tradeoff that Brexit implies.

At first sight, as historians may say, Brexit is only one of the many episodes in the very complex relationship between the U.K. and the continent. Looking at the last 70 years of this relationship, which has of course deeper and longer historical roots, it looks as if the British have an attraction toward the continent for economic reasons, but that they also have a political repulsion to the European Union. This often gives rise to a sort of “plug and unplug” narrative; it started with the Brits remaining unplugged and then after a bit of time, at the end of the 70s, they plugged in. In 2016, when public opinion moved the other way around, they decided to unplug.

The problem for the U.K. was and remains the tension between trying to be as much “in” economically as possible, and as little “out” politically. This is the implicit tradeoff, which was the great game of British diplomacy: to want as much economic integration as possible, as you can expect from an economic culture forged by Adam Smith and David Ricardo, but on the other hand to avoid as much as possible being bound politically.

That’s the first sight, and Brexit according to this view is just an unplugging exercise. However, this first sight is wrong.

The reason we are in this situation is that the relationship between economic and political integration has changed enormously. Economic and political integration in the E.U. is much more entangled today than it was 10 years ago, it was much more entangled 10 years ago than 20 years ago, and so on.

Thus, if I may use a simple formula, Brexit is not about unplugging, it is about unscrambling. Unplugging and unscrambling are two very different concepts. Nowhere is this more obvious than in the extraordinary confusion between the customs union and the internal market. It is highly confusing in this country — notably in the House of Commons, if I may — and it’s somehow also confusing on the E.U. side. I wouldn’t criticize Michel Barnier, the E.U. negotiator, but I am not sure the subtleties regarding the distinction between the customs union and the internal market are always clear in Brussels.

What is the difference between a customs union and a single market? We created the common market as a customs union in 1957. For 10 years, we had a customs union and customs duties within the customs union. That lasted until the late 1960s, when we removed customs duties within the customs union. We had a common market.

When we arrived with Jacques Delors in Brussels on Jan. 4, 1985, we had a plan in mind — moving this common market into a single market. Getting rid of borders was the goal of this strategy. We had internal borders while we had the customs union at the time. We only removed borders in 1992, after a long and complex process of regulatory convergence, harmonization and mutual recognition of technology in order to make sure regulations converged. In 1992 we were able to remove borders because there was enough stock and trust that regulatory standards in every part of the European economy and to some extent social life were similar, or at least similar enough, to be able to remove these borders.

So this is what we have to understand, because exiting the E.U. is not exiting a customs union; that’s not the real problem, to be frank. Exiting the E.U. is about exiting the single market. That’s the name of the game. When the single market was created the borders were removed, and thus leaving the single market recreates a border that had been removed.

The problem is that this old obsolete equation — taking as much economic integration and as little political integration as possible — fundamentally changed when the single market was created. There is now and there has to be a tradeoff between economic integration and political integration. You cannot have one without the other, and vice versa. This is why, if I have to define the tradeoff of Brexit in simple terms, it is this: How can the U.K. exit politically as much as possible and economically as little as possible? That’s the equation.

The reason Brexit is a mess is that there is no answer to this question today in the U.K. I am not saying that there cannot be an answer. After all, within the E.U., not all member states have the same view of what is the right tradeoff between economic and political integration. But they have all decided to remain “in.”

In other words, it is no longer possible to negotiate economically without negotiating politically. The reason is that deep economic integration is about aggregating collective preferences, which is a political process. For example, if we have a single regulation on data privacy in the E.U., and it is different from the American one and the Chinese one, this is not science, it is politics. It is feelings, philosophy and culture. It is somehow about morals, quite far away from the initial economic efficiency approach to the internal market.

The reality is that the progressive economic integration of the E.U. has made it more costly to exit politically. This translates into the fact that exiting means that there has to be a border, and the problem of this border is how thick it will be. A real exit — which means taking back control of sovereignty in regulating the country and using this sovereignty to dealign the U.K. from E.U.’s regulations — will be costly. A real Brexit means a costly, thick border. A thin, less costly border will lead to accusations of “BRINO” by Brexiteers. If there is a thin border, it is not going to be that costly, while if there is a thick border it will be very costly and the E.U. will proportion its thickness to the degree of regulatory divergence on the U.K. side. This is where there is a tradeoff between exiting politically, becoming sovereign and paying the price — the price of a thick border.

The U.K. has decided to Brexit but does not know its position on economic and political integration. This is, in my view, the basic reason why you have this impasse in Parliament. The absence of any notion of what this tradeoff could be creates a lot of fear on the two extremes. The next stage, which would be the real negotiation about the E.U.-U.K. trade relationship, will in fact be framed by the compromise between economic and political integration.

As a consequence, assuming there is a part of this Parliament that is ready to accept what is on the table, you also have among Brexiteers a fear of being cheated by a small economic exit, as they know full well that it will mean that the political exit will also be rather thin. You have exactly a symmetric position on the side of Remainers who hope that if Brexit happens, the damage will be limited by avoiding significantly using the U.K.’s recovered regulatory divergence capacity.

The reason why this is the case can be found in the British government’s interpretation of Article 50 that was, in my view, wrong. Article 50 says that if a country wants to exit the E.U., it negotiates a withdrawal agreement in view of the nature of the future relationship between the country and the continent. For reasons of political expediency, the British government decided that withdrawal was one thing and the future relationship was another thing. Withdrawal was one thing because there was such a fear on the Brexiteers’ side that they would be cheated, so they put a lot of pressure to ensure the exit would take place quickly.

Article 50, with its two-year timeframe for exiting, was thus seen as a kind of insurance. We will see what comes next, but of course it hasn’t worked. The fundamental question — how much political and economic integration — will appear in the second phase. Only in the future regime relationship between the E.U. and the U.K. will it have to be discussed how much you can use your regulatory sovereignty and how much you are ready to pay for a thin or medium or thick border.

Now, for the moment, we have a withdrawal agreement and we have good words and nice music about what we would all like to do in the future. But frankly speaking, it’s all more appropriate for a Sunday night banquet and not really related to what we have to do on Monday.

What you have to do on Monday needs to be framed in a more precise way to narrow the spectrum of possibilities for the next stage, which is too wide for something to be decided in this country, as it includes every option from total exit at high cost to low cost and quasi no exit. I participated in many of these trade negotiations for 40 years, and in my experience it usually works best when you start by narrowing the options — what trade people call discussing, framing and agreeing about “modalities,” a sort of users’ notice where you reduce the universe of possibilities to something that starts making sense.

My view is that if a deal doesn’t go through, the cause can be found in the excessively wide spectrum of the possibilities for the next stage. If I am right, then you have to try to shrink that spectrum. Of course, it would entail a compromise — not a compromise between the E.U. and U.K., but within the U.K. There was a bit of negotiation on what the rights should be on European and British soils and the other way around, the bill to be paid for rent and petrol, but that was not the serious negotiation. The serious negotiation is about political and economic integration. I think that’s where it has to go and only then will we have a proxy for what the final relationship will be. And then it will be a bit more precise and people will be able to make a judgment on what Brexit is really about.

Saying this, I know I am using a concept that is a bit strange in this country, including in this House — compromise. It is word that is largely unknown in British politics. And that’s a big difference with the continent, and I say that as a Frenchman because the only other European country where compromise is a strange word in politics is France. On the rest of the continent people are usually happy when they succeed in negotiating a compromise.

So what’s next is either to have Brexit within the next month or to start understanding why that can’t be done. The British need to be presented with something that allows them to make a judgment on the proper tradeoff between economics and politics in their future relationship with the continent. That is not the case at the moment.

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

About The Berggruen Institute

The Berggruen Institute’s mission is to develop foundational ideas and shape political, economic, and social institutions for the 21st century. Providing critical analysis using an outwardly expansive and purposeful network, we bring together some of the best minds and most authoritative voices from across cultural and political boundaries to explore fundamental questions of our time. Our objective is enduring impact on the progress and direction of societies around the world.