Brexit Update 16th February 2018

By February 28, 2018 Brexit Updates

Top 3 developments  

  • May goes to Germany to talk security
  • Punishment clause removed from EU draft
  • Pressure for direct rule in Northern Ireland

UK Update

May goes to Germany to talk security

Theresa May is set to make the second of the five ‘Road to Brexit’ speeches on Saturday, covering her vision for the future security relationship between the UK and EU. Boris Johnson outlined that on defence and security the UK would remain committed to working with the UK ‘unconditionally’ and ‘immovably’, and the Prime Minister is expected to go even further. There had previously been a fear that the UK would use the security partnership as a bargaining chip, given the UK’s large input into EU security and defence. However, this has been ruled out, with the UK remaining keen to continue the partnership regardless of other matters.

May is expected to announce that the UK will remain part of Europol, as well as the more controversial European Arrest Warrant (EAW) as part of a new bilateral security partnership. Figures such as the European Reform Group’s Jacob Rees-Mogg have been reluctant to support a continuation of EAW membership, however there are expected to be new proposals tabled that negate many of those concerns.

Boris calls for unity

Boris Johnson kicked off the Government’s ‘Road to Brexit’ speech series this week, with a call for all sides to unify in pursuit of a ‘great Brexit deal for the country’. The speech is one of five by cabinet ministers in the coming weeks and focussed on what the Foreign Secretary called the three fears of leaving the EU: that it is a strategic mistake, cuts the UK off from Europe and will make the UK less prosperous in an uncertain economic future.

The speech had largely mixed reviews, with one journalist asking for clarity on the specific concerns of business and citizens. Others sought greater clarity on how the UK could leave the Single Market and Customs Union and still retain economic certainty and an open border on the island of Ireland. Neither concern was largely answered, with the vision of what comes next more ideological than technical. Whilst Boris reeled off figures for UK citizens living in non-EU states, and UK trade figures with countries such as South Korea, nothing was said of the consequences and short to medium term impact on those figures as the UK charts its path for a post-transition future.

Boris further drew scorn from the European Commission after describing the EU as moving towards an ‘overarching European state’, that was becoming more heavily integrated. The Commission President, Jean-Claude Juncker, rubbished the claims and called the idea that the EU was moving towards becoming a super state as ‘nonsense’, adding ‘we are not the United States, we are a rich body because we have 27, or 28 nations’.

‘Punishment clause’ removed from EU draft

The European Commission has dropped its proposed ‘punishment clause’ from an agreement reached with the UK in December on the terms of withdrawal following discussions with member states. The clause has come under criticism from both sides of the channel after it sought the UK’s acknowledgement and consent to level punitive measures against UK business and trade in the event of non-compliance with new EU law during the transition period. Measures had included restricting access to certain areas of the single market and stopping UK based airlines from landing in EU27 states.

The Commission, and many EU states, fear that the UK will use legal delays in EU institutions to try and bypass regulations that it sees as damaging. The Brexit Secretary labelled the clause ‘discourteous’ and damaging to relations between the two sides, with his view echoed by at least ten-member states. The clause is expected to be rewritten taking account of current practices governing non-compliance, which may still include restricting single market access.

Not having a seat at the table remains one of the most contentious areas of the transition period, with the UK continuing to question how they will respond to any EU regulations that undermine the competitiveness of the UK economy. Transition negotiations remain ongoing, with greater clarity expected in the coming weeks.

IoD proposes customs solution

The Institute of Directors, an influential grouping of company directors, has proposed a partial customs union with the EU covering industrial goods and processed agricultural goods. The IoD has examined the partial customs union that Turkey enjoys with the EU, although restrictive trade practices remain the price of any such deal, as well as rules on forging new trade alliances with third states. Director General of the IoD, Stephen Martin, sought to push the idea saying, “there was no Canada deal before there was a Canada deal, and no Turkey deal before there was a Turkey deal”, before going on to list the merits of pushing for a bespoke arrangement. The IoD is seeking a narrowed customs union after the transition period to mitigate the disruptive effects of leaving on business and to ensure manufacturing remains competitive.

UK to set out position on financial services

City bosses are holding out for a deal that provides for mutual recognition of regulatory and supervisory regimes in both the UK and EU as a way of preserving London’s access to EU financial markets. The proposals, developed by the International Regulatory Strategy Group, are backed by the Governor of the Bank of England, Mark Carney, with the Government said to be in support. Added proposals include the creation of a dispute resolution mechanism which would hold ultimate authority over regulating each side’s action with strong powers to act when rules are infringed.

Theresa May is in Germany on Friday, and is expected to discuss the proposals, amongst other things with German Chancellor Angela Merkel. Chief EU negotiator, Michel Barnier, has previously ruled out a preferential deal on financial services. With it being such a top line negotiating objective, financial services are likely to remain an issue of contention until the 11th hour. Barnier has however remained open to hearing proposals, considering them in line with EU legislation and their effect on the EU’s financial stability.

Pressure for Direct Rule in Northern Ireland

Pressure is mounting on the Prime Minister to impose direct rule on Northern Ireland following the latest collapse of talks between the DUP and Sinn Fein. Lord Trimble, of the Ulster Unionist Party, has called on Theresa May to stop “pussyfooting around” and call Sinn Fein’s bluff by imposing rule from Westminster. However, with a deal thought to be in sight, and rising concerns over the stability of nationalist/unionist relations at such a critical time in Brexit negotiations, direct rule has been avoided to risk inflaming tensions. A deal has been abandoned most recently due to disputes over an Irish language bill, which would give Gaelic parity with English in schools and across the territory.

The UK is under pressure to find a solution to the Irish border issue created by leaving the Customs Union, as well as protecting the Good Friday Agreement that has resulted in a high degree of peace between the two communities. Without a functioning executive in Northern Ireland, governance is limited, and stability remains questionable. A DUP official has however confirmed that the impasse helps the party achieve their shorter-term goals and it’s easy to see why. As the party propping up the Conservative majority in Westminster, the Conservatives have had to take added note of the DUP position on several policy areas. A revival of the executive branch in Stormont, whilst needed, continues to allow the DUP to remain dominant in putting forward Northern Ireland’s position, without being bound by the power-sharing deal that would be in place after a deal is struck.

Commons Majority at threat says Soubry

Tory MP, Anna Soubry, took to the airwaves this week alongside Labour’s Chuka Umunna to warn the Prime Minister that a majority existed in the House of Commons to block a deal that failed to address many of the concerns presented by leaving the Customs Union. Soubry is part of an ongoing drive by cross-party activists to limit the possible damage cause by the UK’s exit from the EU’s Single Market and Customs Union. Whilst many in the group are seeking a second referendum on the final deal, Soubry ruled out support of the proposal.

Home Office app to help verify status of citizens

The Home Office is close to trialling a new app designed to verify the status of EU nationals following the UK’s exit from the EU in 2019. Under current rules, permanent residency rights for EU nationals can be given after five years of ongoing residency within the UK. The app works by scanning the user’s passport and national insurance number, as well as asking ‘seven or eight questions’ before checking them against a Home Office database. Those who have resided for five years or longer will be email a permanent settled status number, compared to those who receive a temporary special status number.

The move is designed to simplify the 85-page process for applying for permanent settled status and alleviate the fears and uncertainty of many of those EU citizens currently residing in the UK. The app is currently having to be recalibrated and is unlikely to be released officially until the status of EU citizens arriving or remaining in the UK throughout the transition process is decided between negotiators. Despite the innovate function of the app, there are calls to ensure other methods of verifying status are employed beyond those currently used, including for those not familiar with, or able to use the app.

European Update

EU seeks budget hole solutions

Brussels is looking into innovative techniques to fill the 15bn euro hole left by the UK’s exit from the bloc. With countries such as the Netherlands and Austria ruling out increased national contributions, the EU is seeking a new solution that includes diverting funds raised from corporate tax receipt and carbon emission permits issued to airlines. Brussels expects to raise between 7bn and 105bn euros from the EU’s Emission Trading Scheme, with funds currently going directly to member states. With the last budget between 2014-20 coming in at around 1tn euros, there’s a lot to bargain for.

As a way of countenancing demands from EU member states to rein in spending, the Commission has set out a range of areas that will be affected if additional funds are not found. These include discontinuing support for regions in some of the EU’s net contributor states including France and Germany. Budget talks remain complicated, with many pointing to the UK as a potential solution, dependent on negotiations around market access and contributions after the transition phase.

Timeline

  • 17th February – Theresa May Security Speech in Germany
  • 23rd February – Informal meeting of EU27 Heads of State/Government
  • 22nd – 23rd March – European Council Summit.

 

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