Brexit Update 20th April 2018

By May 4, 2018Brexit Updates

Top 3 developments  

  • Customs Calamity
  • Brexit Bill Stand off
  • McDonnell considers free movement to protect UK banks

UK Update

Customs Calamity

The House of Lords and the European Commission have this week dealt consecutive blows to Government plans to enter a customs arrangement or partnership with the EU, over establishing a formal customs union. The Lords started with a vote passed by a 123 majority to force the Government to report to Parliament on any move to establish a customs union with the EU – pre-empting a Government U-turn if it’s hand is forced, whilst Michel Barnier’s team in Brussels are said to have delivered a “detailed and forensic rebuttal” to UK proposals for a solution to the Irish border problem, with a customs union remaining the backstop option. Whilst the Lords vote is not binding on the Government, it signals continued support by many across Parliament for a customs union to be entered into.

The Government has continued to state that entering a customs union with the EU is unacceptable given the outcome of the referendum, with fears that entering one would be ‘Brexit in name only’. Entering a customs union would mean that trade between the UK and EU27 states would be governed by the same customs rules, making trade easier, however the same external tariff would also be applied in the UK as by EU27 states to stop third states from using one state to tunnel cheaper goods into the others. Given this would severely restrict the UK’s ability to negotiate free trade deals and set its own tariffs, the option remains off the table for the Government. Unless the Government finds a viable customs solution soon, the decision may be taken out of its hands if a future amendment to the separate Trade Bill calling on a customs union to be established passes.

You forgot the tip!

The National Audit Office has released a report saying that HM Treasury’s estimate of £35bn-£39bn for the financial settlement with the EU is ‘reasonable’ but could differ based on future events and actual liabilities that fall outside of the main EU budget. These include how the UK performs post-Brexit in 2019 and 2020, how much EU funding UK organisations will continue to receive after the UK leaves, the future cost of the EU pension liability (expected to continue until 2064) and future changes to the exchange rate given liabilities will be settled in euros.

The Chair of the Treasury Committee, Nicky Morgan MP, said the final figure “appears to be shrouded in uncertainty”, pointing out the intentional omission of financial commitments such as the European Development Fund (£2.9bn). Whilst these costs fall outside of the EU’s main budget, they still represent substantial contributions and commitments by the UK, leading many to argue that they should be included in the final figure.

Seize the initiative! says Davis

David Davis is seeking to seize the initiative by publishing proposals for a future UK-EU relationship ‘as soon as possible’ and ahead of the European Commission. The document would include detailed plans of the kind of customs relationship, financial service access and regulatory framework the UK would seek with the EU as it seeks to set the agenda, something the EU has thus far been able to do.

Whilst detailed negotiations on the future trade are not expected until after the UK leaves the EU in 2019, Theresa May is under pressure to set out detailed plans and gain commitments from the EU on how that future relationship will look. Failure to do so risks upsetting many in her party and across Parliament as they grapple with a decision to vote through the Government’s final agreement with the EU. David Davis has warned EU negotiators that Parliament will not sign off the final Withdrawal Agreement, including the exit bill of £35bn-£39bn, without knowing what Brussels is offering when the UK leaves.

Brexit Bill Standoff

The UK Government has lodged a legal challenge in the Supreme Court to legislation passed in the Scottish Parliament and Welsh Assembly that sets out alternative powers and competencies for devolved administrations in the event that no agreement with Westminster over how powers will be distributed.

Jeremy Wright, the Attorney General, who lodged the legal challenge on behalf of the Government has said that the action would not continue if an agreement is made between the UK Government and the devolved administrations. First Minister Nicola Sturgeon expressed “deep regret” at the challenge, stating that the Government had opted not to respect the decision of the Scottish Parliament, whilst also stating that she believes negotiations are reaching “the endgame” – signalling the possibility that a compromise may be reached in the next week or so.

Seamless Transition? Is that Trudeau?

Canadian President, Justin Trudeau, has given a ‘firm commitment’ to a ‘seamless transition’ for a trade deal with the UK based on CETA, saying it will “flip over the day after Brexit”. Stating further that the UK is Canada’s largest trading partner in the EU currently, the Canadian President said all sides were working to ensure a bilateral trade agreement is strong and ‘takes full advantage’ of the relationship between the two countries, enhancing it in certain areas. The announcement comes after Indian Prime Minister Modi spoke of his willingness to negotiate a far-reaching trade agreement, albeit with the caveat that it must include proposals for more streamlined immigration measures for Indian professionals wanting to work in the UK.

Dublin pushes ahead with new Customs Posts

Eamonn O’Reilly, CEO of Dubin Port has confirmed it will push ahead with plans to build ‘necessary customs posts’ to process imports and exports coming from the UK after it leaves the EU, Single Market and Customs Union. Despite attempts by negotiators to find an agreement that solves many issues associated with the processing of imports and exports, O’Reilly stated that “one way or the other it will be needed.” If the UK u-turned on its decision to not enter a customs union, then technically checks would not be needed, however with the Government standing strong for now, many companies are implementing contingency plans to alleviate any last-minute scrambling to deal with the changes.

Passports are red, soon they‘ll be blue, who will they be made by? Not De La Rue

UK-based passport manufacturer De La Rue has decided not to appeal a decision made by the Home Office to award the contract for Britain’s new blue passports to Franco-Dutch rival Gemalto. The Government has defended giving the contract to Gemalto, which represents a £100m-£120m saving to taxpayers compared to accepting De la Rue’s offer.

Brex and the City

Shadow Chancellor John McDonnell has said Labour would be flexible on freedom of movement if it meant gaining protections for UK finance and the moves were reciprocal. It follows comments by Labour’s Shadow Brexit Secretary, Keir Starmer, who said that many EU countries would be open to having a debate about the future of free movement, with many publicly stating that the current regime is not working. McDonnell told banks to “think again” if they’re looking at leaving London over Brexit, saying that Labour thinks it will be able to negotiate a deal when it comes to power that “secures their future, both in terms of access to Europe, but also [through] the strength of our economy”.


Macron seeks Merkel Support

French President Emmanuel Macron is seeking to gain Angela Merkel’s support for a series of EU reforms to prevent what he calls a “civil war” occurring on the continent, brought about by trade wars and internal pressures such as the rise of populism. German Chancellor, Angela Merkel, is more sceptical of the plans, with her own plan for a stability union to ensue through turbulent times for the bloc, something supported by her coalition partners. Markus Blume of the Christian Social Union (CSU) said of Macron that he “speaks of more Europe, but he also thinks of France first” in reference to pressures placed on Macron domestically from populists. Germany also remains cautious of new attempts for it to underwrite the debts of other EU states, and remains ‘lukewarm’ on the idea of the eurozone’s banks underwriting European account holders.

Brussels moves to deal with Hard Brexit

The European Commission is issuing legal proposals to amend current EU laws and regulations to allow the Commission to deal with a no-deal scenario. The ‘emergency powers’ are designed to be time-limited and would help the EU respond to issues such as those related to trade quotas, financial services and transport. One thing that the UK power would be the ability to restrict Britain’s involvement in the EU’s Galileo satellite programme designed to be used by intelligence agencies along with EU companies. Concerns over resolving the Irish border problem as well as other matters risks derailing the talks, however with Michel Barnier pronouncing that 25% of the withdrawal agreement left to settle, measures to deal with any fallout should be looked upon largely as contingency-based given the cost to both the UK and EU of no deal being struck.