Brexit Update 23rd March 2018

By April 10, 2018Brexit Updates

Top 3 developments

• EU Negotiating Guidelines Agreed
• ‘Improved Equivalence’ for financial services set to be considered
• Spain seeks reassurances over Gibraltar

UK Update

EU Negotiating Guidelines Agreed

The EU’s negotiating guidelines have been adopted at the European Council summit today. Beyond the expected reassertion of the integrity of the EU’s Single Market and Customs Union, the agreement calls for a ‘balanced, ambitious and wide-ranging free trade agreement’. Notable points include:

• ‘Ambitious provisions’ on movement of people based on full reciprocity, with coordination on social security and recognition of professional qualifications.
• A framework for voluntary regulatory cooperation.
• Continued trade in services under host state rules, with the right of establishment of providers.
• Access to public procurement markets, investments and protection of intellectual property rights
• An air transport agreement, combined with aviation and security agreements, with agreements in other transport areas.
• Union programmes including in the fields of research, education and culture will be open to the UK under the same conditions as other third countries.
• Strong cooperation in foreign, security and defence policy
• Data agreement, with continued personal data transfers governed by EU rules on adequacy.

The negotiating principles will be looked upon positively by the UK, given the nature of a more bespoke agreement than that of the Canada deal which was previously touted. There are however no set guidelines on the extent of financial services access to EU markets, something the UK is likely to demand to be included in any final agreement. The issue of the border in Northern Ireland is also set to feature prominently in discussion over the future relationship, after being pushed back and back without resolution, in order for the UK to avoid adopting the backstop option of maintaining regulatory alignment with the EU post-transition. The EU also agreed to allow a 21-month transition period following agreement between the EU and UK on the terms governing transition on Monday.

Brussels, Brexit and Bringing Home the Diplomat

Theresa May used her appearance at the EU Council Summit to call for a ‘new dynamic’ in the next phase of Brexit negotiations which are expected to commence in the coming days following the ratification of the transition agreement by 27 EU states. The second phase of negotiations will focus on the future relationship between the UK and EU, with leaders on all sides hoping that the creation of a ‘deep and comprehensive’ agreement will help nullify many of the ongoing concerns surrounding Northern Ireland, immigration, trade and security cooperation.

In a sign of simmering tensions and continued cohesion whilst the UK remains in the EU, EU leaders joined forces with Theresa May to condemn Russia’s part in the recent nerve agent attack in the UK. In addition to recalling the EU’s Ambassador in Moscow, up to five EU states including France are considering expelling Russian diplomats to match the UK’s action on the matter. Continued partnership on matters such as this are likely to continue to some extent after Brexit given the desire of both sides to maintain relations on matters of defence and security with a level of coordination on foreign security measures.

“We hake it, there’s no plaice for it”

Politicians from across the political spectrum lined up to throw scorn on the PM following the announcement that the UK will remain in the Common Fisheries Policy through the transition period. Whilst Nigel Farage joined Fishing for Leave on the high seas outside Parliament to fling dead fish into the Thames in protest, others sought a rethink on the concession with a threat to vote down the final Withdrawal Deal unless demands are met. Jacob Rees-Mogg, leader of an influential group of 60+ Conservative MPs, appeared to be satisfied with the assurances given by the Prime Minister however – with a promise to ‘take back control of our fishing waters’ in 2021 at the end of the transition period.

This is a battle waiting to happen, EU states landed 683,000 tonnes of fish in UK waters compared to the UK’s 111,000 tonnes in EU27 waters in 2015. The EU’s negotiating guidelines seek ‘zero tariffs or quantitative restrictions’ and continued ‘reciprocal access to fishing waters’, in contrast to the UK’s own position. The UK may insist on landing catches at UK ports to boost the revival of the industry, or instead insist on limited quotas to bring the 500,000+ tonne catch deficit down. Either way, this is sure to lead to intense debate both in the UK and in EU27 states.

C’est Mon Passeport

A furore broke out this week as a £490m contract for the new post-Brexit blue passport was awarded to Franco-Dutch firm Gemalto. English manufacturer De La Rue is appealing the decision after losing out on the contract, however with the deal expected to save the taxpayer between £100m-£120m compared to De La Rue’s offer, there is every possibility it will not succeed. EU procurement rules mean companies from across the EU must be allowed to compete for public sector contracts, often under blind bids to discourage national preferences being given. Since 2009, the UK has no longer considered the production of passports a national security issue meaning the contracts go out to general tender, unlike France where the production is more restricted based on national security issues.

EU said to be considering ‘improved equivalence’

According to a draft EU negotiating document seen by The Telegraph, the EU is considering reviewing the offer it makes to the UK on financial services, based on internal reforms to its equivalence offering. Whilst it still does not recognise the UK offer of achieving mutual recognition, something it sees as cherry picking and detrimental to the integrity of the Single Market, it is likely to consider ‘improved equivalence mechanisms’, building on those already in place for third states. The UK has welcomed the move but believes more ground can be covered on the issue.

Chancellor Philip Hammond recently criticised equivalence as not fit for purpose – pointing out that it could not handle the level of integration that EU27 states have with the City of London, including the underwriting of insurance and investments. Under reformed proposals by the EU, they continue to maintain that they will be able to withdraw access on short notice – something seen as a way of limiting the divergence of the UK on financial regulations. Such an agreement would place a large amount of risk however in UK, given the need to maintain regulatory alignment and the UK’s desire to chart a new future outside the EU.

Appeal Court grants review of Article 50 case

An appeal court in Scotland has ordered that a case brought by campaigners about whether the UK can unilaterally withdraw from the Article 50 process, without the agreement of other EU states, must be heard. It further agreed that the UK Parliament was sovereign – which opens up the prospect of a constitutional review of the matter. The Scottish court will now consider the case before considering passing it up to the EU’s court which would could lead to a technical headache as the ECJ considers the constitutional basis of any unilateral decision to revoke the Article 50 measure. There is no decision to withdraw from the Article 50 process currently, however clarity on the issue is likely to add to calls from those wishing to remain for the UK to do so.

European Update

‘Furious’ Spain seeks assurances on Gibraltar

After positive speeches from Michel Barnier and David Davis on Monday that heralded an agreement on the transition agreement, Spain has sought to clarify what exactly had been agreed in terms of Gibraltar. David Davis used the speech to say the transition deal included Gibraltar, whilst Spain was said to be ‘furious’ by the presentation of the deal as having side-lined Spain’s part in the issue. Discussions will now continue to resolve this impasse, whilst discussions over Gibraltar’s part in the future relationship talks will become more prominent in coming months. Spain has said that it is not seeking to renew sovereignty claims over Gibraltar but is seeking some level of joint access to the airport and an end to the tax loopholes that exist in Gibraltar.