Brexit Update 25th May 2018

By June 10, 2018Brexit Updates

Top 3 developments  

  • Talk over UK satellite alternative heats up
  • Bank of England confirms Brexit contingencies
  • Brexit Bills set to return to Commons

UK Update

Star Wars, Revenge of the Brits

The MoD is reportedly looking to its “Five Eyes” intelligence sharing alliance with Australia, New Zealand, the US and Canada as it plans for a future satellite programme to rival Galileo, the EU’s £8 billion satellite. The European Commission has ruled out the UK gaining access to the more sensitive functions of the Galileo satellite after it leaves the EU, including its Public Regulated Service (PRS) used for emergency services and military operations. The EU has described the UK wanting to run the Galileo programme jointly is “a big ask”, which would give the UK more influence than some member states. Chancellor Philip Hammond has said it was prepared to ‘go it alone’ as the UK needed access to a system for ‘security strategic reasons’. A UK task force has been set up this month to look at the introduction of a new programme, with plans for procurement contracts likely to be tendered by the end of the year. If the EU holds its position, the UK will be limited to third-state access to Galileo on the same terms as countries like the US, who have limited clearance, but are dependent on EU approval for more sophisticated uses of Galileo to supplement its own Global Positioning Satellite (GPS).

Taking a tougher stance with the EU, the UK Government has threatened a ban on UK companies transferring source codes and critical technology to EU counterparts, effectively sabotaging the Galileo programme if the European Commission does not reconsider its position.  Further measures likely to be taken include attempting to recoup over £1 billion committed by the UK Government to the programme. This follows an accusation by the UK that the EU will renege on its commitment to joint defence and security commitments, including use of satellite technology, made within the withdrawal bill negotiations last year. The UK Space Agency has reiterated the “mutual benefit” of full participation by the UK in Galileo but has confirmed that the UK is “right to develop options for a national alternative to ensure our security needs are met in the future.” Negotiations continue.

Brexit Bill to return to Commons ‘within weeks’

Commons leader Andrea Leadsom has told Parliament that she is confident that she will be able to update MPs over “important Brexit legislation” in the coming weeks, further stating that the House of Commons will be able to make “swift progress in a matter of weeks, not months” signalling the return of major Brexit Bills to the debating and voting chambers of Parliament. The House of Lords inflicted a total of 15 defeats on the Government’s flagship EU Withdrawal Bill, with the amendments now subject to a vote in the Commons to pass. The Government will now have to work to gain majority support for them to be quashed – likely to occur over Parliamentary recess when the future of the UK-EU relationship, the UK’s objectives and the future customs options are likely to be set out.

Plans to have plans

With only a few weeks left to go before the next EU Council Summit, the UK is moving closer to setting out its preferred backstop customs option to avoid a hard border in Northern Ireland. Seeking to placate those who want a complete break from a formal customs union with the EU, Theresa May set out that the UK could seek time-limited membership of a customs union with the EU. This would later be replaced by either the maximum facilitation plan, also known as ‘max-fac’, or the customs partnership option. The European Commission has rejected the time-limited nature of the proposal however, stating that any backstop must apply “unless and until” an acceptable credible solution is found. Brexiteers are wary of the EU’s position on the issue, believing the EU would reject any future proposal tabled by the UK to replace a customs union unless a forced end date was introduced. The Irish border issue continues to be pushed down the line and with no end in sight, it appears the plan remains to continue to push for a plan to resolve the current impasse.

Industry continues to support customs union

The automotive, aerospace and manufacturing industries have warned that the UK must remain in a customs union to avoid ‘devastating’ job losses. ADS, the group representing the aerospace, defence, security and space industry, described the maximum facilitation (max-fac) solution being considered as “inadequate”, whilst the EEF representing car manufacturers believed the plan was ‘naïve’ and would be slow and expensive to implement. Industry may take solace from current discussions over extending a customs union until such a point that an alternative can be put into place, likely to be beyond 2021. However, the EEF fears that the EU will resist max-fac plans, meaning continued uncertainty over the future of cross-border supply chains after Brexit. HMRC has estimated that the cost of moving to a max-fac customs arrangement would cost businesses around £20bn due to the associated administrative costs of trusted trade schemes and other related arrangements that would need to be put in place.

UK ‘chasing a fantasy’

A senior EU official has said that the UK is ‘chasing a fantasy’ with its lists of demands from a future partnership, citing proposed customs arrangements, cooperation on enforcement matters, access to security programmes and other areas that it currently enjoys as a member state. Despite a generally warm reception to Theresa May’s call for a deep and comprehensive relationship between the UK and EU, many in Brussels still oppose a deal that allows the UK to hold some level of influence of EU policies, regulations and projects – ‘a non-member of the Union…cannot have the same rights and enjoy the same benefits as a member’, as is set out in the EU’s Brexit guidelines. The UK has, in turn, warned ‘non-attributed EU officials’ of insults against the UK’s negotiating position.

Bank Ready to Act

The Bank of England has stated that it is ready to cut interest rates and restart quantitative easing to protect jobs and the economy if a disorderly Brexit ensues. The Bank has also said it is confident that major UK banks “have the balance sheets and liquidity positions to withstand a cliff-edge Brexit”, whilst setting out that it has contingency plans in place for the financial sector. These announcements may give some confidence to The City, which remains concerned by the lack of progress on agreeing terms for financial services within negotiations as well as what will happen if the talks break down. Mark Carney, the Bank’s Governor, took a more positive tone about the effects of Brexit, saying a “boom in investment” could be the result of progress by UK and EU negotiators towards a “deep and special” relationship.

Data Drive

In an attempt to reach a bespoke agreement on data transfers between the UK and the EU, UK negotiators have offered to transpose EU data protection rules ‘in full’ into British law, including GDPR. The EU remains reluctant to the UK’s terms for an agreement in this area however, with the UK seeking representation at the EU regulatory level by the Information Commissioners’ Office (ICO); something the Commission is keen to stop. There remains a good chance that data flows will continue beyond Brexit; however, movement on the EU side is likely to be limited over UK participation in policy decisions given reluctance by the EU to new EU-UK bilateral arrangements that would mean the UK continues to have a say on areas of EU policy that affect it.

US Congress seeks ‘Expeditious Agreement’

The future of a UK-US Free Trade Agreement was given a vote of confidence this week by the setting up of The Senate UK Trade Caucus, which aims to build support across Congress for UK-US free trade deal and to expediate into US law after the UK leaves the EU. The group, which is comparable to an All Party Parliamentary Group in the UK, signals an active and formalised push to build a closer trading relationship between the US and UK post-Brexit. Theresa May has come under pressure to identify how the UK will replicate the level of access and economic benefits of current EU membership. Decisions over UK membership of a customs union have a large part to play in any future UK-EU trade agreement, with the UK constrained in its ability to sign trade deals if it must apply the EU’s common external tariff on countries outside of the customs union.


Pipped to the post?

The EU is to begin formal trade negotiations with Australia and New Zealand as it seeks to expand its exports to countries beyond its borders. Announcing forthcoming negotiations, Australia’s trade minister, Steve Ciobo, said Australia would not “sacrifice the quality of the trade deal for speed”. As part of the deal, Australia wants greater access to the EU’s agricultural market which has traditionally been protected to alleviate concerns by the EU’s agricultural industry, with much of the pressure coming from France. Unlike Japan, which has sought to prioritise talks with the EU over the UK on a future free trade agreement, Australia has said discussions would happen in parallel as the Australian government seeks to broker new free trade agreements with countries around the world, including an attempt to revitalise the Trans-Pacific Partnership.