Brexit Update 26th January 2018

By February 10, 2018 Brexit Updates

Top 3 developments  

  • Trade Deal pledge from Brexit Secretary
  • Hammond: ‘Goods, but not services, would never be fair’
  • Head of ERG applies pressure to May

UK Update

Davis delivers trade deal pledge

In a speech in Teeside today the Brexit Secretary, David Davis, set out the Government’s intention to develop its own trade policy and sign trade deals with “old friends, and new allies” after it leaves the EU next year and enters a two-year ‘implementation period’. The speech is set to get tempers flaring in Brussels, following leaks of Commission plans to bind the hands of British trade negotiators during a transition period, by forcing them to seek approval to engage in negotiations and remain part of current trade deals between the EU and third states. The UK position remains that the UK will remain part of the same trade deals given its continued position in the Single Market and Customs Union throughout the period.

Davis further stipulated that it was important that the UK gains a voice in regulatory changes and laws it does not like. This appears to align somewhat with EU demands that the UK accept the obligations without the representation throughout the period, but a voice in areas that affect it directly. In a nod to those worried of the EU punishing the UK through regulatory changes and new laws through the period, Davis allayed concerns by pointing out that the EU’s legal systems mean new laws and regulations are unlikely to come into effect before the UK leaves completely – devoiding it of obligation.

Hammond warns EU on financial services red line

In a warning shot to the EU, Phillip Hammond has ruled out a Brexit deal that includes goods but not services, saying such a deal would ‘never be fair’ to the UK. The comments come at the edge of the World Economic Forum in Davos and follow comments by Italian PM Paolo Gentiloni who insisted that financial services must be included, with compromise needed to satisfy all sides and ensure stability. Hammond and Gentiloni both spoken of the EU27 cutting itself off from the City of London’s financial institutions as unrealistic given heavy integration.

Hammond further re-asserted that the UK will be leaving the European Union, the Single Market and the Customs Union, placing the UK on the other end of the table, with hope from both sides that they can meet somewhere towards the middle. The UK currently runs a £60bn deficit in exports of goods and services combined to the EU, dropping to £100bn if the £40bn surplus in service exports are excluded.

Plus, Plus, Plus – Plus

Forget Canada-plus-plus-plus, for this week enters the Norway-Plus model introduced by Irish PM Leo Varadkar. Keeping with his promise to fight for a trade deal to the benefit of both the UK and EU, Varadkar sought to argue that a bespoke agreement was necessary given the proximity and size of the UK economy. Canada was “on another continent” whilst Norway was “a relatively small country” he said. The contents of Norway-Plus certainly was given a clearer form as Varadkar set out that despite the UK drawing a red line through Single Market and EU Customs Union membership, “something that isn’t very different could be negotiated”. The Norway model offers greater access to the EU’s single market, but with additional obligations, including substantial financial contributions.

David Davis is yet to comment on such a switch from the preferred Canada option given to him by the European Commission but will be keeping a keen eye on apparent divisions between EU member states on whether a trade deal should include services or strictly be limited to goods before the start of the second phase of negotiations in March. The Commission has warned that the leaders of member states must stay united in this most difficult of stages.

Mayday: Chancellor’s comments overshadow May’s time at Davos

Following a number of comments aligning the Chancellor firmly with the position of the Government on Brexit, the Chancellor let slip in Davos that he wanted to see ‘very modest’ changes to the UK’s trading rules with the EU. Whilst the UK has set out that it will be leaving the EU Customs Union and Single Market, it still hopes to negotiate access to the first and a level of association with the second. The Chancellor’s comments have come under fire from leading Brexiteers, who want the Government to take a firm position that doesn’t rule out walking away if the UK’s conditions are not met. May has reasserted her support of the Chancellor, whilst he himself has sought to limit damage by tweeting that he remained committed to leaving the EU, the Customs Union and the Single Market.

Brexit not as bad as we thought says Cameron

In comments to steel tycoon Lakshmi Mittal in Davos, Cameron was overheard saying Brexit “turned out less badly than we first thought”, adding that the Leave vote was “a mistake not a disaster”. The comments are the first by the former-PM acknowledging that his Government had been wrong in their warnings of a substantial economic shock in the immediate aftermath of a Leave vote. Whilst the initial forecasts on the pound dropping appeared to be true, the value of the pound against the dollar appears to be returning to the rate seen prior to the vote. Unemployment also remains at record lows and the economy continues to grow, albeit at a slower rate than before the referendum.

YouGov poll sets out UK Public priorities in negotiations.

A YouGov poll has been released today placing tariff-free access to EU markets as the top priority of the British, with 40% of respondents deeming it important. It was followed by the ability of the UK to negotiate new deals with non-EU states (38%), cooperation with EU on security (37%) and UK control of immigration (34%). The poll is released on the day the UK sets out its intention to negotiate its own trade deals throughout the implementation period. The matter of tariff-free access is still largely uncertain and will not be discussed until March at the earliest when trade negotiations are expected to begin.

US reignites post-Brexit trade deal hope

US Treasury Secretary Mnuchin has sought to reignite the flame in UK-US relations by stating that the UK would be at the front of the queue for a bilateral trade deal following its exit from the EU. The comments follow relations between the two countries becoming increasingly strained after differences over foreign policy and Twitter spats. International Trade Secretary Liam Fox has already met with the US Commerce Secretary to discuss boosting trade. The UK also confirmed it would be placing commercial officers in British embassies around the world and has started recruiting trade commissioners to assist in securing trade deals.

Transition negotiation guidelines leaked

EU transition negotiation guidelines were leaked this week, with UK involvement in bodies drafting regulations ruled out. As a member of the EU, the UK has been an active participant in introducing and shaping regulations, as well as halting initiatives such as an EU-wide transaction tax and stricter regulations for financial services. However, without a veto the UK is likely to have to implement many new measures throughout the transition period that it otherwise would have blocked. UK opt-outs are also likely to disappear as new regulations and directives are introduced, unless, as the document states, it’s in the EU’s interests or the issue is solely about the UK.

Head of ERG applies pressure to May

The European Research Group has stepped up its efforts to hold the Government to account on its commitment to respect the vote to leave the European Union. Jacob Rees-Mogg, head of the group, questioned the Brexit Secretary in Committee this week, warning of the UK becoming a “vassal state”, subject to the directives of the EU through a transition period. He further warned that the Government should not be “cowed by the EU”, letting voters down as it opted for a “managed decline”. David Davis rejected the propositions, and further defended the UK’s position and negotiating objectives.

The group is becoming increasingly prominent, due in part to the election of its new Chair, something of a media-favourite. It’s strength in numbers also poses a threat to May’s leadership, rivalling the 1922 committee as a forum for influence over the actions of the front bench. A prime example of this is the retraction of remarks made by the Chancellor that the UK and EU would only moderately diverge, something seen as unacceptable to those that want a clean break with its institutions, rules and regulations.

European Update

Budget differences brim in Brussels

Finland, a net contributor to the EU budget, spoke out this week on the issue of how to fill the hole left by the UK’s departure. Sampo Terho, Finland’s Europe Minister, said they hoped to see a smaller budget, in line with the new reality of a smaller membership. France in turn has talked of increasing the EU budget in order to spearhead a deeper level of integration between the 27 member states, something Finland believes would be “absolutely the wrong conclusion” following the Brexit vote. Jean-Claude Juncker neatly proposed the two options facing EU members as budget negotiations begin this year, “pursue the EU’s ambitions in the strict framework of the existing budget or increase it so it might better reach its ambitions”. When money is involved the benefits must often exceed the costs to be desirable, it will be up for the European Commission to ultimately sell that to national leaders.

Macron asks business to “Choose France”

Against the backdrop of the beautiful interior of King Louis XIV’s Palace of Versailles, French President Emmanuel Macron sought to tempt 140 global business leaders to “choose France”. The summit, like that held by national leaders around the globe to drive up business investment, is likely to be interpreted as Macron’s attempt to place France at the centre of Europe following shifts in power at the top of the EU. The UK has been focused on Brexit negotiations, and Germany on the formation of its Government, leaving France to push out in front as the ‘leader of Europe’.

Timeline

  • 29th January – EU27 ministers meet to sign off start date of second phase of negotiations
  • 23rd February – Informal meeting of EU27 Heads of State/Government
  • 22nd – 23rd March – European Council Summit

 

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