Brexit Update 26th July 2018

By August 11, 2018Brexit Updates

Top 3 developments  

  • No-deal rhetoric steps up
  • Brussels rejects ‘enhanced equivalence’ for the City
  • Spain concerned over lack of progress on Gibraltar

UK Update

Deal or No Deal, preparations are in full flow

The fighting talk has picked up this week as all sides step up preparations for a no-deal scenario. Whilst the UK begins to stockpile food and medical supplies, France has talked of preparations for a “brutal divorce” which would include addressing gridlock at Calais and other EU ports. On the possibility of the UK pulling out of talks and pursuing a no-deal outcome, Irish Foreign Minister Simon Coveney said the UK could “not afford a no-deal scenario” and was bluffing.

EU leaders have further criticised a series of amendments to the Trade Bill passing through the House of Lords which would mean the UK would have a separate VAT regime to the EU, would only collect EU tariffs if the EU collected UK tariffs and would make the EU’s preferred backstop option for Northern Ireland illegal. Michel Barnier told the Lords EU Committee that “amendments blocking possible solutions risk the UK getting closer to a no deal”. Simon Coveney went as far as to say that the UK could not legislate its way into a corner for its own negotiating advantage, stating that the EU could respond in kind. Brexiteers however are keen to enshrine May’s red lines in UK law to ensure no backsliding in negotiations following concerns over the controversial Chequers White Paper.

With little under three months to go, the prospect of no deal remains an ever-present possibility. EU insistence on a Northern Ireland backstop solution, which Barnier has said would only be replaced ‘if something better comes along’, has led to a stalling in talks. The UK is keen to consider a solution for the border in wider relationship talks, but it is unclear whether the EU will give ground and allow wider talks to progress in the hope of the issue being resolved as part of a final deal. Failure to do so may lead to no deal, no transition, and no solution – something both sides are seeking to avoid.

Are you ready for the Rock?

The Spanish government has expressed concerns over stalling talks with the UK on Gibraltar. The outcome of talks will ultimately determine whether Gibraltar’s citizens will be included in the transition period following Brexit, remaining in the Customs Union and Single Market for an additional 21 months – an important factor given reliance on the movement of workers, goods, services and capital across the border with Spain and other EU states.

The EU’s Brexit negotiation guidelines, published in April 2017, stipulated that the remaining 27-member states were given a veto, Madrid has sought to maintain that veto over the last 15 months. Following a meeting with Michel Barnier and Madrid’s EU minister, Barnier told reporters that along with settling rights of EU citizens living on British military bases in Cyprus, a bilateral agreement on Gibraltar was needed urgently to move ahead with talks.

Madrid is pushing for joint management of Gibraltar’s airport as well as greater co-operation with the Rock on tax fraud and tobacco smuggling in return for its support for the Rock’s inclusion in the UK-EU Agreement. Spain is hoping any reforms will help to spread some of Gibraltar’s wealth to surrounding Spanish territories. UK Ambassador to Spain, Simon Manley, has sought to reassure citizens of the Rock, saying, “Brexit will turn out well for the Gibraltarians”. With little appetite among other EU members for the UK-Spanish disagreements to hold up the hard-negotiated Withdrawal Agreement, Spain is hoping to strike a deal with the UK as soon as possible before the October deadline.

Brussels rejection of Brexit plan for UK financial services

UK proposals set out in the Chequers White Paper, for the City of London to use enhanced equivalence to gain access to European markets after Brexit has been rejected by EU negotiator Michel Barnier. Expressing the reasoning behind the EU’s decision, Barnier highlighted that the proposals would rob the EU of its “decision making autonomy”.

Following the EU’s recent rejection of the City’s preferred “mutual recognition” arrangement, Chancellor Philip Hammond had hoped the alternate model which is based on the EU’s existing equivalence model but with additional safeguards, would gain favour. The UK is seeking a longer notice period than that currently offered to third states, something Barnier believes would distort the current framework and remove EU autonomy when its rules are broken. Barnier believes changes would distort the current framework, with equivalence acting as a ‘gift’ not to be altered.

The loss of the Single Market passport which many London firms use to trade across the EU without separate regulatory or capital requirements has been one accepted loss by the Government, however the most recent rejection will be a blow for the hope of retaining favourable access to the EU’s financial markets. Tens of thousands of pre-existing derivatives and insurance contracts are deemed to be at risk if an appropriate deal is not achieved for both sides. Talks of this nature are likely to extend into the transition period, however it is as yet unclear how this will be resolved in the event of a no-deal.

Move over Raab, May’s taking this one

Following Theresa May’s recent struggle to sell her “business-friendly” Brexit plan to her own party, she has taken personal charge of Brexit negotiations leaving Brexit Secretary Dominic Raab limited in his ability to shape his own department’s operations. The move places the spotlight on May’s Brexit adviser Olly Robbins who has previously been criticised by Brexiteers for holding too much influence over the shaping of the Government’s Brexit position, culminating in the Chequers Deal. Former Cabinet minister John Whittingdale suggested that Raab and Robbins swap roles, highlighting that the civil servant was “clearly in charge”.

Placing Raab in an even more embarrassing position, May went on to release a written statement on the last day before summer recess, saying she “will lead negotiations with the European Union, with the Secretary of State for Exiting the EU deputising on my behalf.” Leaving no doubt as to who is in charge going forward. Jenny Chapman, Shadow Brexit Minister, said: “Dominic Raab has been side-lined by the Prime Minister before he has even had the chance to get his feet under the table”. Raab, a Brexiteer, has previously suggested linking the UK’s payment of the £39bn ‘divorce bill’ to a favourable post-Brexit UK-EU trade agreement, something EU diplomats remain vehemently opposed to, pointing to the terms agreed in December for the payment. May’s response? “Nothing is agreed, until everything is agreed.”

Amazon warns of no-deal implications

Doug Gurr, Amazon’s UK manager, warned Dominic Raab, that Britain would face “civil unrest” within weeks of a no-deal Brexit. Leaving the EU without a decided agreement could provide problems to businesses as trade tariffs could face a steep rise without a decided upon agreement to reduce rising tariffs. As a result, several major employers, including the aerospace giant Airbus and the UK’s largest carmaker Jaguar Land Rover, have also warned they could be forced to move jobs and investment overseas.

Conservative MEP seeks Treason Act review

Conservative MEP, David Bannerman, has that Britain’s Treason Act should be updated to apply to citizens who are “working undemocratically against the UK through extreme EU loyalty”. In the same comment Bannerman placed them alongside people who had decided to leave the UK to fight against it, such as the two former-citizens facing trial in the US. After receiving huge criticism from the UK public, Bannerman, in a report to the Guardian, has said he was referring to those who might leak confidential information that would damage Britain’s interests after Brexit. The comments have enraged civil and human rights activists and many in his own party.

Nothing agreed until everything agreed

Dominic Raab, Britain’s new Brexit Secretary  made the statement on Sunday that the £39bn Brexit bill the UK should be made on condition that the EU agrees to a free trade agreement with the UK. EU officials and diplomats from the 27 remaining member states point towards the December agreement made by Theresa May and Jean-Claude Junker which stated there would be no link between the bill in the Brexit Withdrawal Agreement and talks on the future relationship, infuriating Brussels and Brexiteers, possibly hindering successful Brexit deals proposed by the UK. The European Commission, which leads the negotiations on behalf of the EU, said it would not comment on Mr Raab’s remarks but hinted it would expect Britain to stick by its promises from the December Agreement.

Upcoming Key Dates

  • 18th October: EU Council Summit, including sign off of the EU Withdrawal Agreement
  • 29th March 2019: UK planned exit from the European Union
  • 30th March 2019: UK planned transition period.
  • 31st December 2020: UK planned exit from the transition agreement.