Brexit Update 27th April 2018

By May 12, 2018 Brexit Updates

Top 3 developments  

  • DUP threatens walk-out
  • Wales finds agreement on EU Withdrawal Bill
  • Barnier plays down importance of City

UK Update

DUP threatens walk-out

The DUP has threatened to break the confidence and supply arrangement it has with the Conservative Party if any of its red lines are crossed on Brexit. These include establishing a separate arrangement which would enable Northern Ireland to remain within the Single Market and to be members of a customs union with the EU. Nigel Dodds, the Party’s leader in Westminster, said that the DUP would vote against any deal that would establish a separate regime for Northern Ireland. A DUP walkout would undoubtedly threaten the stability of the Government, with several Conservative MPs already aligning themselves against Government policy on substantive Brexit issues.

May has stated that people voted to leave the EU and thus the Single Market and Customs Union, and David Davis, the Brexit Secretary, has said that he would see the UK remaining part of a customs union as a “failure” and “the worst of all worlds”, as stated in a Committee hearing this week. A key amendment to the Trade Bill calls for the establishment of a customs union – the acceptance of which would call the future of the Government into question.

Talking Customs

The biggest debate of the moment centres on a future customs union with the EU. Whilst the Government’s position is to oppose a customs union, others, including the majority of the Lords, have spoken in favour of establishing a union to protect business and ensure frictionless as possible trade with the EU. The Chair of the European Research Group, Jacob Rees-Mogg MP, has called the idea “completely cretinous”, whilst others have counselled caution, suggesting that the Government is basing its rejection of the EU’s customs regime on the idea that the UK will form stronger ties around the world, with little supporting evidence. However, with less than 6 months to go until the October deadline, the Government needs a solution and it needs it now.

No access very very frightening, Galileo!

The UK is trapped in a bitter dispute with the European Commission over the future of the Galileo satellite system that is being developed as part of an EU-wide project. The UK is insistent that it should remain part of the project after it has left the EU and maintain access to the satellite system following its 1.4bn euro investment towards the development of the system, as well as for the purposes of security cooperation. Given the sensitivity of the satellite system, which competes with the US’s GPS satellite, Russia’s Glonass system and China’s Beidou satellite, the EU is expected to shield any procurement contracts from the UK. If the UK doesn’t secure access it is likely to seek a return of its investment and would need to negotiate to use the system in the future.

Ruddy hell

Amber Rudd, the Home Secretary, has caused tension in the Conservative Party and the Cabinet following her admission that the Cabinet is yet to agree a “final position” on the customs union. The Government has repeatedly stated it will not seek to form a customs union, however has come under pressure in recent days to rethink its strategy after a series of votes in the House of Lords and Commons to that effect. Peter Bone MP, a key proponent of the UK’s exit from the EU, cast his disbelief at the gaffe, whilst Keir Starmer MP jumped on it as an opportunity for the Prime Minister to “rethink her approach” and listen to Parliament and Business on the issue, rather than “putting her party before the country”.

Wales finds agreement as Scotland stands firm

The Welsh Government this week agreed a deal with the UK Government that paves the way for its support of the amended EU Withdrawal Bill passing through the House of Lords. The Scottish Government is yet to agree to the proposals, which include the continued control of devolved powers by the UK and a 5-year sunset clause for the repatriation of the powers. Scottish Secretary, David Mundell, said that it was the “Welsh Government that believes in devolution” whilst the “Scottish Government believes in independence”, pointing to the SNP’s bid to gain independence and repatriation of all powers held by the UK Government. The two sides will need to come together if the Government is to receive consent for the terms set out in the EU Withdrawal Bill, as it set out at the start of the Brexit process.

Progress needed says Varadkar

The Irish Taoiseach, Leo Varadkar, has called for substantive progress to be made on the Northern Ireland border issue prior to the EU Council summit in June, as the issue continues to hold up trade negotiations. However, a solution appears to remain as far off as ever, given that both the EU and Brexiteers in May’s own party have spoken against the “customs partnership” option touted by the Government, which asks for the UK and EU27 countries to collect separate import tariffs based on the final destination of any goods sold. Whilst a technological solution has been described as fantasy by MEPs.

Michel Barnier has ruled out a solution that creates frictionless trade if the UK’s red lines are to be maintained, including in the instance of the UK forming a customs union with the EU. This is based on the EU’s desire to protect the integrity of the Single Market and its provisions for free movement of goods, services, capital and people. On this basis the Government is unlikely to secure an open border in Northern Ireland unless it changes its stance on areas such as the single market and customs union – whilst a change of tact to its ‘frictionless as possible’ option, which includes checks in some capacity, risks being seen as the erection of a hard border.

EU UPDATE

City Vital? – “non” says Barnier

EU Chief Negotiator, Michel Barnier, has questioned the UK’s opposition to the system of equivalence applied to third states on financial services, pointing to its application to US financial services. The UK, has continued to push for a system of mutual recognition over that of equivalence, which they suggest would provide greater financial security and bilateral cooperation between the UK and the EU going forward. The EU remains opposed to such a regime, which is deemed to give significant advantage to the UK, whilst exposing the EU to risk and creating reliance on the UK’s financial institutions after it leaves the bloc. Barnier has sought to downplay the reliance of EU27 states on the City, citing conversations with the ECB and others. The UK sees market access and EU reliance on the City as a top priority in any future relationship and the European Commission knows it.

In terms of the UK’s position on mutual recognition, Barnier said that he saw the UK’s logic in asking for ‘reciprocal regulatory equivalence’, before pointing out that it was membership of the Single Market that achieved such an outcome. Philip Hammond has warned that the EU’s favoured option was never designed to ‘carry such a load’. Others have suggested that it could lead to increased scrutiny for the City, making London less attractive than other financial centres, whilst negating many of the opportunities associated with leaving the EU for the City.