Brexit Update 2nd March 2018

By March 15, 2018 Brexit Updates

Top 3 developments  

  • May gives speech on future relationship
  • Labour gives support for Customs Union with EU
  • Draft withdrawal agreement comes under fire

UK Update

May seeks ‘broadest and deepest’ free trade agreement

Theresa May has set out her vision for a future UK-EU economic relationship, outlining a series of tests and proposals that the UK seeks to adopt. The most significant is arguably the proposal to aim for reciprocal binding agreements in areas such as competition, in a bid to stave off a ‘race to the bottom’ that the Prime Minister said would not be in the interest of the British people and would undermine standards. May further set out that the Government sought for regulators in a number of areas to form association agreements with EU bodies in areas such as aviation, medicine and broadcasting.

The speech further sought to address the two issues of the border in Northern Ireland and accusations by the EU that the UK sought to cherry pick within negotiations. On the former, two proposals were set out to ensure as frictionless trade as possible including through the implementation of an external tariff in line with the EU on goods arriving in the UK intended for the EU market, and another that sought to take advantage of technological solutions in the transfer of goods between territories, both of which have previously been set out. Concrete proposals or documents on how this would work in practice are yet to be published. On cherry picking, May set out that all free trade agreements included cherry picking by their very nature.

This was a more detailed speech than others, giving some indication of the long-term goals sought by the UK. Further supporting information is ultimately required however for workable solutions to be established, and business is likely to want to see such proposals to allow them to plan accordingly. Only after the EU Council meets at the end of March and a joint position is established will the true impact of the speech be known. The EU may seek to work to the same objectives as the UK or, as the Commission has stated, work towards an ‘off-the-shelf’ model if it deems the demands of the UK unworkable.

Labour gives support to Customs Union

Jeremy Corbyn this week drew a red line between Labour and the Conservatives on the issue of a customs union with the EU post-Brexit. Unlike Theresa May who has ruled any such union out, Corbyn outlined Labour’s support for the idea citing border issues in Northern Ireland and disruption to business as two key driving factors, as well as maintaining living standards. Whilst accepting that a customs union would limit independence on negotiating trade deals, Corbyn said any agreement would be subject to the UK ‘having a say’ on future deals. The speech was welcomed by the CBI and others which marks a significant departure from the body’s usual support of the Conservatives economic policies in recent years.

The move risks a Conservative defeat in the House of Commons if Labour whips its members to vote in support of an amendment calling for a customs union as part of the Trade Bill. The European Commission has further supported the proposal but has rejected the idea that a customs union will result in no hard border between the UK and EU, as can be seen with Turkey. “Only the combination of the internal market and the customs union make frictionless trade possible” said Barnier, showing that outside both that friction to some degree was almost inevitable.

UK migration proposal rejected by European Parliament

The European Parliament has rejected a revised proposal tabled by the UK Government regarding migration during the transition period. The new proposal sought to give new EU migrants the freedom to remain in the UK for the five years required to obtain citizenship, provided they registered their arrival. This differs from the previous proposal that would allow freedom of movement only during the transition period, whereby they would fall under the UK’s new immigration policy, set to be announced this year. The European Parliament agreed that the proposal did not go far enough in assuring the rights and equal treatment of EU citizens. Theresa May has been under pressure to draw a red line on the issue, however is likely to offer further concessions if the matter acts as a roadblock to discussions on the future relationship.

Fox’s Future Ambitions

International Trade Secretary Liam Fox has outlined the Government’s aspirations for its future position outside the EU. The speech sought to turn the debate about the UK’s future trading relationship with the EU on its head, asking instead for people to consider what freedoms the UK needed to retain to ‘prosper in a rapidly changing global environment’. With 90% of global growth deemed to be taking place outside of the EU according to the IMF, Fox outlined markets in which the UK should be focussed. With EU negotiations remaining the prime concern and responsibility of other departments, and the International Trade department limited in its ability to negotiate new post-Brexit trade deals, Fox is said to be keen to start signing agreements soon. The speech further addressed the customs union which Fox believed limited the UK’s freedoms and opportunities.

Nothing agreed until everything agreed

The Brexit Secretary, David Davis, has weighed into the dispute over the future of customs arrangements in Northern Ireland, stating to Tory MPs that all issues needed to be resolved before agreements entered over financial payments would be met. Attempts to resolve the Northern Irish border issue has become one of the most complex aspects of negotiations given the political sensitivity of the region. The UK is seeking EU support in finding a solution that does not include a customs union, however the EU does not believe such a solution can be found, showing possible conflict between both sides before negotiations move onto the future relationship, which are expected to commence at the end of this month.

Between a Rock and hard place

Gibraltar is considering legal action against the European Union over the grant of a Spanish veto over any inclusion of Gibraltar in the final withdrawal agreement. The British overseas territory has consulted leading British lawyers over the veto and seeks to overturn the decision fearing the Spanish will seek joint access to Gibraltar’s airport after it refused to only negotiate with the British government over the matter. Disagreements over ‘The Rock’ as it is locally known, go back to the Treaty of Utrecht which ceded the territory to the British in 1713. In more recent times issues over the border have made travelling between Gibraltar and Spain harder for workers, signalling possible problems to come if the issue remains unresolved.

Major calls for free vote

John Major has called for a free vote on the final Brexit agreement to be agreed between the UK and EU. Citing the need to ‘reflect’ on the realities that have come to fruition, the former Prime Minister sought to outline the fallout that may occur from the UK’s exit from the bloc. He used many of the arguments made by the Leave side during the referendum debate to show how they ‘had got it wrong’ and that if the course was not redirected, hard consequences would ensue. Tony Blair later built on the comments believing that risks were being taken over peace in Northern Ireland to satisfy the Brexit vote, whilst further calling for a second vote. If May did call a free vote, it would allow Conservative MPs to vote in line with their own beliefs without fear over their political futures, instead of in line with party policy. Such a position is unlikely to be made by May however given the risks of derailing the entire Brexit process.

European Update

Draft Withdrawal Agreement Published

The European Commission published the draft withdrawal agreement which is to be discussed and ratified by the EU Council when it meets later this month. The agreement has been seized upon by the UK as seeking to undermine the internal market of the UK with its proposal to keep Northern Ireland within the Customs Union if no other solution is found to the border issue. Fearing that the preferred option may become the default option of the EU, whereby every other solution is less in the EU’s interest, Theresa May rejected the wording, saying, “No UK Prime Minister could ever agree to it”. The EU Council is deemed to be broadly supportive of the main elements of the text, however, Council President Donald Tusk has invited the UK to offer alternative solutions to those set out in the agreement.

Ireland warns UK on red lines

Ireland’s EU Commissioner Phil Hogan has warned Theresa May to drop her red line on not joining a customs union with the EU if she wants talks to move forward. The warning comes amid concern in Brussels and Dublin that the UK is seeking to reject their proposals, only to move ahead with tech-led border controls – of which the EU is unconvinced. The EU is further incensed by what they see as a reversal on a previous position made by May in December that the UK would accept regulatory alignment if other options did not satisfy the needs of avoiding a hard border. May said of the matter that “No British Prime Minister could ever accept the proposals”. She has since repeated that there will be no customs union with the EU, how Brussels will now react is of concern to all parties, most of all Ireland.

Dutch fear customs calamity

The Dutch government has outlined its recommendation for the UK to recruit ‘thousands’ of customs and agricultural inspectors to avoid major disruption when it leaves the EU, believing the ramifications of leaving the bloc were not being properly considered ‘both sides of the channel’. The Dutch government is planning to hire at least 750 more inspectors as part of its obligation to protect the EU’s external borders and apply appropriate checks and tariffs with third states, which the UK will be after it leaves the EU – albeit delayed by any transition period. The Dutch Parliament’s Brexit spokesman stated that they were planning for one of two scenarios, that the UK has a deal similar to Canada or that it leaves with no deal in place – both of which are covered by the contingency plans being enacted, and both of which the UK hopes to avoid in its pursuit of a bespoke agreement. 

Timeline

  • 5th – 9th March – Transition talks continue
  • 22nd – 23rd March – European Council Summit