Brexit Update 5th January 2018

By January 18, 2018 Brexit Updates

Top 3 developments  

  • Brexit Secretary rules out EU cherry picking sectors.
  • Michael Gove sets out post-Brexit shake up of farming subsides, whilst guaranteeing subsidies until 2022.
  • Ireland and Hungary show support for uninterrupted trade in goods and service with the UK in the face of France’s warning about maintaining EU unity.

UK Update

No EU Cherry-picking says Brexit Secretary

In what may be deemed a humorous retort to the much-repeated mantra by EU leaders, David Davis has stated that the European Union cannot ‘cherry pick’ the sectors of the UK economy that will be covered by a post-Brexit free trade agreement. This follows months of EU warnings that the UK cannot have its cake and eat it in terms of leaving and retaining benefits. The UK negotiating team is under increasing pressure to secure a trade agreement that protects the UK’s vital service sector, whilst questioning the EU’s stance on allowing an agreement that includes goods but not services. The move follows recent comments from the Commission’s Chief Negotiator, Michel Barnier, that a free trade agreement between the UK and EU will not include financial services as the bloc does not currently have any trade agreements which include this sector. This key battleground is expected to dominate talks from March, when negotiations are expected to be given the go-ahead over the future relationship.Whilst neither side has ruled-out walking away from talks, the prospect of a no-deal scenario risks undermining the transition period which is set to be agreed, and the future of UK-EU relations. This period also presents the biggest challenge for both sides, with the Government having to respond to different voices and visions of what Brexit means domestically, and the EU27 fighting to remain united in the face of competing domestic priorities amongst states. The European Commission published figures in 2016 showing the UK as the bloc’s largest single export market if treated as a third state (16%), followed by the United States (15%) and China (8%). Economic security and the protection of national markets will likely lead to both sides seeking the boldest cherries, but at what cost. The question at this stage is who is more prepared for the fall out if the cherries sour. Everything is up for negotiation at this most critical of stages.

Blair hits the airwaves

  • The intervention is one of a string in recent weeks which include the resignation of Labour Peer Lord Adonis from his position as head of the government-backed National Infrastructure Commission. The peer called Brexit “populist and nationalist”, as well as destructive in his resignation letter, pointing to preparations by the Government to leave the Single Market and Customs Union. However, with the opposition opposing a second referendum and the Government ploughing full steam ahead in negotiations, Tony Blair’s dream of a second referendum is unlikely to be realised.
  • The prospect of a second referendum was given another lease of life on Thursday as former Labour PM Tony Blair took to the airwaves to make his case. After being pressed on whether he accepted the result of the referendum in 2016, he sought to advance the need for a second referendum given he and others did not accept the result and people have a right to change their mind, but did then acknowledge that he would not push for a third poll if people voted again for Brexit. Blair’s intervention has been deemed “utterly unhelpful” by a shadow cabinet minister, as  Labour Party policy is currently aligned with accepting the outcome of the referendum and ruling out a second referendum. This stance was criticised by Blair, believing it placed Labour in “exactly the same position” as the Conservatives, and failed to “make them own it 100%” – a position he believes will mean Labour will be blamed too if Brexit fails.

What did the Fox say? TPP membership left open

It has been reported this week that Ministers have held informal discussions on joining the Trans-Pacific Partnership (TPP). The International Trade Secretary Liam Fox fuelled speculation further when he publicly chose not to rule out membership during his visit to China and added that the Government was waiting to see how the partnership evolves following the United States’ withdrawal over the summer. Fox’s trip, aimed at preparing the ground for future Sino-British trade relations, is a clear sign of the UK’s intention to begin trade negotiations with third states after it leaves the EU on the 29th March 2019. In recent months, Liam Fox and others have stepped up their efforts  to enhance relations with China and other major partners in preparation for the transition period where agreements would need to be made. A move to join TPP would give the UK greater access to 11 countries markets across various sectors. Such a partnership may help the UK increase its exports up from the 8% of total UK exports it currently sends to the 11 members.

The Government has signalled that it hopes to copy and paste most of the EU’s trade agreements with third states into UK law, before reviewing them and seeking enhanced bilateral agreements in the future. Such a move is likely to come under criticism from Brussels, with insistence that the UK abides by EU rules throughout the transition period. This could mean the UK is unable to agree trade deals, even if they do not come into effect until after the transition period ends. It also assumes third states will be open to such an approach, and is likely to form part of key discussion in the first few months as the government sets out its long-term vision and transition talks begin.

Profitable, Productive, Progressive – Farming after Brexit

Michael Gove, the Environment Secretary, took to the stage on Thursday morning to give assurances over the matching of farming subsidies until 2022, before outlining a transitional period for England as it shifts to incentivise the provision of public money for public goods. Whilst the move has been tentatively praised by environmental campaigners, others have sought to warn against holding UK farmers to higher standards in the face of cheaper food imports from outside the EU.

The head of the National Farmers union has called on “a new deal” for the UK farming sector, that is profitable, productive and progressive. Attempts to make UK farms more efficient, and technologically advanced, would be one way of responding to increased competition. However, concerns still exist about how quickly such a transition away from current methods can happen given constraints on funding and uncertainty over future export markets. The Government’s agricultural strategy, due to be released in the spring, may address some of the industry’s concerns, but is more likely to form a deeper consultation over the coming years about the future of UK farming post-Brexit.

David Davis forced to defend position as Chief negotiator

The Secretary of State has had to defend his level of influence after recent media speculation that Olly Robbins, Theresa May’s Brexit ‘sherpa’ , has taken the lead in negotiations. Describing the reports as “wholly inaccurate”, Davis went on to question the briefings given to journalists and their close confidants, but did not deny that Robbins had met EU Chief Negotiator Michel Barnier face-to-face. Under current arrangements the negotiating teams of both the UK and the EU meet regularly, with Davis and Barnier overseeing negotiations.

Airlines take off as post-Brexit contingencies implemented

Ryanair is the latest airline to implement contingency plans for its post-Brexit future. The Ireland-based low-cost airline has applied to the CAA for a UK permit to operate domestically. This follows similar applications by UK and EU27 based companies to ensure minimal impact to their businesses in case negotiations fall apart. EasyJet made headlines last year when it established EasyJetEurope, with its headquarters in Austria, following warnings from top EU officials that UK airlines would need to relocate or sell off shares to EU27 nationals to continue operating within the EU. The future of travel between the UK and the EU27 states is yet to be agreed, with added uncertainty over the future of the Open Skies Agreement which allows EU and US carriers to operate between each other’s airports.

European Update

Cracking up?

In what may be a sign of cracks appearing between EU Member States, Britain was given a boost on Thursday evening regarding the possibility of striking a unique trade deal with the EU. Ireland and Hungary expressed their regret at the UK’s departure, and were quick to outline that they would be fighting for uninterrupted trade in goods and services. Given the UK has been unequivocal in its rejection of continued single market and customs union membership, this leaves open the possibility of association agreements that could allow limited free movement of goods and services. However, with the October 2018 provisional deadline for the close of talks fast approaching, to allow for votes in the EU Parliament and UK Parliament, the pressure is on. The Commission will be hard pressed from this point on to turn the collective EU interest into the dominant national interest of each EU state.

Meanwhile, the French President Emmanuel Macron has warned EU Member States to stay united to avoid falling into a ‘Prisoner’s dilemma’ – a famous theoretical paradox in which two parties act out of self-interest and both lose out. Macron’s comments come amid increased speculation that cracks may open up between EU Member States during the second phase of negotiations and cause strain between national leaders. But with many pointing to the expected pressure from industry leaders highly reliant on exports to the UK, the pressure on national politicians may be more than they can handle.

Whilst the UK may look positively on the news from Ireland and Hungary, the fundamental difficulty of the limited timescales available in which to agree a free trade agreement with the EU remains.

Eyes to the north as Franco-British Summit approaches

French President Macron is under pressure to deliver reassurances to the President of France’s northern Haute-de-France region as he prepares to meet Theresa May in two weeks’ time. The region is set to be greatly affected by the UK’s decision to leave, and Bertrand has highlighted immigration and customs arrangements as two potential flashpoints for disruption to the region’s economic and social stability. The Le-Touquet agreement, which covers immigration checks at the point of departure, as opposed to arrival, will likely need to be extended to include customs checks if no agreement is made by the time of the UK’s departure. Macron is expected to discuss these concerns with the UK Prime Minister, as well as with EU Chief Negotiator Michel Barnier, to ensure they are factored into the second phase of negotiations.

Timeline

  • 8th January – Parliament returns from recess
  • 16th January – Report stage of EU Withdrawal Bill
  • 18th January – Franco-British Summit
  • 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 – EU Council Summit

 

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