Brexit Update 5th October 2018

By October 19, 2018 Brexit Updates

Top 3 developments  

    • Canada +++ proposed as solution by EU
    • DUP red line on Irish Sea ‘blood red’
    • EASA refuses CAA offer to begin technical talks

UK Update

“Chequers? Never heard of it…”

Theresa May’s decision not to mention Chequers by name at Conference was noted on all sides as acceptance of the toxicity of the proposals amongst the party faithful. Instead, May referred to the UK’s position in negotiations, whilst reiterating her willingness to lead the UK out of the EU without a deal if she felt pushed to, guaranteeing her greater support within the hall. The speech also sought to unite the party around her Brexit and other policy positions, telling conference that in doing so she would ‘end a decade of austerity’, a remark later fact-checked by the IFS who said the Government would face a £20 billion a year shortfall if planned cuts were reversed.

 

The speech was largely praised by the party leaving May with greater support in the remaining weeks to focus on Brexit negotiations and engage with the EU’s proposals. EU Council leader Donald Tusk reached out to the UK, saying the EU is prepared to offer a Canada Plus, Plus, Plus deal. Saying the deal ‘was on the table from the start’, going on to call for an end of confrontation within negotiations as they get down to business “now the Tory conference is over”. Barnier is reported to have been happy with Chequers omission from May’s speech also, with the likelihood of a negotiated outcome more likely. Following positive developments surrounding the possibility of a deal, the pound rallied to a 10-week high.

Canada +++++++++++++

So. Deal or No Deal? That’s the decision facing UK and EU negotiators in the final few weeks set aside to find agreement on a withdrawal agreement and political declaration on the future UK-EU relationship framework. The UK has offered what can be considered a comprehensive arrangement that keeps the UK tied to the EU’s regulations on goods, with ambitious (yet politically impossible) proposals on introducing a dual-tariff regime to keep trade ‘frictionless’, whilst Donald Tusk has stated that the EU is willing to offer a more limited ‘Canada Plus, Plus, Plus’ deal. The latter has drawn praise from the Conservative Party’s deepest Brexiteer ranks, with the Prime Minister’s offer seeming increasingly unlikely to gain traction in the face of staunch opposition from all sides.

However, it remains that May’s offer is the only one that deals most fully with the border issue in Northern Ireland. A deal that ensures close-to-full frictionless trade between Northern Ireland and the Republic of Ireland, and between the UK and EU in goods, is favoured by those determined to maintain UK-EU trade levels at what they currently are. The EU’s plan, whilst still ambitious by Free Trade Agreement terms, offers a contentious solution to the border issue – maintaining that Northern Ireland would need to remain in the customs union, with checks needed in UK ports for the trade of goods between separate parts of the UK, a red line for both Theresa May and the DUP who May’s government relies upon for support.

Blood Red

DUP leader Arlene Foster has declared that her red lines on the Irish Sea are ‘blood red’, making a future EU proposal which could potentially lead to customs checks between separate parts of the United Kingdom politically impossible. The EU’s backstop proposal, to be outlined soon, is to keep Northern Ireland in the customs union beyond the implementation date, with limited checks between Great Britain and Northern Ireland to maintain EU standards. Theresa May has said such a solution would ‘carve up the United Kingdom’ and is instead proposing that the whole of the UK maintain a customs union with the EU, like Turkey, for a limited time if no other solution for the border issue is found within the transition period. The proposal appeared to be gaining traction, with the Republic of Ireland warming to the proposal before a meeting with Michel Barnier, whereafter it was shot down as allowing the UK access to the Single Market ‘through the back door’, without the obligations. The DUP’s position, however, remains steadfast, forcing both the UK and EU to take note as negotiators try and hammer out a deal.

Boris bites back

Former foreign secretary Boris Johnson made what many saw as an alternate leaders speech at party conference, in which he called for the Government to ‘chuck chequers’ which has led to the UK ‘abandoning control’. He went on to say the plan was “humiliating”, “unstable”, “an outrage” and “dangerous”, leaving no stone unturned in his disapproval of the current path taken by the Prime Minister. May responded to the speech saying certain parts made her “cross”, before dismissing the majority of the speech and saying we all know “Boris puts on a good show”, further building on criticism from Philip Hammond who spoke of a lack of detail in Johnson’s proposals. May went on to reference Boris’s reported “f**k business” remark made earlier this year, saying the Conservatives instead wanted to “back business”.

CAA offer remains unreciprocated by EASA

EU aviation regulator EASA has rebuffed an offer by the UK’s own Civil Aviation Authority (CAA) to begin technical discussions to ensure “the on-going integrity of the aviation framework in any future scenario”. Saying this would be premature without greater clarity on the outcome of the withdrawal process and the future UK legal framework, EASA Executive Director Patrick Ky went on to say that talks could not pre-empt the political outcome.

The EASA has further begun accepting applications from some UK aviation businesses to be approved as “third country” suppliers to the EU, allowing them to continue to do business with the bloc, having received permission from the European Commission. Areas covered include maintenance, production, manufacturing, training and aero-medical services. The CAA has already stated that it will recognise EU safety licences and approvals after Brexit, whilst the EU will not do the same unless an agreement is found.

In the context of trying to achieve a deal, the UK is seeking membership of EASA after Brexit, in a similar arrangement to that offered to Switzerland – in such an instance the UK would not have voting rights and would need to maintain EU standards. It remains uncertain whether such an arrangement will, however, be offered.

Unilever U-Turn on Move

Plans to move Unilever’s headquarters from London to Rotterdam have been scrapped after a backlash from shareholders. The move, which would have seen Unilever shares removed from the FTSE100 in favour of a sole listing on the Euronext exchange in Amsterdam, was criticised with many shareholders saying they would have to sell their shares due to them falling within investments and funds that tracked London’s FTSE 100. Unilever had previously sought shareholder support for the move, which would have allowed it to consolidate its undertakings within one stock exchange rather than two. The U-turn represents a positive story for London’s FTSE that could have potentially lost one of its biggest companies in time for Brexit.

Fluid Diplomacy

Foreign Secretary Jeremy Hunt has attracted ire from EU leaders after comparing the EU to a prison, whilst drawing comparisons to the former Soviet bloc. Hunt’s remarks relate to what is perceived by some as the EU’s wanting to make ‘an example out of the UK’ by offering limited concessions in negotiations over the future UK-EU relationship to dissuade further countries from leaving. EU Council President Donald Tusk addressed the comments in a press conference, saying they were “unwise” and “insulting”. Whilst Latvia’s ambassador to the UK, Baiba Braze said that the EU brought “prosperity, equality, growth and respect”, where the Soviets ruined the lives of three generations of Latvians whilst they were under illegal occupation.

Asked whether he thought Hunt should resign over the remarks, Tusk said it was “not his problem”. Tensions with the EU have risen in recent weeks after Theresa May accused the EU of showing disrespect to the United Kingdom at the Salzburg summit in Austria. The foreign secretary’s remarks, unwise though they are, underlines the tension currently running at a critical point in negotiations. If a deal is not resolved in the coming weeks, the Government appears determined to seek to spin a no-deal as a positive choice and a national endeavour. Whether the public follows suit is another matter.

Car industry calls for clarity

September saw a 20.5% fall in car sales compared to September 2017, with manufacturers calling for clarity from politicians to achieve an ‘orderly Brexit’. Mercedes head of brand Dieter Zetsche has further revealed that Mercedes reversed its decision to produce Mercedes-Benz cars in Sunderland following the decision of the UK to leave the EU. BMW has also stated that it will bring the planned periodic shutdown of its Oxford plant forward to Brexit day to minimise disruption. The remarks show the decisions being taken by many car manufacturers in the UK in the face of uncertainty around Brexit. Jaguar’s boss has further warned that thousands of jobs are ‘at-risk’ if no deal is achieved, further placing pressure on negotiators to find a deal.

EU Update

No Deal better than a Bad Deal

France is stepping up its no-deal preparations, including preparing customs controls and ensuring that British citizens living in France retain their rights. 700 customs officials are to be in place before the end of the year, signalling the additional task at hand if the UK leaves without a deal, aimed at minimising disruption. Europe Minister Nathalie Loiseau has said France would rather have “no deal, than a bad deal”, echoing UK remarks on the issue, whilst following up with remarks on no-deal preparations.

“We want to reach the best situation possible with a view to — and that is quite normal — working in a spirit of parallelism and reciprocity between the status we’ll give UK residents in France and the status given to EU citizens in the UK,” said Ms Loiseau on Wednesday. Emmanuel Macron has also sought to reiterate that leaving the European Union “is not easy” and it is “not without cost… or consequences”. Whether customs officials will need to be officially in place come March is set to be decided in the coming months as both the UK and EU and their respective parliaments decide whether a deal can be reached.

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.