Brexit Update 9th February 2018

By February 23, 2018 Brexit Updates

Top 3 developments  

  • Barnier: Transition period ‘not a given’
  • UK Brexit Subcommittee meets
  • Japan warns UK against no-deal

UK Update

EU warns UK transition period ’not a given’

The EU has taken a hard stance to disagreements over the transition period. Michel Barnier said in a press conference on Friday that the UK must “accept all rules and obligations and must accept the consequences of leaving the EU’s institutions and policies”. He went on to state “if these disagreements persist the transition is not a given”. The high stakes in place put pressure on the Government to assure people that it either is prepared for no transition or is ready to move in the EU’s direction on the transition, including on the protection of rights of EU citizens arriving in the two-year period. Barnier reasserted that it was the UK that asked for the transition period, and that he hoped resolutions to disagreements could be found. Whether we are likely to see such resolutions is yet unclear given the UK red lines on migration and trade deals.

EU ‘Nuclear Option’ branded discourteous

The Brexit Secretary has hit out at a European Commission report that outlines several safeguards the EU should seek in any future withdrawal agreement. Branded ‘discourteous’, the safeguards sought to seek UK agreement that the EU could unilaterally place tariffs on UK goods and service, limit UK access to the Single Market, and stop UK carriers from using EU airspace in the event of disagreements, bypassing the European Court of Justice.

The safeguards take into consideration ECJ delays in the case of UK non-compliance in implementing new regulations and directives during the transition period, and instead move to place penalties on the UK if it willingly avoids implementation. It follows comments by Brexit Secretary David Davis that the UK would not be turned into a ‘vassal state’ during the transition period and would not need to implement all the regulations coming in due to delays that would go beyond the end of the period in which the UK is bound. The UK is yet to formally respond to the EU negotiating stance.

Cabinet Brexit subcommittee seeks consensus

The 11-person troop, split roughly along the middle in terms of their views on a future UK-EU relationship, met this week to try and find a common position for future negotiations. Two meetings took place, focussing largely on the future relationship, solving the Ireland border issue, and ironing out divisions, but were unsuccessful in reaching a consensus, pushing talks to a Chequers away-day later this month. Like the European Commission which must find a consensus amongst the 27-member states, the UK too must find a common position to risk individuals undermining the negotiation process. Pressure from Brussels to outline that position, as well as pressure from influential Conservative Party factions such as the European Research Group (ERG), have made the process that much harder as May considers whether she can keep the Government on track to keep its commitment to negotiate and leave the bloc. Brussels has already signalled that its position, to be agreed in March, must come after the UK has set out what it wants, otherwise a Canada style trade deal will be adopted.

Japanese warn UK over profitability

The Japanese Ambassador, along with several Japanese companies with large operations in the UK, met with Theresa May to discuss relations between the two countries, along with uncertainty surrounding Brexit talks. Whilst Theresa May sought to assure the Ambassador that a transition deal would be in place by March, alleviating short term economic fears of Japanese investors, the Ambassador remained concerned. The profitability of private enterprise is a key consideration for private business. As a staging post for exports to other EU countries, the UK would be adversely affected by an imposition of import tariffs by the EU, hitting exports to the bloc – thus undermining such profitability. Theresa May remains under pressure to reassure foreign investors, and deliver certainty over the transition period by March, however with just over a month to go, and disagreements in full view, the pressure is well and truly on.

UK asks trade partners to treat UK as an EU state

A technical note has been released by the government on the eve of the parliamentary recess. In a worrying admission, it sets out that the UK will need to seek the permission of EU trade partners to continue under current trade terms. Whilst a spokesperson from the Department for International Trade sought to underline the exercise as a technicality, the move comes after assurances from Liam Fox that they would simply roll over into the transition period when the UK is no longer a member state but continues to be bound by its treaties.

There is currently no indication that third states will be looking for added concessions from the UK during the transition. However, several states have outlined that they will be looking to form new trade agreements with the UK during negotiations after it leaves the EU. One such country is South Korea, which currently imports far more than it exports to the UK across many key sectors. The UK is certain to try and retain favourable terms with third states it enjoys under current EU agreements. The likelihood of this however is limited, and doesn’t factor in added pressures to make deals with third states that replace the favourable trading partnership it has with EU states as a member of the Single Market and Customs Union.

Corbyn’s Brexit stance questioned

A leaked EU memo has asserted that in a meeting between Jeremy Corbyn and Michel Barnier, the former asserted he was open to remaining in the Customs Union. The assertion has since been denied however, with the Labour Party outlining that a new customs union was a “viable end point”, but that membership of the EU Customs Union would end when we left the EU. The stance differs from that of the Government, with Theresa May earlier ruling out membership of any form of customs union with the EU, much to the concern of those seeking a close UK-EU relationship, including customs, after Brexit.

Best for Britain campaign receives £400k donation

George Soros, known for betting against the UK economy when it crashed out of the ERM, has made a £400k donation to the Best for Britain campaign group. The group, which acts as secretariat for the APPG on EU Relations, is seeking to trigger a second EU referendum through a failed vote on the final deal negotiated by the UK and EU. Soros is also believed to have entertained several Conservative donors, with an aim to recruit them to the campaign with an aim “to raise public support for Remain to a clear and growing national majority by June/July 2018”. Best for Britain are seeking to harness support in the House of Commons and Lords on the final deal, with a belief that a vote against the final agreement will result in a second referendum to gain the public’s backing for the deal, or a new election.

European Update

EU moves to bind UK on Northern Ireland agreement

In a move that will upset many in the Cabinet, the EU is moving to formalise the commitments made in December which will effectively keep the UK in the customs union and single market as a default to ensure no hard border is erected in Northern Ireland. The Republic of Ireland remains increasingly concerned by the pace and content of negotiations, with the UK ruling out continued membership of the Customs Union or a new bilateral agreement on a customs union being formed. Michel Barnier has said in such a case border checks would be ‘unavoidable’. The draft text being considered by the EU will set out what it considers regulatory alignment to be, which is certain to differ from what the UK considers it to be and is likely to bind the whole of the UK in any final scenario ‘whatever the circumstances’.

Ireland has insisted that discussions over the future relationship cannot be considered until further legal guarantees are put in place to ensure no hard border is erected, through regulatory alignment or otherwise. The UK is keen to move on to future relationship talks despite no guidelines setting out negotiating positions being issued by either side. Trade is the hottest issue on the agenda and forms part of a possible future solution to the border problem. However, until such talks begin the EU is likely to want contingency plans agreed.

ECJ to hear EU Citizenship case

A campaign group under the name of ‘Brexpats – Hear Our Voice’ have had their case heard by a court in the Netherlands, who have agreed to refer it to the European Court of Justice. The five British nationals are seeking clarification on whether their EU citizenship rights can be retained, despite discussions under way to remove them after the UK leaves the EU in 2019. The decision of the court is likely to have far reaching consequences if it rules that EU citizenship will be retained. The case centres on a line written into the Lisbon Treaty, which states that “citizenship of the union shall be additional to and not replace national citizenship”. However, Clause 3 of Article 50 states that a state will no longer be bound by EU treaties after they withdraw, spelling a possible technical headache for judges as they consider whether EU identity can be retained beyond a member state withdrawing.

ECB applies pressure on UK financial firms

The ECB has warned UK-based financial firms that they should have their licence requests to operate in the EU filed by June at the latest. The move comes after continued uncertainty over the final Brexit deal, as well as repeated guidelines by the European Commission that the UK will have restricted access to EU markets after it leaves the Single Market and Customs Union. Financial firms have made overtures to the European Commission over a possible future services deal between the UK and EU, to include regulatory alignment, but have thus far been unsuccessful, leaving little time for the Government to find a solution before contingencies are put in place.

Timeline

  • 23rd February – Informal meeting of EU27 Heads of State/Government
  • 22nd – 23rd March – European Council Summit

 

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