Tale of two cities – Part VII

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30 January 2017

By Brexit task force - Cambre Associates / Newington

Brexit, Episode VII, the force awakens? PM Theresa May’s long-awaited speech on her “plan” for Brexit was welcomed in the UK, especially by supporters of Brexit. The UK, she said, would leave the Single Market and the Customs Union and strike out alone to become a global trade power, making the UK a tax haven if necessary. The EU (and business) remains however unimpressed. Leave the big words (and threats) aside and just get on with it – is the underlying refrain. In the meantime, May’s triumphal departure from Washington with promises of closer ties and an immediate start to trade deal talks quickly turned sour.

The view from London

One month into 2017 and already Brexit developments have been coming thick and fast. Clues to the direction and style of the UK's negotiating position were provided in Theresa May's first major speech on Brexit, where she ruled out ongoing membership of the Single Market and set out a vision of a great global trading nation with old friends and new allies. Whilst stating she had no intention to “undermine” the EU, she argued that any attempt to “punish” the UK would be “an act of calamitous self-harm”. Meanwhile the Chancellor, Philip Hammond, hinted that should the UK be refused access to the European market the Government would be prepared to transform its economy to regain competitiveness. The Government certainly did not get matters all their own way, however, with the Supreme Court ruling that Parliament, and not Ministers, had the power to trigger Article 50. In order to minimise the risk of having their strategy blown off course by Europhile MPs and Peers, the Government swiftly tabled the briefest of bills (137 words!) and arranged several days of debate in the Commons over the next fortnight. May also bowed to pressure to publish a White Paper on the Government’s Brexit strategy, although this may be less of a concession than it appears… as one commentator put it “when the vaunted document arrives, expect it to be a printout of May's big Brexit speech, with a coat of arms stuck on the front.”

As the dust settled following the Prime Minister's speech, those opposed to leaving the single market warned of the bumpy road ahead. The Confederation of British Industry said the UK risks a 'disorderly crash landing' if the Government walks away from Brexit negotiations and opts for 'no deal' under WTO rules. And whilst May has pledged to keep the devolved administrations fully engaged in the Brexit negotiations, last week the Supreme Court ruled that the Government does not need the consent of Scotland, Wales and Northern Ireland before triggering Brexit. Scotland’s First Minister, Nicola Sturgeon expressed disappointment, claiming the result proved that Scotland was not having its voice listened to and that the case for a second independence referendum was becoming ‘ever clearer’.

Meanwhile the UK Government has been making feverish preparations to set the ball rolling on bilateral trade deals which would kick in once the UK leaves the EU. Despite risking the wrath of the EU which insists the UK cannot sign deals until it is has effectively left the Union, 'preparatory' talks were announced by the Australian Treasurer. On 28 January, May left Washington with a new “UK-US Trade Negotiation Agreement” to pave the way for a trade deal “as soon as possible” and “more trade than ever” between the two countries. The deal was warmly welcomed in the UK and seen as giving May leverage in talks with Brussels. The revived “special relationship” was however quickly tested, with May already under pressure to cancel the invitation extended to Trump in view of anti-migration measures enacted immediately following her departure.

The Commons will be debating the so-called Article 50 Bill over the fortnight, following which time it will pass to the House of Lords. Despite the Government’s small majority in the Commons, and the vast majority of MPs campaigning to remain in the EU, Government defeat on the Bill is unlikely. Few MPs are prepared to be seen to vote against the declared will of the people – with only the SNP, some rebel Labour MPs defying Corbyn’s three-line whip, and the Lib Dems looking likely to vote to oppose the triggering of Article 50. Whilst the subsequent vote in the House of Lords may cause the Government greater anxiety, it is unlikely that this unelected institution would be prepared to stand in the way of the Government attempting to implement the outcome of the referendum.

The view from Brussels

The December European Council ended 2016 with a summary 20 minutes’ worth of Brexit talk in Brussels: EU27 leaders reiterated their joint position on Brexit (indivisibility of the four freedoms, no negotiation without notification) and tacitly accepted the three-step approach (withdrawal, transition, new relationship). Commission’s Chief negotiator Michel Barnier presented a “procedural outline” of how the negotiations will be managed: The European Council will set guidelines, the Commission will conduct the negotiations, the General Affairs Council will overview the process and the European Parliament will be invited to meetings (this after Guy Verhofstadt threatened to engage directly with the UK parliament). The EU machine is basically in position and raring to go, awaiting only the triggering of Article 50 and to hear London’s strategy.

With this in mind, EU stakeholders reacted with raised eyebrows at Theresa May "plan" for Brexit. Although given in most quarters a diplomatic welcome, the speech was broadly seen as vague and dismissive of reality – if not delusional, contradictory and threatening. Coming soon after UK Ambassador Ivan Rogers' resignation and accusations of "muddled thinking" in London, the speech was seen as another sign that the UK government lacks not only a coherent plan but also a clear understanding of EU law and structures (e.g. the difference between the Single Market and an FTA). The message sent back to London was that the EU is "not hostile" towards the UK, but continues to await the triggering of Article 50 and a clear negotiating position from London, and will not tolerate any refusal to "play by the rules". A few days later in Davos, May received a frosty reception, with her speech being termed "propaganda" and her vision of a prosperous free trading UK outside the EU incoherent.

For the EU, a hard Brexit is not good news, and there is a widespread perception that a "lose-lose" situation is on the cards, at least in economic terms. As Juncker recalled following May's speech: “A fair deal [for Britain] means a fair deal for the EU too”. Meanwhile, Scotland continues to keep a high profile and elicit sympathy in Brussels – although a Catalonian "resurgence" is complicating Edinburgh's campaign (Spanish Prime Minister Rajoy welcomed the UK Supreme Court ruling denying the devolved administrations a say on Brexit).

Until Article 50 is triggered though, the EU is basically just sitting back and watching the show. May's visit to Washington – the first PM to meet President Trump – was closely scrutinised, less for any impact on Brexit than for clues on how to deal with Trump. Viewed from Brussels, the British PM was playing a dangerous game by tying her fortunes to the unpredictable and unpopular (in Europe) American President. The landing was indeed not smooth, with May quickly pressured to side with the EU in condemning Trump’s anti-migration measures that are raising outrage globally. The reaction to UK overtures towards Australia has been low key, with the Commission clarifying that: “There is nothing in the treaties that prohibits you from discussing trade,” but “you can only negotiate a trade agreement after you leave the European Union.”

When this might be possible remains the key question. For the EU, the critical thing is that the UK should respect the agreed timeline. A delay in triggering Article 50 will not be welcome. Expect more on the EU's position from the 3 February "informal" EU27 leaders’ Summit in Valetta.

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