Earlier this month, Cambre and Newington hosted a joint event in Brussels where Jonathan Faull, one of the most senior British officials in the European Commission, shared his thoughts on how Brexit is likely to play out, the potential areas of tension and compromise, and the possible impact on businesses.
Ahead of our next event in London, details of which will be released shortly, the teams at Cambre and Newington take a look at how the most recent developments could affect the UK’s glide path to exit the EU. As talk of a “hard Brexit” increases, the only certainty at the moment is that the EU-UK deal will be a one of a kind – no one knows what kind though.
The view from London
Pilots locked in
The world has changed. The days when you could expect a pilot to emerge from their cockpit to speak to passengers and invite them to answer questions about the controls of a 747 are gone and so too is any expectation that Prime Minister Theresa May’s Government will consult the public on the finer points of their negotiating strategy for Brexit. Under the auspices that she cannot let the other side see where exactly she is planning to take the UK, May’s mantra that she will not provide a ‘running commentary’ is holding fast. This is save for her making an occasional announcement in an effort to steady the nerves of those who had not wanted to take the journey in the first place. For those who are more vocal in their concern, she has become firmer, telling them to buckle-up and pipe down because the majority of people had voted to leave.
The challenge that May faces is that she has left parliamentarians on the other side of the door as well – the majority of whom have said that they want a say in where the UK ends up. Many MPs and peers, including a not insignificant number of Conservatives, have been left fuming that the Government will not allow Parliament a vote on the UK’s negotiating stance before Article 50 is invoked.
Stephen Phillips MP (Conservative, Sleaford & North Hykeham), who voted for Brexit said: “I and many others did not exercise our vote in the referendum so as to restore the sovereignty of this parliament only to see what we regarded as the tyranny of the European Union replaced by that of a government that apparently wishes to ignore the views of the house on the most important issue facing the nation.”
The Prime Minister’s argument is that whilst MPs should be allowed to scrutinise the process for leaving the EU, they should not be allowed to delay Article 50 from being triggered. Moreover, the Prime Minister insists that the Great Repeal Bill, which will convert all EU law into British law on the day that the UK leaves the EU whilst at the same time repealing the 1972 European Communities Act, gives sufficient space for Parliament to shape our future relationship.
Also on the other side of the door is Scotland First Minister Nicola Sturgeon, along with Carwyn Jones and Arlene Foster – the First Ministers of Wales and Northern Ireland. And Sturgeon is not happy about it. She’s failed to be placated by reassurance from May that she has a ‘hotline’ to David Davis, Secrtary of State for Brexit, and insist that Scottish independence is on the cards unless Scotland is allowed its say.
Duty free available?
The parameters of that relationship are the subject of debate up and down the country with every word uttered by the Prime Minister and her ministers picked over for clues. Never has the phrase, ‘Customs Union’ been used more frequently by the British press as commentators argue over whether the Government’s priority should be to maintain the UK’s membership of it or to renegotiate a bilateral free trade deal with the EU.
Those who say that we should seek to stay in the Customs Union insist it would be madness to leave ourselves open to the imposition of tariffs from the EU and to reinstate border checks that would slow down access to the biggest market in the world. Those who are agitating for the UK to leave the Customs Union, which according to some reports includes the Secretary of State for Trade Liam Fox, argue that it would be an act of economic self harm for the EU to impose tariffs and the benefit of a free trade agreement, once negotiated, is that it allows the UK to determine its trading relationship with countries outside of the EU. They point to the recent debacle on Comprehensive Economic Trade Agreement (CETA) between the EU and Canada, where Belgium put the entire deal at risk after seven years of negotiations, as an example of the difficulty a bloc of (now) 28 member states has in reaching agreement. Remainers, of course, argue that the deal was struck – eventually – and that it is unclear whether the EU would be willing to offer a similar level of entry.
Demonstration of inflight safety
The Prime Minister has not yet said which route she will be looking to take, but has sought to reassure investors that it is ready to step in to ensure the safety of key economic sectors should turbulence ensue. Last week Nissan confirmed that it would build both the new Qashqai and the X-Trail SUV in Sunderland following ‘support and assurances’ from the Government. However, whilst May said “This vote of confidence shows Britain is open for business” there has been considerable pressure on the Government to provide details on exactly what reassurance it gave Nissan and for them to match this for other businesses and sectors who may be impacted by Brexit.
Meanwhile, comments made on the BBC’s Newsnight programme by Kenichi Ohmae, who is credited as the man who brought Nissan to Sunderland in the 1980s, have been seized on. Ohmae said that Nissan was a special case and it was a ‘minor decision’ involving one company that was unlikely to reassure other Japanese investors.
Sunny climes behind or ahead?
The Office for National Statistics (ONS) said that the UK economy expanded by 0.5% in the July-to-September period and there “was little evidence of a pronounced effect in the immediate aftermath of the vote.” The figures and comments were seized on by both sides of the debate. Brexiteers said they were ‘proof’ that the doom-mongers got their predictions wrong, whilst Remainers said that although stronger than expected, growth was slower than the 0.7% rate in the previous quarter.
Looking ahead, the CBI said this week that it expects GDP to grow by 1.3% in 2017 – slower than its previous estimate of 2% – but above the Bank of England forecast of 0.8%.
All eyes now turn to the Autumn Statement on 23 November. Pressure is on the Chancellor to use it as an opportunity to announce further public investment in infrastructure to encourage business investment. The response from business will undoubtedly affect his standing and that of the Government going into negotiations with Brussels.
The view from Brussels
Readying for take off
After getting a date for the start of negotiations, the EU institutions have moved up a gear in their preparation processes. The European Parliament (EP) has self-proclaimed its role throughout the various stages the withdrawal process in a meeting of its Constitutional Affairs Committee. Meanwhile, at the Commission, Barnier has added among others trade negotiator Justyna Lasik and former Head of Unit for the free movement of capital Stefaan de Rynck to the Brexit team. Ward Möhlmann, previously in Hill’s cabinet, will be the point person for financial services, while employment and legal issues will fall to Marie Simonsen. Over in Frankfurt, the ECB has its own task force in place to analyse the potential EU-UK deals and implications on Europe’s financial stability.
Similar organisational efforts are visible in main capitals. In Berlin, the key decision-makers are Merkel and her EU adviser Uwe Corsepius, a former EU Council Secretary General who knows the Brussels bubble inside out and has a strong relationship with Barnier’s deputy, Sabine Weyand. The German foreign office, led by Representative for EU issues Peter Ptassek, is also looking to defend its role from powerful Finance Minister Schäuble and his European department head Thomas Westphal. There is a political dimension to this game, with Finance in the hands of Merkel’s CDU as opposed to the MFA’s SPD leadership. This grossekoalitzion dynamic also plays out in the European institutions, with Brexit tough talker Manfred Weber (EPP leader from the CDU) named as a potential substitute to the socialist President of the European Parliament Martin Schultz, should the latter return home as SPD leader come January 2017.
Mixed sky conditions
On the policy side, the Brexit landscape is also starting to crystallise, with ongoing analysis of the opportunities for EU political reform – or even economic benefits of a hard Brexit. An EU Defence Union is garnering support in the EP, where the “last EU Briton, Commissioner King”, is making friends. A proposal for increased tax coordination – long-opposed by the UK – is enjoying a new lease of life, and the Commission has added the creation of a social rights pillar into its 2017 agenda.
The darker side of Brexit does not however escape notice. It is particularly visible with regards to budget provisions, with warning signals issued to both the UK and the EU. Already, Sterling’s fall has taken a major bite out of the EU’s budget, just as the migration crisis puts strains on funds. The options put forward by EP negotiator Jens Geier to plug the gap (ask the UK for more; ask other EU members for more; or use money raised from EU fines against companies and member states) would all cause at least as many headaches as they would solve. The urgency of the debate should serve as a reminder that the EU is not likely to offer the UK anything for free. Access to the single market will come with a price-tag.
Strong headwinds
Negotiating the delicate economic and political waters of Brexit should clearly require every skill in diplomacy. Both UK and EU leaders are however taking an increasingly harsh stance. While foreign companies reportedly received assurances of a degree of integration with the EU market, PM May’s multiplying hints that the UK is moving towards a “hard Brexit (with uncompromising statements on the jurisdiction of the ECJ and migration) have been echoed in Brussels. EU Council President Tusk commented for instance that “it is useless to speculate about ‘soft Brexit’… the only real alternative to a ‘hard Brexit’ is ‘no Brexit’”.
This attitude is also increasingly reflected in practical developments. At the European Council on 20-21 October, Tusk’s turned a deaf ear to May’s pleas to be more involved in EU policy making – the 27 will continue meeting without Britain. Barnier’s alleged demand to conduct negotiations in French was symbolic of the competitive mood. Danish Prime Minister Løkke Rasmussen may have hit the nail on the head with his suggestion that the EU knows what it needs to avoid but has no idea of what it wants from Brexit, hence the focus on details. Meanwhile, the still-uncertain fate of CETA – the EU’s trade agreement with Canada which was has provoked massive popular protests and was temporarily blocked by a regional Belgian Parliament – casts a long shadow over the EU’s trade policy and offers a glimpse at the minefield that the ratification of a UK-EU deal would need to navigate. As of the cuff comments from May are being read in Brussels as her hinting at a free trade agreement, and the Swiss model drifts away in light of the EU’s rejection of Bern’s proposal on curbing free movement, the only certainty is that any EU-UK deal will be a one of a kind – no one knows what kind though.