Article 50, Brexit, Brussels, Juncker, Michel Barnier, Negotiating, Theresa May

Not so Much a Marathon… More a Triathlon #Brexit

Written on Friday Dec 8th:

may junckerEarly this morning, Friday, December 8, the EU and the UK announced that they had reached terms on the three Article 50 issues which cover: the UK’s ongoing financial obligations to the EU; the rights of EU citizens in the UK; and issues relating to Ireland.

The EU Commission said that the agreement reached was sufficient to allow it to recommend to the EU Council (heads of government) next week that the talks proceed to phase 2, namely discussions on the “framework” of the UK’s future relationship with the EU.

Reading the various documents that have been released today it is hard not to come to the conclusion that the UK appears to have accepted the EU’s terms on all three issue. Outstanding payments from the UK to the EU are not conditional on any sort of future trade deal and will continue long into the future as commitments made by the EU28, of which the UK was a part, fall due. On citizens’ rights the European Court will have a role in defending the rights of EU citizens resident in the UK for eight years after Brexit, a political lifetime. On Ireland, the default position is no hard border.

A long way from the opening UK position when discussions got under way.
What happened during the six months of talks between the Commission and UK Ministers?

Mrs. May appears to have succumbed to what we call the “last kilometre syndrome”. You are not a very experienced runner but, nevertheless, you sign on to run a marathon. Friends advise against it, but you are determined to “take back control” of your life.

Ideally, you should put in the hours training but, as David Davis made clear this week with the impact studies that never were, the UK does not appear to have done much training for this negotiating marathon. You give it your all for the first 15 kilometres, telling yourself that this is not as hard as they told me it would be. Actually, a piece of cake.

Then you hit the wall. Very quickly it gets harder, a lot harder. Each step gets more and more difficult to take. But you keep putting one foot ahead of the other. You round a bend. You can see the finishing line two kilometres or so down the road. But you have nothing left to give. Having invested so much to get to this point, you are damned if you are not going to cross the finishing line. You do what it takes to get yourself there. Shattered.

Negotiations are not much different. You see the finishing line at 03:00 in the morning. Having spent months to get to this point you say to your team: just do it. Finish it. Sign it. We haven’t put in all this effort to fail at the last minute. They’re not asking for that much actually. We’ll sort it out later.

Over the following weeks and months the reality of what you agreed slowly becomes clear. Recriminations mount. What looked good at 03:00 in the morning looks a whole lot different, and worse, in that cold, hard winter sunshine, which show up every speck of dust.

As we see it, that is where the UK is today. Which places questions over whether the deal can hold up as what has been agreed becomes ever clearer. We have our doubts. As the influential Conservative journalist and commentator, Tim Montgomery, tweeted earlier today:

May says there’s been give and take on both sides. Correct. We give the EU extra billions that should be going into the NHS etc and Brussels takes it. This is not a “hard win” deal but surrender. And our capitulation on sequencing means no guarantee of trade deal.

So, where are we in the Brexit process?

As we emphasised in a previous Briefing (No. 23), nothing has changed. The UK will still leave the EU at midnight, Brussels time, March 29, 2019. When you are out, you are out, even if there is a long driveway to walk down before you finally quit the premises. Call it “transition road”.

The UK has asked the EU for a transition period of around two years when it leaves the EU in 2019. The EU is agreeable to this. According to EU Council president, Donald Tusk:

…we should start negotiating the transition period, so that people and businesses have clarity about their situation.”

“As you know, the UK has asked for a transition of about two years, while remaining part of the Single Market and Customs Union. And we will be ready to discuss this, but naturally, we have our conditions. During this period, the UK will respect: the whole of EU law, including new law; it will respect budgetary commitments; it will respect judicial oversight; and of course, all the related obligations…Clearly, within the transition period following the UK’s withdrawal, EU decision-making will continue among the 27-member states, without the UK.”

However, he cautioned, “While being satisfied with today’s agreement […] let us remember that the most difficult challenge is still ahead […] to negotiate a transition arrangement and the framework for our future relationship, we have de facto less than a year.”

What all this means is that, in reality, nothing will change until March 2021, at the earliest. Until then the UK will continue to act as if it were a member of the EU, except it will have no involvement in the EU’s governance processes, no Commissioner, no members of the EU Parliament, no judge on the European Court. All EU laws and regulations will continue to apply in the UK.

During the coming year, 2018, the EU will open talks with the UK on the “framework” of its desired future relationship with the EU after Brexit takes place.

This would be easy if the UK actually knew what it wanted. But it appears it doesn’t. As Chancellor of the Exchequer, Philip Hammond, admitted this week, since the Brexit vote took place in June 2016 there has been no discussion at cabinet about what future relationship the UK actually wants with the EU.

So, at some point early in 2018 the UK is going to have to tell the EU what it wants. The long-fingered discussion in the cabinet will actually have to take place. The answer will need to be a little bit more precise that we want a “deep, meaningful, special, and everlasting” relationship with the EU.

Those words might work on a Valentines Day card. Not as negotiating objectives. Can the government forge a consensus as to where it actually wants to end up? If it were easy it would have done it before now.

The real detailed discussions between the EU and the UK on the substance of the future relationship will only take place when the UK has left the EU and become a third country, after March 2019. Will a two-year transition period be long enough to agree what needs to be agreed? Probably not.

So, what happens in 2021? Either the UK leaves the EU without a comprehensive trade agreement, delayed hard Brexit, or there is agreement to prolong the transition period, never ending Brexit.

Best guess? Impossible to say. Too far away. As my good friend Denis McShane puts it, Brexit is going to squat like a giant toad on British politics for years and years to come.

Just as you are staggering to your feet having crossed the marathon finishing line, an official says to you: “Think you got it wrong, mate. This is not a marathon. It is a triathlon. There are still two stages to go”.

Now, don’t you wish you had put in those training hours.

Article 50, Brexit, British Government, Irish border, Northern Ireland, Theresa May

That #Brexit Winding Road may be a Cul-de-Sac

This post was written on Monday Dec 4th, 2017.

may-tusk-junckerThere was a time, before the Internet and social media, when politicians could say very different things to very different audiences and get away with it. Not so today. To coin a phrase, what you say in Brussels is known in Belfast before you finish your sentence.

As I write this, at 18:30 Paris time, reports of what actually happened in Brussels today are still somewhat unclear. But it does appear that all parties thought a deal was done until the UK said no at the last minute. Speaking to Irish radio, the Taoiseach (Irish Prime Minister), Leo Varadkar said:

“The U.K. had agreed a text on the border that met our concerns … I was then contacted by [Juncker and Tusk] and confirmed Ireland agreement to that text… I am surprised and disappointed that the U.K. Govt is not in a position to agree to what was approved today”

Reports suggest that the Democratic Unionist Party (DUP) said it could not support the agreed text as it appeared to split Northern Ireland economically from the rest of the UK as Northern Ireland would, to all extents and purposes, still be in the EU’s single market and customs union while the rest of the UK would not.

As UK Prime Minister, Theresa May, needs the DUP’s 10 votes in the House of Commons to keep her government in office, the “Ulster says No” stance of the DUP left her unable to tell the EU that the “UK says Yes” to the Article 50 deal that was on the table.

But even if the DUP had not blocked the deal, May’s ability to get what was agreed on citizens’ rights and the financial settlement through the Conservative Party would have been problematic, as we argued in our last post: https://beergbrexit.blog/2017/12/03/long-and-winding-brexit-road/.

That is still our view.

One thing is now clear. If the DUP blocked today’s deal then there are no circumstances in which the Irish government will in any way soften the position it has taken in the talks to date.

The UK prime minister may allow herself to be held hostage by the DUP. For an Irish government to do so would be political suicide. Further, before today the Irish government had the solid support of the other 26 EU member states. The UK’s behaviour today will have will convince them that they were right to be so supportive of the Irish.

Other EU member states will be asking themselves this evening just how reliable is the UK government as a negotiating partner? What, if anything, can the government deliver? How does the process now move forward with any credibility?

Because a key currency in negotiations is credibility.

When I tell you it is a done deal, it is a done deal. My word is my bond. When I break my word my credibility is shot. Why would the other side make me an offer if they can’t be sure I can deliver?

So, what happens now?

The UK government has put itself in a position where it cannot meet the expectations of all those involved in the Brexit process. Cut a deal with the EU on the terms offered by the EU and a significant part of the Conservative/Brexiter/DUP coalition will be outraged. Keep the coalition together and there will be no deal with the EU and the UK will exit the EU without any agreement as to future trading arrangements. Business will be outraged.

Choices have to be made within hours, days at the most. No more hiding behind language that could mean all things to all men… and women.

Brexit is a process built on negativity. Brexit is against things: …Against the European Court …Against the European Commission …Against European laws …Against immigration.

There is no coherent answer to what Brexit is for. A Global Britain, free trading with the world? A “drawbridge economy”, keeping jobs in and people out? Close to the EU without being part of it, or pushing the EU as far away as possible?

Since the UK voted to leave the EU the EU has known clearly and precisely what is wants. To preserve its internal legal order and the integrity of the single market. It has gone into the process with defined objectives.

On the other side, the UK has been trying to satisfy dissipate parts of a coalition which want incompatible things. But there are only so many impossible things you can believe before breakfast.

Since we started writing this briefing we have consistently said that business should hope for the best, plan for the worse. Increasingly, we think that business should just plan for the worse.

Article 50, Brexit, David Davis, GDPR, Irish border, Michel Barnier, Theresa May

Still a (very) Long and Winding #Brexit Road Ahead

This Briefing was written on 3rd Dec 2017

7EEC154E-1C26-4BA9-BD46-6E7E326308E2As we write this Briefing, early on Sunday Dec 3, it would appear that the EU and the UK are moving towards a position where the EU Council (heads of government) at its next meeting on December 14/15 will be able to declare “sufficient progress” in the Article 50 discussions to date to allow them to move on to the next stage, which will focus on the “framework” of the UK’s future relationship with the EU.

However, as one diplomat put it, until we see what has been agreed “on paper” rather than “in the papers” it is wise to withhold judgement. But it does seem that the logjam on citizens’ rights has been broken by the UK conceding an ongoing role for the Court of Justice of the European Union (CJEU) in upholding the rights of EU citizens resident in the UK after Brexit.

The UK has also agreed to meet all its outstanding financial obligations to the EU, estimated at around €50 billion net, while accepting that this money does not buy a future trade deal of any type, even if, for the moment, UK cabinet ministers are not exactly making that clear to MPs in the House of Commons.

What happens when the penny drops with Conservative MPs about the nature of the financial settlement and the ongoing role of the CJEU is anyone’s guess. For an honest assessment of the situation by an arch-Brexiter see here (behind a paywall). It is one thing to make promises across the negotiating table in Brussels. Delivering them as a minority government in Westminster is another, as this BBC report on the latest list of “red lines” drafter by Brexit hardliners makes clear.

The possibility of the reestablishment of a border in Ireland continues to be the most intractable of the three A50 issues. Effectively, the EU27 has made it clear that Ireland has a veto on “sufficient progress”, if it is not satisfied by commitments from the UK that there will be no border after Brexit. The president of the EU Council of Ministers, Donald Tusk, made that clear during a visit to Dublin on Friday, December 1 when he said:

“Let me say very clearly. If the UK offer is unacceptable for Ireland, it will also be unacceptable for the EU.”

For the complexities of the “Irish Question” see this excellent analysis by RTE’s Tony Connolly: here

However, let us assume that an answer is found to the “Irish Question” and the EU Council agrees that sufficient progress has been made to allow the discussions to proceed, what happens next?

Before discussing this question it is critical to keep in mind that, as matters stand, having served the Article 50 notice, the UK will leave the EU at midnight, Brussels time, on the 29th March 2019. At one minute to midnight the UK will still be an EU member. At one second after midnight it will no longer be a member. In EU terminology, it will be a “third country”, albeit one with an exit/transition deal, which we come back to later in this Briefing.

Once the UK is out of the EU after midnight on March 29th, 2019, there is no easy way back. The UK would have to apply to re-join. While accession could be fast-tracked it would be on different terms and conditions than the UK currently enjoys. No budget rebate, for example. Membership of the euro anyone?

As things stand, the only way the UK can avoid quitting the EU on March 29, 2019, would be for the House of Commons to vote to withdraw the A50 notice. Were that to happen, then legal and political signals from Brussels and European capitals suggest that the EU would agree to the withdrawal, through it is unlikely that the matter would be straightforward. The EU would surely not accept a situation where the UK was permanently sitting on an A50 notice which it could reactivate at any time. There would need to be certainty and finality that Brexit was over.

But let’s be clear. There is no evidence that any move to withdraw the A50 exit notice would win majority support in the House of Commons at this time. For business, the working assumption has got to be that the UK leaves the EU in March 2019. Everything else flows from that.

To move on. We noted above that there appears to be a mistaken belief on the part of many Conservative MPs that the offered €50 billion is conditional on a trade deal acceptable to the UK. A second mistaken belief on the part of MPs of all parties is that if the EU Council agrees to allow the discussions to move to phase 2 then talks will immediately open on the substance of a trade deal. That is not what will happen.

Article 50 of the EU Treaty states:

In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.

The Article 50 talks will only focus on the “framework” for the future relationship between the EU and the UK, not on the substance of that relationship. Detailed negotiations on the substance of the relationship (trade deal) will only begin when the UK has become a third country, after March 29, 2019.

All that will be on the table during the A50 discussion is an outline of the type of trade deal that the EU will offer the UK in the future, after Brexit happens. As of today, the best that the UK can hope for is a trade deal along the lines that the EU has signed with Canada, which focuses mainly on trade in goods, with relatively little to say about services, which constitute about 80% of UK economic activity.

But the UK hopes for more than “Canada” and every day UK newspapers are full of statements and reports from UK trade groups arguing for a “special” deal for their sector which would leave things more or less as they are today, as if that sector continued to be still in the single market and the customs union.

This is not going to happen.

How do we know? Because the EU has said so. Everything the EU has said during the Brexit process so far has happened, even when UK ministers waved away such statements as “negotiating posturing”. As the Financial Times noted (here) developments to date have been nothing more than a series of “UK concessions” marking a “slow surrender to Brexit reality.”

As Charles Grant of the Centre for European Reform notes, UK negotiators:

…hope that the member-states most dependent on UK trade will push the Commission to offer the British a better deal than the Canadians, that is to say one with more on services. So far the EU shows few signs of softening. But if it did ever grant the UK anything close to single market membership in specific areas, it would demand cash payments, compliance with EU rules and ECJ rulings, and perhaps a liberal UK regime on migration. If all went smoothly, a generous offer from the UK on security and defence co-operation could encourage the EU to accept Canada Plus. (here).

Further, when it comes to going beyond “Canada” the EU will be mindful that any concessions it makes to the UK could be claimed by other countries, if such concessions were seen to breach WTO rules. Though, to be honest, the intricacies of international trade policies are beyond our competency and are fully understood only by the trade Illuminati.

So, the ”framework” that the EU will put on the table in 2018, during phase 2 of the A50 talks, will be a framework for a trade deal that comes nowhere near the trading arrangements on manufactured goods, agricultural products, fisheries and, most importantly, services that the UK has as a member of the EU.

The EU is also likely to offer the UK a strictly, time-limited transition deal, of probably about two years, during which the UK will be a de facto if not de jure member of the EU, with the UK accepting during the transition the EU’s four freedom of movement principles, of people, goods, services and capital, as well as being subject to the jurisdiction of the CJEU.

During the transition, additional payments, over and above the €50 billion, will fall due. During the transition nothing will change and trade in goods and services, including financial services, between the EU and the UK will continue as of today. However, the UK will no longer be able to nominate an EU Commissioner, elect members of the European Parliament, or have a judge on the European Court.

During the transition discussions will open on the substance of the future trade agreement between the EU and the UK. We use the word “discussions” rather than negotiations because, the brutal truth be told, these talks will not be negotiations as most of the readers of this briefing, seasoned labour relations practitioners, understand the meaning of that word. It will be damage limitation on the part of the UK because the UK has initiated a process which it knows will leave it worse off than it is today. No one “negotiates” to make themselves poorer. There may be times when you are forced into such a situation, but Brexit is the first known example of the losing party initiating the process.

Just how much can be achieved in two years is also open to question, conjuring up the possibility of a mutual decision by the parties to extend the transition period. “Strictly time-limited” may turn out to be a somewhat elastic concept, capable of being stretched and stretched.

It is also worth keeping in mind that a transition period does not make Brexit “harder” or “softer”. It just postpones it for a few years, however long those years turn out to be.

Whatever deals emerges from these subsequent trade talks which, to repeat, will only take place after the UK ceases to be a member of the EU in March 2019, will, more than likely, have to be ratified by national parliaments. That could well be a tough ask, especially if there is any suggestion that the UK would be free in the future to undercut EU social, environmental and other standards.

A country like Ireland may even consider that the deal would have to be ratified by referendum, to establish the “will of the people”. Funny thing this ¬“will of the people” stuff. Apparently it is not just limited to the UK and other people in other countries might have other “wills”.

The EU’s chief negotiator, Michael Barnier, has said that the A50 negotiations must conclude by around October 2018, to allow time for national governments to consider the proposed agreement and for ratification by the EU Parliament. So, as of October 2018, the UK House of Commons will know what is on offer:

1. The UK must meet all its existing financial obligations to the EU, approximately €50 billion net.
2. The UK will be offered a transition deal or around 2 years during which nothing much changes.
3. The UK will be required to make additional payments to the EU over and above the €50 billion during the transition.
4. All that will be on offer after the transition will be a Canada style deal on terms and conditions considerably inferior to those offered by EU membership, or even by membership of the single market and the customs union.
5. Whatever trade deal is eventually negotiated could be subject to ratification by national parliaments in all EU27 member states. In effect handing 27 vetoes to 27 national parliaments.

Confronted with this reality, in all its nakedness and stripped of political spin, will the House of Commons vote for it? The UK’s Secretary of State for Brexit has told the Commons that if MPs vote down any deal then the UK will simply leave the EU without a deal. But then Davis also told the Commons that any deal would only be done at a minute to midnight on March 29, 2019, leaving no time for a meaningful vote or any time to reconsider the Article 50 exit notice.

If the House of Commons knows what is on offer six months before March 2019 then there is a time for a rethink. Could there be a rethink? From now to October 2018 is a very long time in politics.

A lot could happen.

For example, the idea that there are trade deals aplenty to be done with other countries to compensate for the loss of EU trade, could take a knock, especially if political uncertainty in the US puts a UK/US deal on hold. A collapse of the existing NAFTA deal would underscore how difficult trade talks with the Trump administration can be.

There is a long and winding road ahead, making it difficult to see the final destination. Developments over the next two weeks will be critical.

Article 50, Brexit, British Government, Brussels, Divorce, Northern Ireland

#Brexit: A Moment of Truth Fast Approaching

Written on Sunday Nov 26th.

Brexit4After we wrote our weekly Brexit Briefing last Friday, the news broke that the European Union (EU) had given the UK until Monday, December 4, to table revised and meaningful proposals on the three Article 50 issues, the rights of citizens, the “Irish question” and meeting financial obligations if it wishes the EU27 to agree at their December summit to move the talks to discussing the future relationship between the two parties. As Politico noted:

European Council President Donald Tusk set an “absolute deadline” of December 4 for the U.K. to submit a revised offer on the Brexit bill and a credible solution for the Irish border, telling U.K. Prime Minister Theresa May on Friday that otherwise it would not be possible to move on to the second phase of talks, a senior EU official said.

The official said May had accepted the timeframe, and that Tusk warned her if London misses the deadline, the European Council would not be able to declare “sufficient progress” at its December summit.

Of the three issues, citizens’ rights seems the easiest to resolve, with reports that the two sides are not that far apart. Bear in mind, however, that the deal on citizens’ rights would only apply to EU citizens already in the UK on an agreed date. What happens with regards the rights of EU citizens to live and work in the UK after Brexit is entirely a matter for the UK. Work permits and visa regimes beckon.

However, at the time of writing, (Sun, Nov 26th), it seems to us that it will be impossible for the UK to present proposals on the other two issues that will be acceptable to the EU. This will mean that the EU27 at their December summit will not agree to allow the talks to move on to discussing with the UK “the framework for its future relationship with the Union.”

Newspapers reports suggest that such a decision would, as a result, have to be deferred to the next meeting of EU leaders in February 2018, to give the UK further time to resolve the Article 50 issues.

But if the UK cannot present acceptable proposals on the Irish issue and the financial settlement by December 4th it is difficult to see how it could do so by February, for reasons we explain in this note. There is a very real prospect of the talks coming to a shuddering end and the UK exiting the EU without a deal in the absence of a radical rethink on the part of the British.

The Irish Question: The UK has said that Brexit mandates that as well as leaving the EU’s political structures it must also leave the EU’s single market and customs union. This inevitably means that there will need to be borders between the EU and the UK. With one exception these borders will be sea borders, between Calais and Dover, for example. That exception will be a border between Ireland and Northern Ireland, the only future land border between the EU, of which Ireland will be a member, and the UK, of which Northern Ireland is a part.

The EU has some 40 land borders with non-EU countries. They are just a fact of life with little emotion attached to them. Not so a potential border between Ireland and Northern Ireland, for reasons we explained in last week’s blog: (link here). As the Irish political sociologist, Kathy Hayward puts it, a border in Ireland

…isn’t ‘a stick to beat’ brexiting GB. It is a wound of deep conflict. It is a join of close contact. It is a thread of careful agreement. There is no mere ‘grandstanding’ or ‘posturing’ here. This is not a game.

If the UK continues with its decision to stay outside the customs union and the single market then it is inevitable that there will be a hard border in Ireland, with all the unpicking of that “wound of deep conflict” that will follow.

That is the consequence of the choice that the UK has made. That consequence is the responsibility of the UK, and the UK alone. There are no magical “technical electronic solutions”, no diplomatic language fudges, available to settle the issue.

Given this, as the Irish journalist, Fintan O’Toole, puts it in the Observer on Sunday, November 26th,

So what is the Irish government supposed to do? What happens with the border is a vital national interest. Ireland is desperate to hear what Britain has in mind. Instead, it has been told not to worry its pretty little head about it, but trust in the reassurances of its betters. It is being placed in the position of a 1950s wife, whose husband is betting the house on a horse race while he tells her, with increasingly irritation, to stop worrying because the nag is sure to romp home.

But there is little the UK can do to adjust its position as the Prime Minister, Theresa May, is the prisoner of the Northern Ireland-based Democratic Unionist Party (DUP), on which her minority government is reliant. At their annual conference on Saturday, November 25th, their leader, Arlene Foster, announced that she had written to all 27 EU governments telling them

“We will not support any arrangements that create barriers to trade between Northern Ireland and the rest of the United Kingdom or any suggestion that Northern Ireland, unlike the rest of the UK, will have to mirror European regulations. I have written to the heads of government of each of the EU 27-member states setting out our views.”

So, no possibility then, as has been suggested, that Northern Ireland might stay in the customs union and single market, even if the rest of the UK exits.

As things stand, it is inevitable that the Irish government will veto the move to phase two of the Brexit talks. This would probably have happened anyway, but given the current political situation in Ireland, where the government faces a no confidence motion over a long-simmering scandal involving the police force, it copper-fastens it. If the government falls as a result of the no confidence motion and there is an election then no political party is going to allow itself to be outbid as being “soft on the Brits”. The shadow of history looms large in Ireland. See here.

Even if the government survives the same logic applies. If the Opposition is prepared to bring the government down over a police scandal then it will certainly do so if the government is seen to yield to British pressure. If Theresa May’s government is captive to the DUP, then the Irish government is captive to the opposition. Neither government is going to break free of these constraints between now and December 4.

The financial settlement: The financial settlement is almost as intractable as the Irish question. Simply put, the EU takes the position that the UK committed, as a member of the EU, to budget and other expenditures of around €40 – €60 billion and that it needs to settle these liabilities now that it is leaving.

When these liabilities are settled the discussion can move on to future relationships. The EU view is that paying money already owed buys no future benefits. It is worth noting that Berlin puts the number owed at between €60 and €90 billion, and insists that no conditions be attached.

The UK accepts that there are financial liabilities and has made an offer of around €20 billion in settlement, far short of what the EU says is required. At a UK cabinet meeting on Monday, November 20, it was agreed that the offer could be increased to around €40 billion.

However, as the London Evening Standard reported:

…it is believed no exact figure has been set, and the extra funding would only be on the table in exchange for fast-tracked talks on post-Brexit trade arrangements, and the framework for a two-year transitional deal after formal withdrawal in March 2019.

This position was confirmed by a report in the Guardian which said:

A source close to those attending the session made clear that this referred to the total package including the future trading relationship as well as the divorce agreement, which focuses on EU citizens’ rights, the Irish border and the financial settlement.

The Guardian report further noted that a spokesperson for the PM had said:

“It remains our position that nothing’s agreed until everything’s agreed in negotiations with the EU”

So, the EU want an unconditional commitment from the UK to settle liabilities of around €50 billion. The UK would appear to be willing to offer around €40 billion, but only as part of a total package that involves talks on the future EU-UK relationship, a transition to that relationship and a deal on what that relationship actually will be.

Two mutually incompatible positions. The payment will either be unconditional or conditional. It cannot be both. Given that the EU will not put the integrity of its internal legal order at risk the UK’s conditional offer is unlikely to be accepted and May cannot come back with an unconditional offer because of opposition to such a move within the Conservative Party.

But then the UK cabinet, and the wider Conservative Party, with little real knowledge of the EU and how is works, has always harboured unreal expectations when it comes to Brexit. As the Observer (26/November) reports the former UK ambassador to the EU, Sir Ivan Rogers, as saying after a lecture last Friday:

…May’s Brexit strategy was “an accident waiting to happen”. Speaking after a speech at Hertford College, Oxford, he said completing the Brexit process was “guaranteed” to take a decade. He said that the prime minister’s unrealistic hopes of securing a bespoke trade deal meant a car crash in the next few months was “quite likely”.

All of which leads us back to the argument we advanced at the start of this paper: “…if the UK cannot present acceptable proposals on the Irish issue and the financial settlement by December 4th it is difficult to see how it could do so by February…”
Fasten your seat belts. The “car crash” predicted by Rogers seems more than “quite likely” and may happen sooner rather than later.

BUT… and it is a very big but… there is no doubt but that there is a majority in the House of Commons which does not wish to see the UK leave the EU without an agreement and, truth be told, would probably prefer to see the UK stay in the customs union and the single market. But that majority is split between the two main parties, Conservatives and Labour, and feels constrained by tribal, political loyalties. With the blinding lights of the oncoming car rapidly coming into view will those loyalties shatter? Could the “silent majority” assert itself?

Could parliament take back control?

Article 50, Brexit, David Davis, Irish border, Negotiating

#Brexit: “Sometimes it seems like they haven’t thought all this through”

This article was written on 17th Nov 2017

Hammond BoJoAnother week, another seven days that leaves us little wiser as to what happens next. With each passing day it becomes ever clearer that the UK government fundamentally misunderstands the position it has placed itself in as regards exiting the European Union.

This misunderstanding is such that, as of today, there would appear to be only two possibilities open to the UK.

The first is to leave the EU in March 2019 without an agreement as to its future relationship with the EU and, therefore, obliged to conduct trade with the EU within the framework of the World Trade Organisation (WTO) rules.

The second possibility is to accept a free trade agreement modelled on the agreement the EU has recently signed with Canada. That agreement basically covers trade in goods, resulting in a reduction in tariffs of some 98%, and mutual recognition in regulated professions such as architects, accountants and engineers, and easier transfers of company staff and other professionals between the EU and Canada.

However, it has little to say about services, such as financial and legal services. As such services constitute a significant portion of the UK’s trade with the EU the “Canadian model” is of limited value, certainly as compared to the access the UK enjoys today to European markets through membership of the internal (single) market and the customs union.

It is the UK government that has put itself in this position with its decision that Brexit had to mean not only leaving the EU’s political structures but also meant leaving the internal market, the customs union and common commercial policy and putting itself outside the jurisdiction of the Court of Justice of the European Union (CJEU). It didn’t have to be that way but the UK’s prime minister, Theresa May, decided that such an ultra-interpretation of the Brexit referendum vote was the best way to manage the internal politics of the Conservative Party.

As has become clear since, this choice may well have resulted from a complete ignorance of the way the European Union is constituted and how it actually works. Those UK cabinet members actually charged with managing the UK’s exit from the European Union have very little actual experience of dealing with the EU. David Davis, the UK’s chief Brexit negotiator, spent 20 years on the back benches in parliament before being appoint Brexit Secretary in June 2016.

Such was Davis’s lack of understanding of the EU when appointed that one of his first announcements was that he planned a trip to Berlin to negotiate a trade deal with Germany, seemingly unaware that individual EU member states cannot negotiate trade deals with non-EU member states. The EU does that on behalf of all its members.

But Davis’s lack of understanding on trade matters merely speaks to a greater lack of understanding on the part of practically all UK politicians as to the constitutional nature of the EU, not helped by the fact that very few of them speak any European languages. The EU is a rules-based, legal order with complex decision making processes. This is the only way a bloc of 28 member states can work. Politics cannot trump this legal order. Legislation, once enacted, cannot be disregarded for the sake of some short-term political expediency. The CJEU ensures that decisions and legislation conforms to the Union’s legal and constitutional order.

The UK’s concept of parliamentary sovereignty is very different. Whatever parliament decides, it decides. Adverse decisions of the courts can be quickly overturned. A UK government with a solid parliamentary majority can do pretty much anything it wants.

This leaves UK politicians believing that, in the end, politics will always trump legal considerations. This belief has informed their approach to the EU exit process. They see the process as a classic “give and take” negotiation. I compromise, therefore, you must reciprocate with a compromise.

Davis said as much in a BBC interview on Friday last. He told his interviewer that the UK has “been offering some creative compromises and not always got them back”, insisting that “nothing comes for nothing”. He suggested there needed to be more give-and-take from the other side. “I want them to compromise, surprise, surprise, nothing comes for nothing in this world,” he said. “But so far, in this negotiation, we have made a lot of compromises. On the citizens’ rights front, we have made all the running.”

The problem for Davis is that the EU does not see the UK exit process as a negotiation in the same way as he does. They see it as something to be managed, as damage limitation, as the protection of the legal order.

For example, the UK continues to see the EU’s insistence that it settles its financial obligations, obligations the UK signed up to as a member of the EU, as something to be bargained against a future trade arrangement. The EU sees it as paying what you already owe and will not allow the UK to “double bubble” that money, buying future benefits with money owed from past obligations.

Likewise, when it comes to future trade relations between the EU and the UK. By now, even if they have never said so explicitly, it is clear what the current UK government wants: a trade deal that gives the UK de facto membership of the internal market and the customs union but without the financial and legal obligations that come with membership.

As Davis put it in a speech in Berlin last Thursday night:

“We will be a third country partner like no other. Much closer than Canada, much bigger than Norway, and uniquely integrated on everything from energy networks to services. The key pillar of this will be a deep and comprehensive free trade agreement – the scope of which should beyond any the European Union has agreed before. One that allows for a close economic partnership while holding the UK’s rights and obligations in a new and different balance.

It should, amongst other things, cover goods, agriculture and services, including financial services. Seeking the greatest possible tariff-free trade, with the least friction possible. And it should be supported by continued close cooperation in highly-regulated areas such as transportation, energy and data.”

Where does this “deep and comprehensive free trade agreement” actually differ from membership of the internal market and the customs union? The answer lies in the words about holding the “UK’s rights and obligations in a new and different balance”, code for the UK wanting three of the four freedoms of movement – goods, capital and services – while closing down the free movement of people. Except if you are a banker, for whom Davis has promised to negotiate a special free movement deal (here). Too bad if you are a Polish plumber.

The UK does not just want to cherry pick the single market and the customs union, it is asking for the whole cherry orchard.

Even if the discussions between the UK and the EU get beyond the three Article 50 issues, then the UK is going to have to face the reality that best that will be on offer is a Canadian-style free trade agreement. The EU will not compromise the integrity of the single market and the custom unions for the benefit of a third country, the UK.

To paraphrase some words from Davis’s Berlin speech: the EU will not put EU prosperity at risk for the sake of UK politics. 2018 looks like being a long, slow, steep learning curve for the UK that short-term political choices made in the interest of party management can have long-term adverse economic consequences.

But the discussions may not get beyond the Article 50 issues. Ireland wants a written commitment that there will be no hard border on the island after Brexit. The UK has committed to this but doesn’t know how to deliver on it. As the Irish Taoiseach, Leo Varadkar said on Friday after a meeting with Theresa May: “Sometimes it seems like they haven’t thought all this through”.

Not just on Ireland, but on all things Brexit, that becomes more obvious by the day.

 

 

Article 50, Brexit, British Government, Negotiating, Theresa May

#Brexit, a Dickensian example of: “Please sir, can I have less?”

This article was written on Oct 29, 2017.

Sir-Ivan-Rogers-776583If the absence of economic rationality, as a driving force behind Brexit, was ever in question, comments this week from three very different speakers should put an end to the doubt.

First, the French ambassador to the US, Gerard Araud tweeted:

“Maybe I am too cartesian but leaving the largest free trade area in the world and 53 free trade agreements on behalf of free trade is weird.”

Indeed, much too logic. But that’s the French for you.

Second, Michael Bloomberg, the billionaire founder of Bloomberg and former mayor of New York commented:

Brexit is the “single stupidest thing any country has ever done…it is really hard to understand why a country that was doing so well wanted to ruin it”

Third, and most significantly, speaking to a House of Commons committee, Sir Ivan Rogers, the former UK ambassador to the EU (Photo above with David Cameron), who resigned earlier this year after warning against “ill- founded arguments and muddled thinking” in the UK’s approach to leaving the EU, said:

You cannot know how long a free trade deal discussion will last until you get into it. I have lived through a number of them, including the Canadian one, which we all thought was relatively straightforward, which we kicked off in about 2009, and it still is not in force; and they are one of the more simple partners. You cannot know until you get there. There are things that are simpler with us than with Canada simply because we have been in the organisation. There are things that are more difficult because we are a diverging partner rather than a converging partner.

All trade deals in history are struck between people that are trying to get closer together. This is the first trade deal in history struck between partners who are trying to get further apart. There are some things that are simpler because they know us better and we have been part of their organisation and, by definition, there is a huge degree of regulatory convergence and they know our regulation but we are obviously going to diverge to some extent, and the question that is politically live, including in this House, will be how far we diverge. (Our underlining).

I would take issue with Sir Ivan’s comment that the two sides are trying to get “further apart”. It is just the one side, the UK, that wants to make the break. But apart for that, what he says is right.

Normally, the parties to a trade deal believe the conclusion of the deal will be win-win for all, making them better off than they are now, boosting trade between the parties, enhancing business opportunities rather than limiting them. Getting closer together rather than “trying to get further apart”.

But in deciding to leave the EU, the single market and the customs union the UK will not be better off than it is now. As Sir Ivan said earlier in his remarks to the committee:

… from other capitals often it is read as meaning the Brits would rather like the benefits of three of the freedoms whilst suspending or ending the fourth freedom. The Brits would rather like to have continued, largely unchanged, market access in all the areas that they want, and see no reason why that market access should be diminished…
But if that is what the “Brits” would like, they are not going to get it, Sir Ivan continued:

… The Brits need to understand that there will be a radical difference as a consequence of exiting, in terms of levels of market access in multiple sectors that they care about.

… The British cannot simply expect the world to carry on broadly as is. They cannot suspend free movement of people because that is no longer applicable to them, live outside the jurisdiction of the Court of Justice, but still have everything that they liked about the levels of market access when they were inside the venture.

Given his long experience of the EU, Sir Ivan knows what he is talking about, which is probably a lot more than can be said for many members of the government and many leading Brexiteers.

If Britain cannot expect to have as good terms outside the EU as inside, how does it go about negotiate a lesser deal than the one it has now? The answer, in all probability, is that it can’t. How can the UK government turn around to the motor industry, the pharmaceutical industry, the food industry or the chemical industry and tell them that the agreement it has just negotiated with the EU will put more obstacles in their way when exporting to the EU? More paperwork will be required, more customs checks, longer waiting times at borders will all be part of the new deal.

Read Sir Ivan’s remarks, quoted above, closely. Better still, read the full script of his testimony to the House of Commons committee, which can be found here.

While diplomatically couched, he is saying that if you think the Article 50 negotiations on the financial settlement, citizens’ rights and Ireland are difficult, wait until you actually get to the trade talks. They will be brutal and bloody. Because, as we noted in last week’s blog, what the “Brits” want is to move from a marriage to a “friends with benefits” arrangement and there are no circumstances in which the “jilted” EU will agree to such an arrangement, where the UK gets all the benefits it wants but incurs none of the costs.

Further, Sir Ivan, along with his two fellow panellists, clearly makes the point that the UK government is deluding itself if it thinks that a DCFTA, a “deep and comprehensive free trade agreement” in the Brussels jargon, will be agreed before March 2019, to be followed by a two-year transition period, or “implementation phase” as UK Prime Minister, Theresa May, insists on calling it.

At best there will be an agreement, as part of the Article 50 process, to negotiate a DCFTA during the transition period, by which time the UK will have left the EU. All the transition period does it to buy two more years before Brexit bites.

It is not “hard” Brexit or “soft” Brexit. It is just slow Brexit. Because it will be impossible to negotiate such a DCFTA within the two-year transition. At the end of the two-year transition the UK may still find itself without a trade agreement with the EU.

The UK has gotten itself into an impossible negotiation. The structure and the timetable of the negotiations, which they agreed to, plays against them. The clock ticks remorselessly down. The negotiations open with the UK having all it wants; free and frictionless trade with the rest of the EU. But the price of that trade is the free movement of people, a price the UK no longer wants to pay. If it won’t pay the price, it can’t have trade on frictionless terms. What does it give up as the price of ending free movement?

How do you ask for less in a negotiation?

Those of you of a certain age will well remember the scene from the movie Oliver in which Oliver, approaches the top table in the workhouse and, holding out his bowl, says “I want some more”, to the outrage of Mr. Bumble, who runs the workhouse. Theresa May and David Davis are now both holding out the UK’s bowl to Juncker, Barnier and Tusk and the EU 27 and saying: “We want a lot less than we now have”.

Just how do you negotiate that?

Article 50, Brexit, Divorce, Negotiating, Theresa May

On #Brexit: You can’t always get what you want…

This BEERG Brexit Briefing (#16) was written on Sat Oct 21, 2017

Hammond BoJoWords and phrases can shape reality.

How we describe an issue or event can determines how that issue or event is to be understood. Such “framing” can be particularly important when we are dealing with some something unique, something that has never happened before. How do you describe the unknown? How do you explain the unprecedented?

One way of doing so is to compare the unknown to something known and familiar. This, in the UK at any rate, is what many journalists, commentators and academics have done when writing about Brexit, an unprecedented and unknown event. They have taken to describing the Article 50 discussions between the EU and the UK as being akin to divorce proceedings, with the key argument being about money: how much will the UK have to pay the EU as part of the “divorce settlement”?

The divorce comparison makes writing about Brexit easy because divorce is something we are all too familiar with and our culture is replete with movies, plays and songs describing the hurt and bitterness that divorce and the ending of relationships can cause.
But in the case of Brexit the divorce comparison is not only wrong, it is also completely misleading.

In a divorce, the two parties are bringing a relationship to an end. Depending on the context, the discussions may be amicable or poisoned. The couple may end the relationship without rancour or they may end up hating one another. But, one way or another, the relationship ends and both move on with their now separate lives. Yes, they may need to see one another from time to time, especially if the welfare of children is involved, but in general, after the divorce is finalised, they live independent lives. Maybe find new partners, create new families.

This is where the divorce analogy, when used to describe Brexit, breaks down. Because Brexit is not a divorce. The UK does not want to “divorce” the EU in the sense that it no longer wants to have anything to do with it.

What the UK wants is to end the 40-year marriage it has with the EU, and with it all the obligation and responsibilities that marriage brings. But, at the same time, it wants to continue to have a “live-in” relationship with the EU, a new “open relationship” that will allow the UK to continue to have the marital benefits it now has, but still be able to see other people from time to time.

The UK wants to move from being married to the EU to being a “friend with benefits”. Does not the phrase “we are leaving the EU but we are not leaving Europe” mean exactly that? “I am ending the marriage but I am not leaving you.”

Which is why the talks between the EU and the UK are so slow and difficult. Imagine that your partner of more than 40 years tells you one day that they want to end the marriage but at the same time they want to continue to live in the house with you, share the same bedroom with you but they no longer want you to have any say in their life as they are “taking back control”. And, at the same time, they want to be free to have relationships with other people.

Faced with such a statement from your partner who, yes, has always been a bit difficult to live with but whom you have grown to love anyway, to say that you would feel hurt and rejected would be an understatement.

You would be outraged and incensed, especially when it came back to you that your partner was going around the neighbourhood bad-mouthing you. (There are some in the UK who appear to believe that the White Cliffs of Dover somehow or other block all that is published or broadcast in the UK from crossing the channel to Europe).

Then, to further complicate an already fraught situation, they send you a letter saying that they are ending the relationship on a particular date and that they want, no… they are demanding… that the new arrangements are in place by that date. You never wanted the marriage to end in the first place, rocky though it was at times. Actually, if they saw sense you would be prepared to take them back, but some things would have to change.

But, with sadness, you accept that they have made the decision they have made and you tell them that if they want to end the marriage you need an agreement on the shared commitments you had entered into together. They agree to such discussions but then they keep saying that what they really want to talk about is the “future relationship” they want with you. They keep saying that they want a “deep and meaningful” relationship that looks pretty much like what they have now but shorn of all responsibilities and obligations.

Every time you say that you can only talk about the future when the present is sorted out they reply that the present is dependent on the future. “If you give me a future deal I like, friends with benefits, I’ll meet my current obligations”.

But you are never going to give them the future deal they want. They will no longer be able to come and go without hindrance or have free access to the house. You may be prepared to rent them a room but the idea that you will continue to share a bedroom is not something that you are prepared to entertain. Friends, yes. Friends with benefits, definitely no. If you do rent them a room it will be on strict terms and conditions, involving a rent appropriate to the benefits to be provided.

The problem is that they know this in their heart of hearts. Rationally, you can’t because it would mean that they got all the benefits while you took all the costs.

While a negotiation between two people along the above lines would be difficult in any event, you can multiply that difficulty exponentially when you have 29 parties on one side of the table (27 EU member states, the EU Commission and the EU Parliament) and, on the other, a government which can’t even agree among itself if today is Saturday. If Philip Hammond said that today was Saturday, Boris Johnson would criticise him for stating the obvious instead of rejoicing that the sunny uplands of Sunday were fast approaching.

Negotiations between two parties only end in a beneficial outcome if both parties see that such an outcome is in their mutual interest. When one party sets itself an impossible objective then a deal is never doable. The UK wants to have better terms and conditions with the EU from outside the EU than it had inside the EU. Why would it be in the EU’s interest to agree to that? It is just not going to happen. You can go from being a friend with benefits to being married. It just does not work the other way around.

As I write this BEERG Brexit Briefing on Sat, Oct 21, the UK newspapers are full of talk that the EU is preparing to cut the UK a deal because EU leaders feel sorry for the UK Prime Minister, Theresa May.

Utter nonsense.

The EU is not going to pull a weak and worried Tory prime minister out of a political hole she has largely dug for herself. The EU will do what is in the EU’s interests. That’s what you call “taking back control”.

As for the UK? The Rolling Stones put it well: You can’t always get what you want…