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, 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?

Brexit, British Government, Brussels, Irish border, Northern Ireland

Break, for the Border #Brexit

This blogpost was written on Nov 24th, 2017

welcometoniThe week opened with the UK cabinet agreeing that it would offer more money to the EU to settle its financial obligation triggered by its decision to leave but only on condition that the EU would agree to now move to talks about the future relationship and that the money would only be paid over when a trade deal was actually signed. This is an offer that, by Friday, even the ultra-Brexit supporting newspaper, the Telegraph, was admitting would be rejected by the EU.

The week closed with howls of rage from British politicians, often Brexit supporting, when the EU announced that UK cities were to be excluded from consideration from the prized European Capitals of Culture competition for 2023. An example of the EU punishing the UK, Brexiters argued, apparently ignorant of the rules that only cities from EU, EEA or applicant countries can be so nominated. Why would the EU subsidise cultural activities in a city in a country that had left the EU?

When you are thrown out of the culture club all you can say is: “Do you really want to hurt me, Do you really want to make me cry?”

The rage over the cities issue neatly captures a phenomenon that Chris Grey identifies in a blog post that “there is the strange sense from those who argue most vociferously for Brexit that, somehow, Brexit won’t change anything. For example, I’ve seen Brexiters ridicule the idea that leaving the EU could mean needing visas to travel to the EU or that it could mean restrictions on air travel within the EU.” On air travel see this.

A phenomenon also captured in an article by Tony Barber in the Financial Times that “the clamour for special treatment is particularly loud in hard-pressed areas of England that voted heavily to leave the EU in the June 2016 referendum.” For example, the seafood industry in Grimsby, which voted 70 per cent to 30 per cent for Brexit,

…fearing that competitors in French and German ports will gobble up its business, wants special free trade status after Brexit.

What might be described as wanting to have your fishcake and eat it.
But by far the biggest Brexit development of the week was the issue of the potential re-emergence of a border in Ireland moving centre stage in the negotiations and threatening to block them moving to phase two, talks about the future relationship between the UK and the EU after Brexit.

There are three issues on the table in phase one of the Article 50 (A50) discussions: the rights of EU and UK citizens living in the UK and EU respectively; the financial obligations that the UK has signed up for as a member of the EU and which now must be honoured; and issues relating to the island of Ireland.

A major theme in the UK Brexit referendum was that leaving the EU would allow the UK to “take back control” of its borders. As of today, as a member of the EU, the UK has no borders with other EU countries. In fact it has no borders at all as there are no non-EU countries around it. After Brexit, depending on how Brexit is defined, with one exception, all of the UK’s borders with EU countries will be sea borders, the English Channel and the North Sea, for the most part.

The one exception is the island of Ireland, with its long, tortured and bitter history with the UK. History in Ireland is not the stuff of the past. History is modern day politics. Orange marches on the 12th of July, celebrating the victory of King Billy at the battle of the Boyne, still have the potential to trigger confrontation. Northern Ireland has been without a devolved government for close on a year because of a dispute over Irish language legislation.

Ireland became independent of the UK in 1922, close on a 100 years ago. It became a republic in 1949. But six counties, located in the Northeast of the island, because of a Protestant/Unionist majority in those counties, opted to remain with the UK. What the Irish refer to as “partition”. From 1922 onwards, when partition happened, the unionist majority in Northern Ireland systematically discriminated against the Catholic minority, something ignored by UK governments, both Conservative and Labour. It should be remembered that the official title of the Conservatives was the Conservative and Unionist Party.

The border between the two parts of the island was clear and visible, manned by security forces on both sides.

In the 1960s, inspired by the US civil rights movement, Northern Irish Catholics began their own civil rights movement, marking the beginning of the end of the Unionist state. But the violent reaction of the authorities in Northern Ireland to the civil rights movement gave birth to the Provisional IRA, the “Provos”, and years of terrorist violence followed, with atrocities being committed by all sides.

The Good Friday Agreement (GFA) of 1998 began the process of ending violence and returning a degree of normality to Northern Ireland through a governance process that involved representatives of both communities. But the deep divides between the two communities have not healed to this day. Like a sleeping volcano, anger and hurt stand ready to erupt at any time.

The hard border between the two parts of Ireland also began to disappear, helped enormously by the creation of the EU’s single market, building on the already existing customs union. The disappearance of trade borders because of regulatory harmonisation across the island facilitated the disappearance of security borders. EU membership has boosted the peace process is myriad other ways. See: Irish-ambassador-Daniel-Mulhall-Brexit/

In Ireland where, to borrow some words of Yeats, “peace comes dropping slow”, the decision by the UK government that Brexit means leaving not only the political structures of the EU but also the single market and the customs union puts all that has been achieved at risk. If Northern Ireland, as part of the UK, is outside the single market and the customs union then the return of a physical border is inevitable. The return of a border could awaken the sleeping volcano.

If the UK, post-Brexit, wants to diverge from EU standards, and it does, see here, then border controls is the only way the EU can ensure the integrity of goods imported into the EU through Northern Ireland. But make no mistake. It is the choice made by the UK government to quit the single market and the customs union that results in the border.
Ireland has made it clear that it will veto moving to phase two of the Brexit process is the UK does not offer written, bankable, guarantees that there will be no border. The UK responds that this is an issue to be dealt with in phase two when the trade relationship is discussed. But how can it be when the UK has already ruled out the only options that would prevent the need for a border? A bit like an employer saying that they will open pay negotiations with a union but only on the understanding that a pay increase is a priori ruled out.

As Chris Grey points out in his blog, Brexiters appear to suffer from a touch of cognitive dissonance, where the consequences of Brexit are either denied or blamed upon the EU, and not attributed to or accepted as resulting from the vote to leave, as in the Capitals of Culture furore.

Jarring reality can break the hold of cognitive dissonance. Such will be the case with an Irish veto on moving to Brexit talks phase two. The UK was never slow to use its veto during its years of EU membership when it felt potential decisions cuts across its national interests. It can scarcely complain when other countries do the same.

The veto will be used. To quote the Irish foreign minister, Simon Coveney: “We have been preparing effectively for that summit for months now to make sure that Ireland’s voice is heard in the context of our future as a member of the European Union, in the context of ensuring we do not have a border on the island of Ireland again.”

The UK made its Brexit choices. Now it must live with the consequences. If the talks break, it will be for the border.

Footnote: As I write this, the newspapers are awash with talk that the Irish government may fall, triggering fresh elections over who knew what and when as regards a police scandal. An election guarantees an Irish veto as no party is going to campaign as the one who would agree to allow the UK to re-impose a border in Ireland. No doubt the UK Brexit supporting newspapers will complain loudly that “Irish politics” are derailing Brexit, ironically ignorant of the fact that Brexit is little more than the playing out of UK politics.

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

Brexit really does mean #Brexit…. doesn’t it?

This blog was written on Fri Sept 15th.

FlorenceUK  Prime Minister, Theresa May, is to fly to Florence next week to deliver a speech billed as an “important intervention” on the Brexit negotiations. Why Florence? Why not the European Parliament? Florence, a once great banking centre in Europe, its glory days long behind it. A role model for London, post-Brexit perhaps.

A spokesman for May said, “The Prime Minister wanted to give a speech on the UK’s future relationship with Europe in its historical heart. The UK has had deep cultural and economic ties spanning centuries with Florence, a city known for its historical trading power. As the UK leaves the EU we will retain those close ties. As the Prime Minister has said on many occasions, we are leaving the EU, not Europe.” He added that the speech was an opportunity to “update on Brexit negotiations so far.”

Speculation is that she is going to announce that the UK government wants a transition deal after it exits the EU that, in the words of Chancellor Philip Hammond, is as close to the “status quo” as possible. To repeat, if that is what she is going to do, why not to the European Parliament, which has a potential veto over the Brexit deal. Better to talk to people who count than to a room full of strangers.

But we shall see. Press reports this morning, Friday, September 15, speculate that not all members of the cabinet, especially Boris Johnson, have yet signed off on what May proposes to say.

A health warning. We may be blindsided. There are suggestions that, instead of proposing a transition deal, the prime minister may announce a hard-Brexit in March 2019 and invite individual EU member states to open negotiations now with the UK on trade agreements. Cut the EU Commission negotiating team led by Michael Barnier out of the loop. Talk or we walk, would be the message in this second scenario.

The transition referred to by Hammond is called a “soft-Brexit” in the UK press, as opposed to “hard-Brexit”, the UK crashing out of the EU in March 2019 without any sort of deal in place.

In reality, there is no such thing as “soft-Brexit” and “hard-Brexit”. There is only Brexit or No-Brexit. You are either a member of the European Union or you are not. The UK has served the Article 50 notice, saying it will leave the EU at the end of March 2019. Only a vote in Parliament can reverse that decision and then, only if the EU agrees. If the EU were to agree, it would impose new terms of membership on the UK. There can be no “sorry about that, now where were we” return to the EU on the part of the UK.

But late in the day, the UK has come to realise that it does not have sufficient time to put in place all the legal, infrastructural and regulatory arrangements that will be necessary to deliver Brexit. What it now really wants is more time to leave the EU. A “slow- boat” to Brexit, if you will, because the UK government has not yet laid the keel for a fast one.

Article 50 does not explicitly provide for a transition arrangement. Nevertheless, the European Council, in its guidelines for the Brexit negotiations (here) says:

To the extent necessary and legally possible, the negotiations may also seek to determine transitional arrangements which are in the interest of the Union and, as appropriate, to provide for bridges towards the foreseeable framework for the future relationship in the light of the progress made. Any such transitional arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms. Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply

So, the EU sees a transition arrangement as a bridge towards the future relationship during which all “regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures” continue to apply to the UK. Which assumes that before the transition arrangements can be put in place the framework of the “future relationship” must be known. Impossible to have a bridge to nowhere. Note also that the transition arrangements must be in the “interest of the Union”, not just the interest of the UK. It’s a two way street.

Now it would appear that during the transition the UK will want to negotiate what we might call an “EU/UK common commercial space” agreement with the EU which would look pretty much like the single market/customs union. Such an agreement would come into effect when the transition ends. Thereafter, with the “commercial space” agreement with the EU in place the UK would want to move on to limit free movement and negotiate trade agreements with other countries. The words “cake and eat it” come to mind if that is what the UK wants.

But is that how the EU sees things? Article 5 of the negotiating guidelines states:

While an agreement on a future relationship between the Union and the United Kingdom as such can only be finalised and concluded once the United Kingdom has become a third country, Article 50 TEU requires to take account of the framework for its future relationship with the Union in the arrangements for withdrawal. To this end, an overall understanding on the framework for the future relationship should be identified during a second phase of the negotiations under Article 50 TEU. We stand ready to engage in preliminary and preparatory discussions to this end in the context of negotiations under Article 50 TEU, as soon as the European Council decides that sufficient progress has been made in the first phase towards reaching a satisfactory agreement on the arrangements for an orderly withdrawal.

So, during the Article 50 negotiations all that can be done is that the framework for the future relationship between the EU and the UK can be identified and taken into account. But an agreement can only be “finalised and concluded” once the UK has left the EU and has become a third country.

So what will be the status of the UK during the transition period? Clearly, it will not be a member of the EU after the Article 50 notification takes effect on March 29th, 2019. It will lose it roles in all EU governance structures. If “transitional arrangements” have been agreed they will come into force and the UK will remain subject to “existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures” during the transition.

But will the EU regard the UK as a “third country” with which it can negotiate during this transition phase? The UK would certainly want it to, and from a business perspective it would be the rational thing to do. But would the EU take the view that while the UK was effectively benefiting from the single market and the customs unions during a transition phase, negotiating a future agreement with it would be more “cake and eat it”?

Further, even if the EU was willing to negotiate how much time would be available to do so? The EU negotiating guidelines say that a transition must be “limited in time” and it appears that members of the UK cabinet are split, with a faction wanting it to end before the next election, due in 2022, so at most 2 to 3 years. Not enough time to unwind a legal and economic relationship that has lasted over 40 years and negotiate replacement arrangements. Especially, when you realise that what the UK will effectively be doing is negotiating worse terms and conditions with the EU than it currently enjoys.

But first, there is the question of money. The EU, as part of the Article 50 negotiations, wants the UK to agree a financial settlement that will discharge the commitments the UK entered into as part of the EU. The EU believes that these incurred obligations are separate from any future payment that would result from a transition deal or from UK involvement in EU programs or projects in the future.

For its part, the UK appears to want to use the already incurred payments to “buy” a transition deal. In effect, use the same money twice. This is not an offer the EU is likely to accept. Not to mention the amount that might be in question, where the two sides could be very far apart.

So, if in Florence, Mrs. May is going to make a financial offer to the EU it will have to be very carefully crafted. A badly structured offer could make matters worse, rather than better.

But even a well-crafted financial offer will need to be accompanied with a statement of where the UK eventually wants to land so that a transition to that landing place can be discussed. The “deep and special relationship” the UK says it wants with the UK will need to be spelt out in detail. Because you can’t structure a negotiation around the words “deep” and “special”.

That’s the problem. The UK bought an empty bucket called Brexit. Now it can’t decide how to fill that bucket.

 

Brexit, British Government, Brussels, Negotiating

The Impossibility of a Peter Pan Brexit

This was written on August 14th, 2017

“Take care, lest an adventure is now offered you, which, if accepted, will plunge you in deepest woe.”                                                                                                         J.M. Barrie

This will not end well for the simple reason that it is impossible for it to end well. When you promise the impossible it is impossible for it to end well.

The current UK Conservative government has led the British people to believe that leaving the European Union (EU) will come at no economic cost and that UK citizens will be able to trade with, and travel to, EU countries much as they can now. Brexit has been defined as the UK exclusively controlling its borders and immigration, walking away from the jurisdiction of the Court of Justice of the European Union (CJEU), ending payments to the EU for membership of the bloc, and being free to negotiate its own trade deals with non-EU countries. After Brexit, the UK will be outside the EU’s single market and customs union.

But, the narrative continues, the UK will be able to replicate all the benefits of the single market and the customs union through a “bold and ambitious” trade agreement with the EU.

The only problem with this narrative is that the EU has said it is not going to happen. But then debate about Brexit is conducted in the UK, and particularly in the Conservative party, as if the EU 27 were bystanders.

But the EU and the other 27 member states are not bystanders. They will determine the nature of the relationship that the UK has with the EU post-Brexit. Not the other way around, as many in the UK appear to think. Further, as the UK has given notice to leave it is the EU which will determine what happens immediately after March 2019. It will not be decided by negotiations between Conservative ministers.

Speaking to the EU’s Economic and Social Committee last July, the EU’s chief Brexit negotiator, Michael Barnier, said that the UK cannot leave the EU single market and keep the benefits. He added that he had warned the British government there was no cost-free way to leave the single market and said some people in the UK had not understood that Britain cannot leave the EU without losing out.

“I have heard some people in the UK argue that one can leave the single market and keep all of its benefits. That is not possible,” he said.

_97312551_54301344-a7e1-4959-a974-1f1b1f2f1326Clearly, the UK government wasn’t listening. In the Sunday Telegraph (13/8/2017) two key government Ministers, Philip Hammond, the Chancellor and Liam Fox, the International Trade Secretary, from the “soft” and “hard” Brexit wings of the Conservative party respectively, are quoted as they appeared (I highlight key phrases in bold):

“We respect the will of the British people – in March 2019 the United Kingdom will leave the European Union.

We will leave the customs union and be free to negotiate the best trade deals around the world as an independent, open, trading nation.

We will leave the single market, because there was a vote for change on June 23rd and that is what we will deliver.

“We want our economy to remain strong and vibrant through this period of change. That means businesses need to have confidence that there will not be a cliff-edge when we leave the EU in just over twenty months’ time.

“That is why we believe a time-limited interim period will be important to further our national interest and give business greater certainty – but it cannot be indefinite; it cannot be a back door to staying in the EU.

“And it must ensure a smooth and predictable pathway for businesses and citizens alike. We are both clear that during this period the UK will be outside the single market and outside the customs union and will be a ‘third-country’ not party to EU treaties.

But we are also clear that during this period our borders must continue to operate smoothly; goods bought on the internet must still cross borders; businesses must still be able to supply their customers across the EU and our innovative, world-leading companies must be able to hire the talent they need, including from within the EU.

“Once the interim period is over, we want a permanent, treaty-based arrangement between the UK and the EU which supports the closest possible relationship with the European Union, retaining close ties of security, trade and commerce.”

The question surely is this: if the UK leaves the EU in March 2019, is outside the customs union and the single market, on what legal basis does it expect that its borders:
….continue to operate smoothly; goods bought on the internet must still cross borders; businesses must still be able to supply their customers across the EU and our innovative, world-leading companies must be able to hire the talent they need, including from within the EU?

What is described in the above paragraph is precisely the way the single market and customs union work. If this is what the UK wants, even if only for a couple of years, then it will have to accept all EU laws, free movement, the jurisdiction of the CJEU and make payments into the EU. But as it will have left the EU it cannot expect any role in EU governance. No commissioner, no MEPs, not attendance at Council of Minister meetings and no judge on the CJEU.

Further, we are not told how the UK expect, during this transition period, to be “free to negotiate the best trade deals around the world as an independent, open, trading nation.” What other country is going to want to negotiate with the UK until the final terms of its long-term relationship with the EU is finalised? Unless, the US who have the best honed team of negotiators in the world while the UK is scrabbling to establish a team, having not played the game for 40 years. Not a good place to start if you want a result, as the Director General of the British Chambers of Commerce has suggested. Manchester United v Accrington Stanley.

The Hammond/Fox article quoted in the Sunday Telegraph appears to assume that all the UK need to do is to state that it wants a transition period on the above terms and the EU will simply agree. Perhaps it will, but it will have to be negotiated with the EU. It is not a given that because the UK now realises that it needs a “transition” that the EU will agree. The EU did not create this mess. The UK did. But the EU will only even consider it after the Article 50 issues of citizens’ rights, the Irish border and financial liabilities have been settled. Agreement on these issues is a long way off, as of today.

Hammond/Fox implicitly accepts that there will be no long-term agreement between the EU and the UK in place by March 2019 and that crashing out of the EU would be enormously damaging for UK businesses. They must therefore accept that de facto if not de jure participation by the UK continues in both the single market and the customs union during this period, contrary to the impression given in their article on 6 August, while the long term deal is being negotiated. Can we now take this to mean that the UK government accepts that “no deal” is the worst possible outcome? Transition may well bring business and trading continuity, but at the loss of all political influence within the EU.

Even if the EU agrees to a “transition period” for the UK there is no guarantee that any long-term deal can be reached during the transition. “Crashing out” might just have been postponed by a couple of years. If a deal is reached then it will be on lesser terms than the UK will enjoy during the transition, if there is a transition. Barnier, as quoted earlier, has made that clear.

Ultimately, for a country such as the UK the choice is binary. You are a member of the EU or you are not. There are no “half-way houses”. If you are not a member the best you can hope for is a hard fought trade deal. But such a trade deal will never replicate the benefits of membership. Brexiteers argue that what the UK will lose from walking out of the world’s biggest and richest market can be replaced by the benefits of trade deals to be negotiated with countries far away. Tinkerbell politics: close your eyes, clap your hands and truly, truly believe… and it will happen. In fairy tales maybe…

“Of course the Neverland’s vary a good deal. John’s, for instance, had a lagoon with flamingos flying over it at which John was shooting, while Michael, who was very small, had a flamingo with lagoons flying over it. John lived in a boat turned upside down on the sands, Michael in a wigwam, Wendy in a house of leaves deftly sewn together. John had no friends, Michael had friends at night, Wendy had a pet wolf forsaken by its parents…”

J.M Barrie

Brexit, British Government, Brussels, Negotiating

We are no nearer to knowing the future

Written July 27th 2017.

downloadAnother week and we are no clearer as to what is going to happen. Last weekend the UK newspapers were filled with stories that the government had come to a consensus that a “transition” or “implementation” phase would be needed after March 2019, when the UK is scheduled to leave the European Union. The only disagreement between government ministers appears to be over the length of such a transition. Should it be two, three or four years?

But agreeing to a “transition” is a bit like agreeing to go on a “journey”. It says nothing about where you are starting from or where you are going to end up. After two rounds of negotiations between the EU and the UK we are no wiser as to how matters may unfold.

There has been little or no progress on the three main Article 50 issues. In particular, the UK is refusing to put a number of what it considers to be its financial obligations, or even to discuss a method to calculate those obligations. Given where we are today, it seems to be highly unlikely that there will be a deal on the Article 50 issues by October, when the EU’s chief negotiator, Michael Barnier, is due to report to the leaders of the other 27 member states if sufficient progress has been made to allow the opening of the second phase of negotiations with the UK on “the framework for its future relationship with the Union.”

So, there is every possibility that the exit talks could come to a grinding halt in September. Barnier will give the UK until then to realistically deal with the financial issue. If they do grind to a halt do not underestimate how ugly matters could get.

Even if the Article 50 exit talks make progress, what does the UK want? As of today, all the UK Prime Minister, Theresa May has said, is that it wants a “deep and special relationship” with the EU after it leaves, without spelling out in detail what that means. However, as Brendan Donnelly of the Federal Trust has pointed out (here) the UK government knows exactly what it wants:

…which is systematic “cherry-picking” of the perceived advantages of membership of the European Union combined with the systematic unpicking of the obligations of such membership.

That will never be on offer from the EU. As Fabian Zuleeg of the European Policy Centre has noted:

The assumption that the EU27 are willing to accept any deal to avoid Brexit is misguided. Not only are there red lines that they will not cross, but the clock is ticking as well. The time left to strike a deal is limited. It is for the UK to come up with workable solutions as otherwise the UK will end up with no deal at all. While this is also negative for the EU27, it is seen as the UK’s choice and not something that needs to be avoided at all costs.

Zuleeg adds that the reason that the EU27 are willing to accept this negative outcome is that “greater goods are at stake”:

…the unity of the EU27, the integrity of the Single Market and the future of European integration. While there is willingness to find a compromise with the UK, a country leaving the EU cannot be better off than a remaining member. Allowing cherry picking of benefits would act as a signal to others inside the EU that a Europe à la carte is obtainable, opening the Pandora’s box of disintegration.

But let us assume that the UK makes it clear to the EU that what it means by a “deep and special relationship” is a comprehensive trade agreement covering goods and services. There is no reason why the EU would not be willing to negotiate such an agreement, while making it clear from the outset that such an agreement can never replicate the benefits of membership.

There are no circumstances in which such a deal will be negotiated between now and Sept/Oct of next year when Barnier has said that the exit discussions must be wrapped up to allow time for ratification by EU member states and the European Parliament. Even the arch-Brexiter, UK cabinet member Liam Fox, admitted in Washington DC this week that while “it would be nice to think we could get a full trade agreement by the time we get to March 2019”, that would be “an optimistic view of recent free-trade agreements.”

The best that can be hoped for is an agreement to open negotiations on the terms of such a deal when the UK has left the EU. In any event, the EU is a rules-based institution and one of those rules is that it cannot negotiate a trade agreement with one of its own members. It can only negotiate such a deal with the UK after it has left.

Which brings us to the critical question: what happens between March 29, 2019, when the two-year Article 50 notice period comes to an end, and the conclusion of a comprehensive agreement between the EU and the UK, which will take another several years at the very least? On what legal basis will trade in goods and services between the UK and the EU to continue after March 2019? As of today, no one can say. Such uncertainty will push businesses to vote with their feet and move operations to EU countries. It is already happening.

There have been suggestions that the UK could temporarily join the European Economic Area (EEA) or the European Free Trade Association (EFTA). But neither the EEA or EFTA were designed as a place to “park” a departing EU member while future trade arrangements were negotiated. As there has never been a Brexit before, new arrangements need to be devised. A formula will have to be found to provide legal certainty post-March 2019.

A “bridging period” between full EU membership and non-membership over a three to five-year period could be agreed. During this bridging period the UK would act, and be treated by the EU, as if it were a member of the EU, accepting the jurisdiction of the Court of Justice of the European Union and making appropriate continuing financial contributions, which could take into account the figure agreed in the Article 50 negotiations.

All EU rules and laws would have to apply during the bridging period. There could be no cherry picking, no transition à la carte. But, the UK would be officially outside the EU and would no longer have any involvement in EU governance, no seat in the Council of Ministers and no MEPs in the European Parliament. Leaving the EU will never be cost free, politically or economically. We could describe the status of the UK during this bridging period as a “member state en partant”.

An approach along these lines would provide breathing space for all parties. While it has always seemed to us that Brexit is not in the best long term economic interests of the UK, given the political dynamics in the House of Commons, with the Labour leadership essentially backing the government’s approach, as things stand today Brexit is likely to go ahead. The Conservatives want Brexit in a blue bottle pouring right, Labour in a red bottle pouring left. That’s the only difference at the moment. But, if the economy turns sour, things could change.

Given this, it is in the UK’s and the EU’s mutual interest to minimise the disruption Brexit will cause. But, as the UK is the country which triggered the process it must live with the existential consequences of its choice. The burden of finding a way forward falls on the UK, not the EU.

And in the words of that great group, Brooker T and the MGs “Time is Tight” (here). A theme song for Brexit perhaps?

Brexit, British Government, Brussels, Juncker

Election Disappointment for Conservatives Complicates Brexit

Date: June 2017

EXITPOLLNever have the words of former UK prime minister, Harold Wilson, sounded so true: a week is a long time in politics. Last Monday, the current (for now) UK prime minister, Theresa May, was confident of returning to parliament this week after last Thursday’s general election with an increased majority, allowing her to remake the government in her own image. She expected to face a crushed and broken Labour Party across the aisle. Instead, she is the one who is crushed and broken, losing her previously slim, but workable, majority in the House of Commons, leaving her dependent on the votes of the Democratic Unionist Party (DUP) from Northern Ireland. How long this political arrangement will last is anyone’s guess.

May called the election to boost her majority and strengthen her hand in the Brexit negotiations with the European Union. She has clung on to government not as the “strong and steady” Theresa, as she liked to portray herself, but as “weak and wobbly”. Her European colleagues now know that she ducks at the sound of gunfire. A former cabinet colleagues has described her as a “dead woman walking”.

So, what are the possible implications of all this for Brexit?

  • Is there a majority in the House of Commons for the “Hard Brexit” that May wanted to push through? “Hard Brexit” is defined as not only leaving the European Union but leaving the Single Market and the Customs union as well. May believes that she can hang onto all the benefits of the Single Market and the Customs Union through a trade deal, but the EU will never offer that. They have absolutely no incentive to do so. The DUP, on whom the government is now dependent, want to stay in the Customs Union so as to prevent the return of a hard border between Northern Ireland and the Republic of Ireland. The Scottish Conservatives want to stay in the Single Market, and now have 12 seats in the House of Commons. It is likely that trade union pressure will push the leadership of the Labour Party towards supporting some sort of Single Market deal, despite what they are currently saying.
  • Had May got the overwhelming mandate she sought she would effectively have taken the House of Lords out of play. UK constitutional convention has it that the Lords cannot block government proposals if they were set out in the party’s election manifesto. Now, a minority Conservative government will struggle to get legislation through both the House of Commons and the House of Lords. It is extremely difficult to see how the government is going to get the legislation that is needed to facilitate Brexit onto the statute book before March 2019. And the rest of the European Union is in no mind to cut the always troublesome “Brits” any slack by “suspending” the Article 50 timeline.
  • Over the past year anyone who questioned the hardest of hard Brexits was shouted down as a “saboteur” of the “will of the people” as expressed in the June 23 referendum. In that referendum, it is worth recalling, only 37% of the total electorate voted to leave the European Union. You could not call a strike on the London Underground, or in any other business, with those numbers. Is it now arguable that a “new will of the people” as expressed in last week’s vote takes precedence over the June 23 referendum decision, or, at the very least, forces a rethink as to what it is to mean? In a democracy, the people are always entitled to rethink, or reverse, a political decision.
  • Many politicians were reluctant to speak out because of rightwing “tabloid terrorism”, vicious attacks from the likes of the Sun, Daily Mail and Express. In the run in to last week’s election, in poker terms, the tabloids went “all in” in their support of the Conservatives and in attacking Labour. They went “all in” and lost the gamble. Who, under the age of 45, now cares what they have to say, apart from those who write for them? Has “tabloid terrorism” been swept away by the tsunami of social media? Is there now a window of opportunity to reopen the debate on what Brexit should mean? When the young voted in this election, in numbers not seen for many years, and certainly not during the referendum, their largely pro-EU views rescued Jeremy Corbyn’s beleaguered Labour Party. Will they be repaid with a less euro-sceptical stance from the Leader of the Opposition?”
  • Most readers of this Briefing have a great deal of labour negotiations experience. One of the first question any labour negotiator asks is: do the other side know what they want and can they deliver on a deal? With less than a week to go before the Brexit talks are due to begin, and with Theresa May saying she will stick to the March 2019 deadline, we still do not know what the UK wants. Further, there is now considerable doubt that the incoming government can deliver anything at all. And the clock is running, started by the UK government sending the Article 50 letter to the EU at the end of March last. Mrs. May then wasted another seven weeks by calling an unnecessary election. The very difficult situation that the UK’s Conservative government finds itself in is entirely of its own making. What was always a weak negotiating hand to start with has been turned into practically no hand at all.
  • It has become all too clear that there was little, if any, economic upside to Brexit. The real and present tangible benefits that flow from membership of the Single Market and the Customs Unions are being put at risk for what? The fantasy of a recreated British Empire, jokingly referred to by UK civil servants as Empire 2:0. For businesses Brexit creates nothing but uncertainty. Will we be able to fill jobs? Can we bring in talented and skilled workers from Europe? Will data flows within and between businesses continued uninterrupted? Will our goods be subjected to long delays at ports, with negative consequences for “just-in-time” supply chains? “Tabloid terrorism” and the raucous voices of the extreme Brexiters cowed many from speaking up and raising these concerns. We believe that now is the time for business to seize the opportunity and say that the UK should stay in the Single Market and the Customs Union.
  • The UK economy is already showing signs of slowing down. The last thing it needs is to crash out of the EU, the Single Market and the Customs Union.
  • Time to say enough is enough.

Tom HAYES
Executive Director,
BEERG
June 12 2017