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, 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.

Brexit, Irish border, Michel Barnier, Northern Ireland

Is the UK’s #Brexit Cheque really in the post…?

This article was written on Nov 12th 2017.

13589652_f520It is becoming increasingly difficult to see Brexit ending well. Indeed, the process could hit the wall within weeks. Why? The complete and utter inability of the UK government to agree what it wants out of Brexit and, as a result, how to conduct the exit process. This should not be surprising given the closeness of the Brexit referendum vote: 52% to 48%, with the 52% only representing 37% of the total electorate.

It would appear that, when it comes to Brexit, the UK electorate roughly breaks down into three, though it is impossible to say exactly what weight to give to each of the three.

1. First, there are those who are totally opposed to Brexit and want to see the decision reversed.

2. At the opposite end of the spectrum are those who want, in the words of arch-Brexiteers, Boris Johnson and Michael Gove, the UK to become “a fully independent self-governing country”, irrespective it would seem, of the costs involved.

3. The third bloc, probably where most pragmatic businesses people are to be found, believe that if Brexit is to go ahead, then the economic disruption should be kept to a minimum, preferable through continued membership of the EU’s single market and the customs union.

On balance, and many of the polls show this, there is probably a majority in the UK who support leaving the political dimension of the EU but remaining within its economic dimension. The problem is that, what we might call the “economic remainers”, are split between the main political parties while the “Britain First” group of Johnson and Gove effectively control the Conservative Party, and thus the government.

Their control is such that within the past few days, the prime minister, Theresa May, has announced that she will bring forward an amendment next week to the European Union Withdrawal Bill which will embed the UK’s decision to leave the European Union at 12:00 midnight, Brussels time, on March 29th, 2019 in law. Irrespective of what happens between now and then.

The fact that there is no internal agreement within the UK as to the meaning of Brexit makes, as we note above, managing the process difficult, if not impossible. How do you get to where you want to go when you can’t decide on your preferred destination?

The first phase in the exit process is the Article 50 negotiations. The essence of Article 50 is found in the following language:

A Member State which decides to withdraw shall notify the European Council of its intention. 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 EU has identified three issues that must be resolved during the A50 discussion with the UK before talks can move to the issue of the “framework for its future relationship with the Union”. They are: settlement of the UK’s outstanding financial commitments with the EU; the rights of EU citizens in the UK and UK citizens in the EU; and issues relating to the island of Ireland, where the only land border between the EU and the UK will exist, post-Brexit.

When it comes to the settlements of the UK’s outstanding financial commitments to the EU the two sides are approaching it from mutually incompatible positions. The EU sees it as a simply a matter of the UK paying what it owes, a settling of accounts. Once outstanding accounts are settled then what happens in the future can be discussed. There can be no future discussion until all outstanding bills are fixed, or at least an agreement is reached on how the bills will be fixed.

The UK see it as a negotiation. We will pay what you say we owe provided we get future benefits for our money. There must be a quid-pro-quo. The UK has made an initial offer of €20 billion and now says that it will not increase that figure until the EU agrees to trade talks. Even then, it would find it politically impossible to increase the figure without an actual trade deal to show for it.

This was the week that EU patience with what it sees as UK gameplaying finally snapped. At a press conference last Friday, after what can only be described as two days on non-negotiations, the EU’s chief negotiator, Michael Barnier, said that the UK has two weeks to make a serious proposal on its outstanding financial commitments, put at roughly €60 billion by the EU, or else he would not be able to report “sufficient progress” to the heads of government of the remaining EU27 member states in December to allow talks to proceed to what the UK insists on calling “trade” but which Article 50 refers to as the “framework for its future relationship with the Union”. A big difference in understanding as to the substance of the next phase of discussions, if the process ever gets to that point.

As of today, it seems extremely unlikely that there is any sort of political consensus with the UK cabinet to do what Barnier asks. On the contrary, in a complete misreading of the EU’s position, there is a belief on the part of many of the “Britain First” grouping that the EU is so desperate for the UK’s money that it will fold and give the UK the trade terms it wants if only the UK would walk away from the negotiating table. David Davis appeared to confirm this when he said in a TV interview Sunday that the EU should not to expect a figure or a formula by which the UK’s obligations would be calculated.

Even if a solution could be found on the money, this week also saw what is probably the most intractable of the three issues, borders on the island of Ireland, take centre stage. A leaked document on Thursday last revealed that Ireland and the EU were demanding that Northern Ireland remain in the single market and the customs union to avoid a hard border between the two parts of the island, a demand immediately rejected by the UK government, which is dependent for its survival on the votes of the Democratic Unionist Party from Northern Ireland.

The UK accepts that there should be no return to a hard border in Ireland, which would put the peace process at enormous risk. But it can offer no concrete solutions as to how this can be done outside the customs union and the single market. “We’ll find other ways around that”, was all that the UK’s Brexit negotiator, David Davis, could offer when asked in the same TV program mentioned above.

However, the reality is that there is no way around it. If Northern Ireland is outside the customs union and the single market then a hard border is inevitable if the EU is to protect the integrity of its internal market from goods being smuggled from Northern Ireland into Ireland, and onwards into the rest of the EU. Magical thinking and as yet undiscovered technological solutions are not going to solve the problem.

Conservative politicians and sympathetic commentators were quick to assert that the “newly hardened” Irish position, as they deemed it, was the result of Sin Fein/IRA pressure on the Irish government. No such thing.

This has been the Irish position all along. It is just that, as with other matters, the UK government has not been paying attention to what the Irish have being saying, just as they have not been paying attention to what the European Parliament is saying on citizens’ rights.

The Irish don’t have a veto on the final Article 50 agreement, if ever one is reached. But they do have a veto on whether or not “sufficient progress” has been made in the Article 50 discussions to allow the process to move on to the discuss the “future framework”.

They are not about to throw that leverage away.

The Irish position is simple: with its extreme definition of what Brexit means, out of the EU, the single market and the customs union, the UK created the problem. If it wants the process to move forward, it had better solve it now.

Post-dated commitments that it will be solved in future trade discussions will not be accepted. Like post-dated cheques, post-dated commitments too often bounce.

Indeed, that might be a useful metaphor for where we are. The EU (and Ireland) wants guaranteed, certified cheques now if the process is to progress. But all the UK is offering is post-dated cheques, with the figures to be filled in a later date.

Brexit, British Government, David Davis, Michel Barnier

My #Brexit Blog: of gold and gorillas

DD9E17AD-FCA5-4574-98B2-7CA25C82D730It was a week when reality bit, and bit very hard. Brexiteer illusions about a world of easy free trade deals beyond EU membership took a heavy hit when the US slapped a 219% tariff on Bombardier, the Canadian plane maker, over alleged illegal state aid, putting 4,000 jobs in Northern Ireland at risk.

Then, on Friday, the economics editor of SKY TV reported that close on 10% of UK exports was made up of gold which was simply recycled through London. As most of this went to non-EU countries, such as Switzerland, India and China, it had the effect of understating the value of UK manufacturing exports to the EU. The figure is closer to 50%, rather than the 44% quoted by the Brexiteers. The UK does not export as much to the rest of the world as it thinks it does.

Reality also bit when a further round of negotiations between the EU and the UK ended with little or no progress, despite an improvement in the atmosphere between the two sides. Talks on citizens’ rights inched forward, with the UK offering to allow EU citizens with permanent residency in the UK the right to return if they left for a prolonged period of time. In return the UK wants the EU to allow UK citizens who move to the EU to be able to move and settled in different countries, instead of being restrict to the country in which they lawfully reside when Britain leaves the EU.

The UK also offered to enshrine the Withdrawal Agreement into UK law, with lead UK negotiator, David Davis, saying that this would give it “direct effect”. “Direct effect” is a term in EU law which means that an EU citizen has rights under an EU law, enforceable through national and European courts, even if the country in which they are living has failed to transpose the EU law into national law or has transposed it incorrectly.

It is not clear if this is what Davis meant. Probably not. Meanwhile Barnier, the EU’s main negotiator, said that there were still serious issues over the role of the Court of Justice of the European Union (CJEU) in upholding the rights of EU citizens in the UK. The UK is opposed to any such direct role, but has indicated that some sort of indirect role may be a possibility.

Not much progress on the financial issue either. UK Prime Minister, Theresa May, said in her Florence speech that the UK would meet its financial obligations to the EU and that no country would be worse off as a result of the UK’s decision to leave during the current budgetary cycle. But when Davis arrived in Brussels at the start of the week’s negotiations he was again playing the “double bubble” game, trying to use the same money twice. The UK would pay what it owed but only in the context of talks on a trade deal. “We’ll fix our bar bill provided we can continue to play the course”. There will not be many takers in the EU for such a “generous” offer.

And not a word on the Irish border issue, the third of the three Article 50 issues identified by the EU as needing significant progress before the discussions can proceed to deal with the future relationship between the UK and the EU and transition arrangements to get to that relationship.

Let me be very blunt about this. If the UK insists on leaving the EU’s custom union then there is no solution to the Irish border issue. None. The Irish border will be the EU’s only land border with the UK, a third country. The EU is not going to leave that border unprotected for to do so would allow good of whatever origin and whatever quality to be shipped to Northern Ireland, then taken across the border into the Republic of Ireland for onward, custom-free shipping into the EU. That is not going to happen.

The return of a border in Ireland will be the direct result of the UK’s decision to leave the EU’s custom union. Nothing else. There are no magic technological bullets to avoid the need for a hard border. Such “magic bullets” only exist in the imagination of those Brexiteers who want to deny the consequences of their own decisions.

Make no mistake. The “Irish Question” could be a Brexit dealbreaker, because a border is a border is a border, no matter what its shape and form and Irish people in both the Republic and Northern Ireland do not want a border, visible or invisible.
All of which resulted in EU Commission President, Jean-Claude Juncker, saying onFriday morning that a miracle was needed between now and the next summit of EU leaders in October if they were to give the green light to move on in the exit discussions to talks about future relations.

Which brings us to “Gold and Gorillas”.

Ed Conway, the economics editor for SKY news writes in the Times (September 29th):
What is Britain’s biggest physical export? Given that the UK has some of Europe’s most advanced car factories, you might have assumed the answer was motor vehicles. Or perhaps pharmaceuticals, or engines, or crude oil from the North Sea?
No. In July, the latest month for which we have the figures, Britain’s biggest physical export was gold.

How does that happen?

The short answer is that London is the hub for the world’s physical gold market. Sitting underneath the ground in warehouses inside the M25 are vaults containing well over half a million bars of bullion, worth a grand total of about $300 billion: roughly the equivalent of £9,000 for every household in the country.

As noted earlier, most of this gold goes to non-EU countries thereby over emphasising non-UK exports and underestimating exports to the EU. While the latter have been falling they still account for roughly 50% of all the UK’s physical exports. In other words, the export hole to be filled if exports to the EU drop as a result of the UK leaving, is significantly bigger than previously thought.

A Brexit claim goldfingered you might say.

From gold to gorillas. Canada has a free trade agreement with the US: NAFTA. That did not stop the US hitting Bombardier with a potential 219% tariff over planes it sold to Delta, resulting from a complaint by Boeing. The tariffs were slapped on Bombardier, a Canadian company. The 4,000 jobs in Belfast are just collateral damage.

Those favouring the UK’s departure from the EU have claimed, long and loudly, that once outside the EU the UK would be first in the queue to sign a sweetheart trade deal with the US. They appear to believe that global trade negotiations are conducted in accordance with the elegant theories found in economic textbooks. No such thing. They are knockdown, drag-out, bare-knuckle fights. Dominated by the economic self-interest of powerful players. Fairness and justice has got nothing to do with it. Bringing “fairness and justice” to a trade negotiation is akin, as one commentator has noted, to bringing a “chocolate spoon to a knife fight”.

In such a world the big gorillas dominate. The EU, US, China, Japan and India. And when a 160 kilo gorilla goes head to head with a 40 kilo chimp (the UK outside the EU) there can only be one winner. Clue: it is not the chimp.

But the US thinks twice about cutting up rough with the EU because, in trade terms, the EU is as big, if not a bigger gorilla than the US. Further, the EU has teams of highly skilled trade negotiators, unlike the UK, which has next to none.

On March 5, 2002 President George W. Bush hit imported steel into the EU with 8-30% tariffs because of an alleged detrimental surge in steel imports. There was a widespread belief on all sides of the debate, confirmed by top Bush administration officials, that politics played a role in the decision to impose tariffs. Namely, the large and important Rust Belt swing states of Pennsylvania and West Virginia would benefit from the tariffs.

After Bush ignored a World Trade Organisation (WTO) decision against the US on the tariffs the EU threatened to counter with tariffs of its own on products ranging from Florida oranges to cars produced in Michigan, with each tariff calculated to likewise hurt the President in a key marginal state. Bush lifted the tariffs. Wikipedia here)
Inside the EU the UK, as part of a big gorilla, gets treated with respect by the US and the others. Outside, it will be eaten for breakfast.

With 4,000 jobs in Belfast at risk whether the Democratic Unionist Party (DUP) will reconsider its support for the UK government’s decision to quit the customs union and the single market remains to be seen. The DUP’s politics are rooted in tribal identity rather than rational economics.

A final decision on the Bombardier tariffs will be taken early in 2018. If the tariffs are upheld then Brexit dreams of easy free trade deals will be well and truly dead.
Finally, after their conference this week it is now clear what the Labour Party policy on Brexit is. Its policy is not the government’s policy. But as we don’t really know what the government’s policy is, we, therefore, can’t know what the Labour Party’s policy is. Now, is that clear?

 

Brexit, British Government, Michel Barnier, Negotiating, Theresa May

After #Brexit #FlorenceSpeech: Has Anything Changed?

This piece was written on September 24, 2017

857546_1UK Prime Minister Theresa May’s speech in Florence last Friday was designed to unlock the stalled Brexit negotiations between the European Union (EU) and the UK over an agreement on the departure of the UK from the EU. In her speech May said essentially four things:

1. She repeated that the UK would leave the EU at midnight on March 29th, 2019. On March 30th the UK will no longer be a member of the EU, the Single Market and the Customs Union.

As we have said before, this is a decision that can only be reversed by a vote in the House of Commons and agreed to by the European Union, though as we have also noted the EU would be unlikely to allow the UK to simply cancel its exit notice and return to the status quo ante. New conditions for continued membership would be required.

2. However, for two years, there or thereabouts, after that date the UK wanted a transition arrangement during which it would continue to behave as if it were still a member of the Single Market and the Customs Union, as it readied itself to fully leave the EU. During the transition the UK would continue to abide by all EU laws and procedures, including the principle of free move and it would continue to accept the jurisdiction of the Court of Justice of the European Union (CJEU).

3. The UK would meet its financial obligations to the EU, though she declined to put a figure on the amount involved.

Further, Mrs. May failed to indicate if the money involved simply covered accrued obligations or was also intended to “buy” future access to the EU Single Market.

4. She gave new assurances on the rights of EU citizens living in the UK and on the legal mechanisms through which those rights would be protected, though no direct role for the CJEU was mentioned.

By contrast, Mrs. May failed to say anything of substance about the Irish issue, which revolves around the need to avoid a hard or economic border between the Republic of Ireland and Northern Ireland, something that is impossible to achieve if the UK insists on taking Northern Ireland out of the EU Customs Union.

For the future the UK wants a “bespoke” trade agreement with the EU that would be better than either the European Economic Area (EEA) status of Norway or the trade agreement, CETA, between Canada and the EU, that has just come into force.

Reaction from the EU and EU member states was lukewarm, with a reemphasis on the need for the UK to first finalise negotiations on the three Article 50 (A50) issues that the EU has identified as key to an exit agreement – the rights of EU/UK citizens living in the UK/EU respectively, matters relating to Ireland, and the UK’s financial obligations to the EU.

Now it is no secret that Mrs. May’s Conservative Party is deeply divided over Brexit. The “business friendly wing” wants as long a transition as possible and thereafter, what might be called “Brexit in Name Only”, so as to keep to an absolute minimum any disruption to trade between the UK and the EU. The other wing, the sovereignty wing, isn’t much bother about trade disruptions with the EU as long as the UK has full and unfettered control over its borders, immigration, law making and the freedom to do trade deals with far-flung places.

The Florence speech represented an uneasy truce between the two factions. It didn’t last long. By my calculation from 15:00 on Friday afternoon to late Saturday night when the early editions of the UK’s Sunday papers carried stories that UK Foreign Secretary, Boris Johnson, was letting it be known that he would not agree to any new EU laws adopted during the transition being implemented in the UK and that he wanted the UK to be free to negotiate and sign trade deals with other countries as well. He also opposes paying into the EU for Single Market access at the end of the transition period. In this he was echoing the already stated views of other hard Brexiteers.

Responding to May’s Florence speech, Michael Barnier, the EU’s Brexit negotiator, said:

“Prime Minister May’s statements are a step forward but they must now be translated into a precise negotiating position of the UK government.”

He also reminded the UK that during any transition period that

“…existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures (continue) to apply.”

In light of Johnson’s latest remarks what “precise negotiating position” is David Davis, the UK’s Brexit negotiator, supposed to outline to Barnier on Monday morning when they meet for the next round of negotiations? Who speaks now for the UK: Johnson or Davis? How can the EU do any sort of deal with the UK when senior government members appear to openly contradict the Prime Minister with impunity?

The EU has been consistent in its position since the UK voted for Brexit. An A50 agreement must first be finalised. That agreement must cover, as noted earlier:

• The rights of EU/UK citizens living in the UK/EU respectively.

• Issues relating to Ireland

• A full financial settlement covering accrued UK financial obligations, which have been identified as somewhere between €60 and €100B.

Once sufficient progress is made on these issues the discussion can proceed to scope out the framework for future UK relationship with the Union, i.e., what sort of arrangement does the UK want with the EU when the Brexit process is completed. While the UK has failed to say, to date, what it wants, it seems clear that what it wants is a “common commercial space” agreement with the EU that would mimic the Single Market and the Customs Union i.e., frictionless trade between the two, but with the UK freed from the jurisdiction of the CJEU, able to restrict free movement and free to negotiate trade deals with third countries. No such cake and eat it deal will be on offer from the EU. And even if it were, it would come with a price tag at which the UK would baulk.

From the tenor of Mrs. May speech it seems that the UK sees itself as being on a par with the EU, negotiating a future partnership of equals. This overlooks the fact that the EU27 is 5 times bigger than the UK and in any negotiation the bigger and stronger party generally is the one that sets the terms of the deal. Overestimating your leverage in any negotiation can be fatal, even more so in a divorce negotiation when you are the one that has walked out.

Once the long-term future relationship is identified only then can a transition agreement be discussed. You have to know where you are going before can you build a bridge to get you there, if a bridge is required. At the moment talk of transition by the UK government looks very much like a “bridge over a troubled cabinet” rather than a bridge to a new relationship.

Even if, very, very big ifs, all of the above could be done, only once the UK becomes a “third country” after it leaves the EU in March 2019 can discussion on the substance of a future relationship begin. It is not going to happen beforehand. Which means that the UK Parliament will not be able to vote on the future UK/EU relationship before the UK leaves the EU in 2019 because the details of that relationship simply will not be known. I’m not sure that this has yet dawned on the majority of members of parliament.

But it is unlikely ever to get to that.

Because, as of today, Sunday, September 24, given the divisions in the UK cabinet, I can see little hope that an Article 50 agreement can be concluded between the EU and the UK that will allow the talks to move on to scoping the future relationship between the two. To get to an agreement it would require a major backing down on the part of the UK. The EU has been crystal clear in its position from the start. It is not going to change. Why should it? It is the UK that is leaving the EU. Not the EU that is leaving the UK. The problems that Brexit creates for the UK are of the UK’s making.

We will know a great deal more about the direction of travel after next week’s round of negotiations between the EU and the UK.

A week is a long time in Brexit.

But a caveat. The above “no deal” scenario is premised on the current Conservative government staying in office. Given the divisions with the cabinet and the Conservative Party there can be no guarantee of that.

It is a long way from here to March 2019. Anything can happen.