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, Irish border, Negotiating

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

This article was written on 17th Nov 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

This article was written on Oct 29, 2017.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How do you ask for less in a negotiation?

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

Just how do you negotiate that?

Article 50, Brexit, Divorce, Negotiating, Theresa May

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

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

Hammond BoJoWords and phrases can shape reality.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Utter nonsense.

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

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

 

Article 50, Brexit, British Government, Irish border, Negotiating

Breaking up is so very hard to do #brexit

Brexit4Over the past number of years, I have been involved, on the management side, in many European-level labour negotiations. But one particularly comes to mind.

The employees’ representatives on the other side had cancelled an agreement that had been in place for close on 20 years. It wasn’t a perfect agreement, it had drawbacks for both parties, but it worked reasonably well in practice.

Further, it was always possible to negotiate small, but important, changes to the agreement as circumstances evolved, old provisions became outdated and new issues and organisational changes needed to be taken into consideration.

In other words, the other side did not need to cancel the agreement but could, instead, have worked on improving it. But they were advised that negotiating a new agreement would be easy and that it would be a lot better than what they then had. Five years on, a replacement is not yet in place.

During those five years there have been significant changes in the company which further complicated and lengthened the renegotiation process. Because the employees’ representatives were focused on negotiating their new agreement they missed having a voice during the change process. Anticipating the future is difficult and the unexpected happens.

Of course, they complained repeatedly that they were not “informed and consulted” about the changes. However, every time we, the management, pointed out to them that the reason they were not informed and consulted was because they had cancelled the original agreement they reacted in hurt tones. They had been “forced into it”.

Management had been unreasonable. They had no choice. None of it was their fault. And we were the ones to blame for not “making it easy” to negotiate a new agreement.

The employees’ representatives had made a choice, but then refused to accept that the consequences that flowed from a choice that was theirs, and theirs alone. They expected management to pull them out of the hole they had dug themselves into it.

It’s a phenomenon known in other fields too. The German military strategist Helmuth von Moltke summed it up this way: “No battle plan survives contact with the enemy”, in other words: when your plan meets the real world, the real-world wins.

So, this negotiation came to mind as I read reports yesterday (Thurs, Oct 12) of the “breakdown” of negotiations in Brussels between the UK and the EU. Reading the London newspapers, with their English spin on events (English more so than British) it would be all too easy to conclude that the position the UK finds itself in had nothing to do with the UK and was all the fault of the EU. As if the EU had decided to leave the UK, not the other way around.

Negotiations between the two parties are deadlocked because the UK refuses to engage realistically on how the money it owes the EU should be calculated.

Not to mention the other two Article 50 issues, the respective rights of EU citizens living in the UK and UK citizens living in the EU, and the issue of the potential re-imposition of a border between the Republic of Ireland and Northern Ireland, the former an EU member, the latter, as part of the UK, out of the EU when Brexit takes effect.

As we commented in last week’s BEERG Brexit Briefing, the UK is pushing a “double bubble” strategy when it comes to money:

  • It is saying to the EU that it will only put money on the table in the context of discussion on a future trade arrangement.
  • Yes, it knows it owes money as a result of decisions the EU took while it was a member but it will only settle those bills if the EU promises it a commercial arrangement in the future that mimics the single market and the customs union. An arrangement that would mean that the UK was a member of the single market and the customs union in all but name.
  • It has to be that way for the UK because that is the way that UK prime minister framed the referendum decision to leave the EU as also meaning leaving the customs union and the single market as well.
  • Old money that is owed will only be paid in return for new benefits because that is what UK politics demands. Or at least, Conservative party politics demands.

Unsurprisingly, the EU sees it very differently.

The UK alone took the decision to leave the EU. It was not forced out. It was not shown the door. Consequences flow from that decision. One, it has financial obligations arising from its membership that it needs to settle. These obligations are freestanding and cannot be used as bargaining chips in negotiations on future relationships. No “double bubble”, says the EU. If you don’t pay, the EU continues, then there can be no talks on future commercial relationships. How can we negotiate with a party that won’t honour its existing obligations?

Hence the deadlock. No money, no trade talks, says the EU. No trade talks, no money is the UK position. If the negotiations between the EU and the UK crash and burn, and the UK falls out of the EU in March 2019 without an agreement, then the new reality for the EU is the single market and customs union between the 27 remaining member states. The status quo, less one member. Some problems, certainly, but probably manageable

For the UK it is a big, black hole.

For a start, it will have to create dozens of regulatory agencies that are needed in a modern economy, to replicate the work existing EU agencies do for all member states. How long will that take? How many new staff will need to be recruited? It has been estimated that around 5,000 customs agents alone would be required. How long will it take to develop the processes and procedures to facilitate continuing trade with the EU, the UK’s single biggest export market?

Outside of the EU’s open skies agreement, what legal framework will govern aviation? And on, and on, and on across all sectors of the economy. A growing multitude of problems only now beginning to be recognised, and looking increasingly difficult to manage.

On citizens’ rights the UK position appears to be that EU citizens living in the UK can have less rights than they have at the moment if UK citizens living in the EU can have all the free movement rights they currently enjoy. The UK wants its citizens living and working in the EU to be able to move around EU countries as they please, as they can do at the moment. But it wants to limit the rights EU citizens living in the UK currently have, such as the right to have extended family members join them.

As for Ireland, the UK appears unwilling to accept that its decision to leave the customs union and the single market has the consequence of re-imposing a hard border on the island. If there is to be a border again in Ireland, that is the EU’s fault. Nothing to do with the UK.

Breaking old agreements, as our labour relations story demonstrates, is easy. Negotiating replacements is never as easy as promised, takes longer than thought and will never be as good as what was previously in place because bonds of trust have been severed.

Breaking agreements always comes at a cost, costs which generally fall most heavily on the party that initiates the break.

Day by day, the UK is having to learn the truth of these sad realities.

But, to borrow and slightly change, some words from the Irish poet W.B. Yeats, such learning comes “dropping slow”.

Brexit, Negotiating, Theresa May, UK Labour Party

“Plan for the Worst: Hope for the Best” – the Fading Hope of #Brexit Deal

Posted on Friday, Oct 6th 2017:

4221396001_5597581765001_5597568337001-vsThe major party conferences have come and gone and still we are no wiser as to how Brexit is going to unfold. As we noted in last week’s Briefing, the Labour Party’s policy appears to be that they will deliver Brexit, but a Labour Brexit, not a Tory Brexit, whatever that means. Brexit is Brexit and Brexit means being outside the European Union (EU), the single market and the customs union.

However, Labour is in opposition and, so, for the moment what it says is important but nowhere near as important as what the Conservative government says, as it is charged with negotiating the Brexit arrangements with the EU. Whether it can get whatever deal it negotiates, if any, through Parliament, especially the House of Lords, is another matter.

This week’s Conservative Party conference was dominated by three issues: Brexit; who is going to succeed Theresa May as Conservative leader, and when; and Labour leader, Jeremy Corbyn. While Labour lost the last general election, it did not seem that way at last week’s Labour conference which had all the hallmarks of a victory rally crossed with a gathering of the devotees of the cult of “Jeremy”. Speaker after speaker proclaimed that Labour was no longer a “party in opposition” but a government in waiting”. What the difference between a “party in opposition” and a “government in waiting is” is difficult to discern because in either configuration you are in opposition.

But what has really spooked the Conservatives about Labour and the “cult of Jeremy” is that Labour appears to have captured the vote of the under 40s. Over 60% of the under 40s voted for Labour at the last election. The average age of Conservative Party members is 71. Go figure.

Corbyn is a complete 1970/80s throwback socialist, who believes in a managed economy, managed by the state that is, who is proposing an extensive program of renationalisation, a policy of tax, borrow and spend, and a greatly enhanced, legally underpinned role for trade unions, despite their absence of members. He is also an admirer of the late Hugo Chavez of Venezuela and leftist groups worldwide in general.

This week, speaker after speaker at the Conservative conference bemoaned how bad the “socialist seventies” had been in the UK and what an economic basket case Venezuela was. Both true. The only problem for the Conservatives is that no one under 40s remembers the 70s so it sends no shivers down their spine and, quite frankly, most British people probably do not know where Venezuela is, much less care about it. In their hearts the Conservatives know this which is why they are terrified of an election, which polls suggest would see Corbyn enter 10 Downing Street.

Which is probably the only reason Theresa May is still prime minister. A year ago, she was the political empress of all she surveyed, even if she was an accidental prime minister, there because all her opponents garrotted one another in the leadership election called when Cameron resigned. She told the 2016 Conservative conference that she would deliver the hardest of hard Brexits, out of the EU, the single market, the customs union and the jurisdiction of the Court of Justice of the European Union (CJEU).

Conference went wild when she said she planned to deliver the Article 50 letter to the EU by the end of March 2017 announcing the UK’s departure, which meant that the UK would leave the EU by the end of March 2019. Never mind that no work had been done as to what leaving the EU would actually mean in practice. She told the crowd what they wanted to hear.

Early 2017 she was riding high in the polls. 20 percentage points ahead of Labour. April she went for a walking holiday in the Welsh hills. No one knows what happened during that holiday. Did she have a vision? Did the spirit whisper in her ear? When she returned she called a general election for June, so as to boost her parliamentary majority. A presidential style campaign built around a “strong and stable” Theresa May backfired disastrously, the Conservatives lost their majority, and only continue in government with the support of the Ulster-based Democratic Unionist Party (DUP). A weak and wounded prime minister, heading a deeply divided government, split over how Brexit should be delivered, charged with the most complicated negotiation any UK government has ever faced in peacetime.

Only the fact that there is no obvious successor in the House of Commons and a Conservative leadership election would now be another time-wasting distraction from the pressing matter of Brexit, while an early general election could see Labour in government, has kept her in place.

As I write, on Friday morning, the newspapers are full of talk about plots to dispose of May following her disastrous conference performance last Wednesday. Napoleon used to say “I know he is a good general, but is he lucky”. Whether she is a good general or not and the answer is, probably not, she is certainly unlucky, losing her voice during her conference address, with a comedian running on stage to hand her a dismissal notice, and, to top it all, letters falling out of the conference logo on the wall behind her.

And all the while she struggles to define what Brexit means and how it should be delivered. A few lines in her conference speech about Brexit that said nothing new. Yet, from Sunday to Wednesday, speaker after speaker at fringe events around the conference, called for the hardest of hard Brexits, with Boris Johnson, the foreign secretary kicking things off in a newspaper interview as the conference began saying that any transition arrangements should not last a second more than two years, that the UK should not implement any new EU rules during the transition and ruling out payments to the EU in the context of any future commercial relationship with the EU.

Taking what Johnson said, along with other comments by senior politicians, the Conservative appear to want a “double bubble, hokey cokey, cake and eat it” deal with the EU.

“Double bubble”, we have noted before, is an attempt to use the money that the UK owes the EU as a result of commitments it signed up to as an EU member to buy a transition deal and future trading relationships. In a word, using the same money twice. This is not a “generous offer” the EU will accept. “Agree to paying what you owe us, and then we’ll talk about the future”, has been the EU’s position from the get-go. It will not change now.

“Hokey cokey” sums up what Mrs. May said in a TV interview last Sunday. She told the interviewer that during the transition some sectors could drop out of the EU’s legal framework quicker than others. In other words, some parts of the UK economy would be “in”, while some parts could be “out”. She didn’t explain how, for example, if you had two factories cheek-by jowl, both manufacturing different products, one might be subject to EU law and the other not. In the economy as a whole, how do you draw lines between different sectors? For example, is a car a piece of metal or a bundle of software? Simply to state that you could have two different sets of laws governing a modern, integrated economy at the same time is to realise how impossible such a notion is. The EU’s position, again, is unwavering. All EU laws apply to all sectors for the total duration of any transition.

“Cake and eat it” is to ask for seamless, frictionless trade between the UK and the EU though a customs arrangement for the transition period, while the UK, at the same time, is free to negotiate and sign trade agreements with other countries. Again, the EU will not accept this. But it is a pipedream in any event. Last week’s the US’s decision to impose a 219% tariff on Bombardier should have brought home – to even the most starry-eyed Brexiteer – that when President Trump talked about signing a “beautiful” trade deal with the UK he mean “beautiful” for the US, with the UK being skinned alive. If Bombardier did not fully deliver the message then the decision by the US and others this week to object to a EU/UK arrangement to divide EU World Trade Organization (WTO) quotas between the two should have. A constant refrain of the Brexiteers has been that, absence a deal with the EU, they can revert to trading with the EU on WTO terms. Simpler said than done it would appear.

Next week sees another round of negotiations between the UK and the EU over the Article 50 exit agreement. As ever, a financial settlement, citizens’ rights and matters relating to Ireland are the three issues that have to be dealt with. Press reports this morning suggest that the UK will refuse to discuss financial issues, other than in the context of transition and future trade arrangements. Double bubble it is. Expect the talks to go nowhere.

Given the political chaos in the Conservative Party and in the government, it is becoming increasingly difficult to see how the UK government can walk back from the positions it has taken in the negotiations with the EU. Even if it could, why would the EU make any deal with a bitterly divided UK government, when it knows that there is less than a 50% chance of that deal being ratified?

This week Germany’s leading employers’ organisation advised its members to prepare for the “hardest of hard Brexits”.

This chimes with our own long-standing advice: “plan for the worst; hope for the best”.

But, the hope is rapidly draining away.

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.