Brexit, Data Protection, Data transfers, GDPR, Theresa May

Another Brick in a #Data Wall? #Brexit #EUDataP

This article was written on Nov 4th, 2017

GDPR readyUnder the BEERG law of unintended consequences; the unintended outworking of an action or event is often far more significant or impactful than the intended one. And so, while the UK media obsessed on sex scandals and a cabinet resignation, the Brexit process crawled along with the announcement of another round of EU/UK talks next week and a vote in parliament forcing the government to publish 58 sectoral studies on the economic impact of Brexit.

Meanwhile, the most important Brexit consequence of the week may turn out to be an obscure clause in the Second Schedule of the Data Protection Bill, (lines 39 – 45 on page 125) which is currently being examined line-by-line in the House of Lords.

In an article in politics.co.uk last Friday, November 3, Martha Spurrier director of Liberty, an organisation which campaigns for civil liberties and human rights in the UK, drew attention to a little noticed provision in the Bill, Schedule 2, Part 1, Section 4.1 – Immigration, which reads:

The listed GDPR provisions do not apply to personal data processed for any of the following purposes—
    (a) the maintenance of effective immigration control, or
    (b) the investigation or detection of activities that would undermine the maintenance          of effective immigration control,
to the extent that the application of those provisions would be likely to prejudice any of the matters mentioned in paragraphs (a) and (b).

While, as Spurrier notes, the intent of the Bill is as the government puts to “empower people to take control of their data” she says that “it will strip millions of their rights.”
As Spurrier writes, contrary to the stated intentions of the legislation, the real impact of Schedule 2.4 means that:

…any government agency processing data for immigration purposes will be free of those pesky data protection obligations we’ve developed through successive Acts of parliament – and signed up to through the EU’s General Data Protection

In practice, the exemption will create a two-tier data rights regime. When an agency relies on the exemption, individuals will lose their right to know what information is held about them, who is processing it and why.

They will not be able to correct or erase information held about them – which doesn’t bode well considering how much of the data held on us is out of date or just plain wrong.

She goes on to note that the lack of a definition of effective immigration control or activities that would interfere with it “makes it practically impossible to draw up a list of all those who could be caught up”. “The exemption could also be used to facilitate the sharing of personal data between public services and the Home Office if it’s decided checking everyone’s entitlement to access healthcare, education or social housing is necessary for effective immigration control.”

She concludes that the idea “that personal data collected for one purpose can’t be used for another without the individual’s informed consent is the cardinal principle of data protection. This exemption makes a mockery of it and sets a damaging precedent for the privacy rights of all of us.”

What has this got to do with Brexit?

Simply, it is one more potential barrier, and a significant one at that, to the free flow of personal data from the EU to the UK after Brexit.

That public authorities could have such unfettered rights to citizens’ personal data without citizens been aware of what data is being held, could make it extremely difficult for the European Commission to issue an “adequacy decision” on the UK’s data protection regime. Such a decision is vital if personal data is to flow freely from the EU to the UK, without individual businesses having to go through complex procedures to put in place binding corporate rules or avail of standard contractual clauses which are, in any event, been called into question by privacy campaigners as failing to offer sufficient protect for data transferred to the US.

But “data adequacy decisions” are not easy come by and can take years. Only a handful have ever been issued. See here for details.

The EU Parliament is also likely to have a good deal to say on the matter. And what it has to say will not be kind to the UK.

The data economy in the EU was estimated to be worth €272 billion in 2015, or around 2% of the EU-28 GDP. And that figure is expected to rise to €643 billion by 2020, according to the UK’s Department for Exiting the European Union. 43% of EU tech companies are based in the UK and 75% of the UK’s data transfers are with the EU Member States. Over 70 per cent of the UK’s trade in services is supported by personal data flows as the government noted in a position paper last August: “Data flows between the UK and the EU are crucial for our shared economic prosperity and for wider cooperation, including on law enforcement.”

The UK government believe that it is taking the necessary steps to ensure it is aligned with the requirements of EU regulations and to comply with European legislation, post-Brexit.

Further, to consolidate the relationship, it is proposing “a UK-EU model for exchanging and protecting personal data, […]providing sufficient stability for businesses, public authorities and individuals.” This would ‘build on the existing adequacy model’, and would see continued engagement of the UK Information Commissioner’s Office with other EU regulators. In other words, it wants the UK’s data commissioner to still have a seat at the table.

However, as we have previously noted in these BEERG Brexit Briefings, there is a major obstacle in the way of the EU issuing a “data adequacy decision” as regards the UK, post-Brexit. The Investigatory Powers Act, which came into force at the end of last year, allows the U.K. government to monitor large batches of data, collect people’s browsing records and hack citizens’ phones and computers for security purposes.

The Act was initiated by Prime Minister Theresa May when she was still at the Home Office. Critics, such as the German Green MEP, Jan Philipp Albrecht, have suggested that the Act gives the UK security services more far-reaching powers that the US counterparts. It was concerns over the extent of the access by the US security services to the personal data of EU citizens which had been transferred to the US that led to the collapse of the old Safe Harbour Agreement, and its replacement by the Privacy Shield arrangement.

EU law provides for exemptions from general data protection principles in matters of:
•  national security and defence;
•  the prevention, investigation, detection and prosecution of criminal offences;
•  the protection of data subjects and the rights and freedom of others.

But these exemptions only apply to EU and EEA member states. They do not apply to “third countries”, EU terminology for countries that are completely outside the EU/EEA framework. After Brexit, as it has been defined by the UK government, the UK will be a such a “third country”, and so the security exemption will no longer apply. The problems created by the Investigatory Powers Act is securing an “adequacy decision” from the EU will be further exacerbated by Schedule 2.4, as discussed above.

There will be many in the UK who will argue that, even in the absence of an overarching Brexit agreement, the EU will cut “mini-deals” with the UK, including one on data flows. But then again, maybe not. As Sir Ivor Richards said in his comment to a House of Commons committee a week back:

What is going to happen? In the absence of a deal, have the French, Belgians or Dutch any incentive to sort that problem (customs blockages), or do they have an incentive to keep us stewing? In the area of data protection, do they have an incentive ultimately to cobble together some agreement at the last minute in order to keep data flows, or do they have an incentive to maximise the flow of UK business that has to shift to the continent?

The Investigatory Powers Act is already on the statute books. Schedule 2.4 of the Data Protection Bill is not.

Spurrier makes her own arguments as to why the provision should be opposed.

We simply seek to draw attention to the fact that it places another enormous brick in the wall as regards future data flows between the EU and the UK when Brexit bites.

 

 

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, 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.