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Grayling's Brexit Bulletin - 11 August 2017

11th August 2017


 

The BREXIT Bulletin: Storm clouds on the horizon


August has so far seen swathes of Southern, Central and Eastern Europe sweltering under a heatwave that has been given the apposite moniker ‘Lucifer’.

Another rather damp and grey August in the UK has been met with complaints from Brits - yet whilst they dutifully live up to their weather-obsessive stereotype, forecasts of a less atmospheric persuasion are also beginning look decidedly grim.

Economically, Brexit uncertainty continues to herald storm clouds.


Surveys of manufacturing sentiment remain positive, buoyed by the long overdue drop in Sterling that was overvalued against the Euro and the expectation of an increase in the UK’s export competitiveness.

Export volumes have indeed increased, yet despite this the UK’s trade deficit has widened by £2 billion between May and June, cancelling out any benefits of currency devaluation as a result of more expensive imports.

Import cost inflation is spilling over into consumer spending, putting further pressure on wage packets which remain depressed. Retail spending has contracted as a result, reducing the contribution to GDP of a factor that played a large part in the resilience of the UK economy after the referendum. Much of this was fueled by consumer credit, storing up another potential economic crisis for another rainy day.

Indeed, it is now the strong rate of global growth that is keeping the UK’s growth rate positive.


In an ironic twist, much of these spillovers originate in Europe. Advocates of Brexit have long maligned the EU and the Eurozone as a failing economic experiment. Today the UK is among the slowest growing economies in the EU, and Brexiteers are increasingly acknowledging Brexit economic pain as an opportunity cost.

The open question remains how large an opportunity cost the public in the UK are willing to bear and how quickly this cost is fully felt.

 



If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know. Please visit the Grayling Brussels website, follow us on Twitter @TheEULobby, and don't forget to check out our Brexit Papers and Timeline. 
 



This week's contents:
 

Network Insight - Grayling Poland

UK Highlights -

EU Highlights - 

Member State Highlights - 

Our Read of the Week - 

 

Grayling Brexit Unit Events 

5 September 2017 - 3rd Installment of the Grayling Brexit Breakfast Club

Venue: Grayling’s Brussels Office, Floor 4, 46 Avenue des Arts, Brussels 1000

28 September 2017 -
Grayling Brexit Workshop - 'The Weakest Link? Brexit and Your Supply Chain'


Join us to discuss Brexit's supply chain challenges for business. Confirmed speakers include Patrick Keating European Government Affairs Manager at Honda Motor Europe and a Senior Civil Servant from the UK's Department for Business, Energy and Industry Strategy

Venue: Grayling’s Brussels Office, Floor 4, 46 Avenue des Arts, Brussels 1000

For more information contact Nick Crosby - nick.crosby@grayling.com

 

Grayling Network Insight:

Contributed by Paweł Purski Head of Public Affairs Grayling Poland 
 

Could Poland ask: Who needs the EU anyway?
Although there is hardly anyone in the Law and Justice (PiS) Government who would openly admit that Poland should leave the EU, one can feel anti-EU sentiments are on the rise. Concrete statements are difficult to find, but one can feel the narrative in Poland changing.

Today our politicians tell us that the EU is too overbearing towards Poland. It is not long before some MPs start mentioning that, since Poland will become a net payer to the EU budget from 2021, irrespective of Brexit, and that therefore Poland should consider easing ties with Brussels. The road to a Polish referendum on EU membership is beginning to open up.
 
In the meantime, expect new flash-points on the Polish legislative agenda. In particular a new act ‘deconcentrating’ media ownership will introduce a cap on shares owned by foreign – including EU - companies. It will mostly hit German and to a lesser extent US companies, which own most of the Polish media market. Another new act targeted at NGOs may introduce a variation of a “foreign agent” provision, already introduced in Hungary.
 
The Grayling View
To properly assess the situation in Poland, one needs to understand the logic behind PiS’s actions. It is a party of constant mobilisation and revolution. It switches between various topics and each and every time “overheats” them, just like it did with its attempts to reform the judiciary, as well as with the Białowieża Forest crisis. It is likely that at some point the scepticism towards the EU will share the same fate.
 
However, the EU is not doing itself many favours. Brussels will likely try to initiate next steps when it comes to infringement procedures under Article 7 of the treaty. Whilst the EU must ensure that the obligations of membership are observed, its chastisement of Poland further fuels PiS’s euroscepticism. It is a catch-22.

 
Whilst the EU has been busy trumpeting Macron’s defeat of the eurosceptic Marine Le Pen in France, its eastern flank remains restless. There are fault lines in the unity of the EU-27 on Brexit that clever diplomacy on the part of the UK could still exploit to its advantage. Although, as British officials have made clear, it would prefer that the EU does not disintegrate further.

 



The highlights from the UK:
 

UK PLC in the transfer market for a new trade defender
It is a well-known fact that Brexit will see significant powers repatriated from Brussels to London. Whitehall is faced with the challenging task of embracing the return of these powers, whilst simultaneously negotiating the agreement that will see them return to the UK. First among these is responsibility over the UK’s trade policy which is set to leave DG Trade’s offices in the Charlemagne building for the new Department for International Trade (DIT) at No. 3 Whitehall Place.
 
Post-Brexit the UK will be required to enforce its trade rules and implement its own trade defence instruments. DIT is therefore set to establish an ‘arms-length’ body, the UK Trade Remedies Organisation, which is to be entrusted with this task, although we are privy to this information only because the Civil Service are advertising to staff the implementation team, not because of any official announcement in regard to the Trade Bill expected in September 2017.
 
The Grayling View

Trade defence instruments or remedies, including anti-dumping duties and anti-subsidy measures, are designed to limit anti-competitive distortions under WTO rules. Against the context of what has often seemed like Brexit disarray in Whitehall, it is heartening to see that the Civil Service is preparing its trade defence tool box.

 
Encouragingly they also appear to be listening to the Institute for Government (IfG), an independent think-tank aimed at improving government in the UK. In their report ‘Taking back control of trade policy’, the IfG noted that the DIT's intention to bring the UK’s trade policies under one roof would be unusual; “Trade remedies … often sit in the business departments … closer to the business they seek to protect”. IfG’s concern was that rooting trade remedies to deeply in DIT would require intense cross-departmental co-ordination with BEIS. Some of these concerns are allayed in the creation of the ‘arms-length’ Trade Remedies Organisation.

 
Getting trade remedies right post-Brexit is an imperative, with the EU already in the process of updating its own anti-dumping methodology to accommodate China’s accession to WTO market economy status.
 


 

 
The highlights from Brussels:

‘Positioning’ the European Parliament
The European Parliament’s Brexit Steering Group, led by the Belgian liberal and former Prime Minister, Guy Verhofstadt, is not slow in coming forward. Despite not having a direct negotiating role they are releasing their own positions on the Commission Taskforce and the UK’s Brexit position papers, which can be found on the Parliament’s website. To date they have commented upon the issues of ‘Citizens’ rights’, ‘Nuclear materials’, ‘Ongoing judicial proceedings’, the ‘Privileges and immunities of EU bodies’ and ‘Other separation issues’. Verhofstadt’s press statement after the last round sums up their key frustrations, with an emphasis on making progress across the board and for a stronger deal for citizens.
 
The Grayling View

The Parliament’s position papers underline the Institution’s important Brexit role in providing scrutiny over Barnier’s Commission Taskforce, whilst not appearing to deviate from the ‘EU’s’ official positions. For clients following any of these issues in detail, they may find the documents offer some additional insight, in particular on the Status of Goods on the Market.

 
However, in terms of the bigger picture, the key is that these interventions continue to build MEPs' credibility and standing on Brexit. Moreover, Verhofstadt is reiterating that the Parliament will make its own judgement on whether the UK has made sufficient progress in Phase 1 - a subtle escalation of the EP’s role in the process. Politically this extra judgement is important, as it will signal where the EP stands and may need to be bought off later when the Commission must ask MEPs to consent to any Brexit Deal.

 


Oettinger: UK will have to pay into budget until at least 2020
The EU’s Budget & Human Resources Commissioner, Günther Oettinger, has said that the UK will have to continue paying into the EU budget until at least 2020, and that Germany will have to make additional payments in the single-digit billion euro range to make up for the loss of the UK as a net contributor. Meanwhile, the UK newspaper The Daily Telegraph reported that the UK could be willing to pay up to €37 billion as a divorce payment, although this was later denied by a Government source who suggested this figure was too high.
 
The Grayling View

How long is a piece of string? As long as you want it to be. The same could be said about the UK’s ‘Divorce Bill’, except there is no agreement on how much this could be. Arbitrary figures have been floating around for a while (e.g. the EU’s suggestion of €60 billion), but the key will be the methodology agreed to calculate the sum. For its part the EU has come up with a proposal, but as yet there has been no formal response from the UK.

Politically, paying anything after Brexit will amount to a defeat for the Government, but practically it makes sense – not to mention good manners - to continue to pay what has already been committed. Any Divorce Bill needs to be finalised before October if negotiations are to progress to Phase 2 - negotiations on a future EU/UK trade agreement. No headline figure will be agreed in October, but a methodology could eventually be in the offing. 
.


 

The highlights from the Member States:

New Irish PM’s proposals for Customs Union and transition
The new Irish Prime Minister, Leo Varadkar, has floated the idea of a stand-alone EU-UK Customs Union once the UK leaves the EU and, as expected, the existing Customs Union as well. “After all, we have one with Turkey”, Varadkar said. “Surely we can have one with the United Kingdom.” He also said he supported a “deep free trade agreement” between the EU and the UK, with the latter entering the European Free Trade Area (EFTA). According to Varadkar a transition period could involve the UK remaining inside both the Customs Union and the Single Market until such arrangements are thrashed out.
 
The Grayling View

The new Irish administration, which came to power in June, has made its views known on a regular basis and is not afraid to float ideas and solutions for how Brexit might play out, both for the UK and Ireland. The latter remains particularly exposed to a hard Brexit, which could in turn lead to a hard border with Northern Ireland, something that Ireland is desperate to avoid. Remainers in the UK Government now have an ally across the Irish Sea who appears to both understand the complexities involved and is coming up with some solutions. But will the UK Government listen?

 



Dates for your diary

w/c 28 August 2017 - Third Negotiating Round
5 September 2017 -
GBU Brexit Breakfast Club
7 September 2017 - European Union Withdrawal Bill Second Reading
11 September 2017 -
European Union Withdrawal Bill Second Reading - Vote
w/c 18 September 2017
- Fourth Negotiating Round
24 September 2017 - German Federal elections
28 September 2017 - GBU Workshop - 'The Weakest Link? Brexit and your Supply Chain'
w/c 9 October 2017 - Fifth Negotiating Round
11 October 2017 -
GBU Brexit Breakfast Club
8 November 2017 - GBU Brexit Breakfast Club
19-20 October - European Council Summit
1 January 2018
 - Bulgarian Presidency of the Council
1 July 2018
 - Austrian Presidency of the Council
End of October 2018
- Negotiations expected to end
Autumn 2018 - Spring 2019 - Possible Scottish independence referendum
1 January 2019 - Romanian Presidency of the Council
March 2019 - UK expected to leave EU

 


 

Grayling Brexit Unit

Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.

The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels. We are your Brexit experts.

Please contact Robert Francis Tel +32 2739 47 34 (robert.francis@grayling.com) in our Brussels team or Jonathan Curtis (Jonathan.Curtis@grayling.com) in London for more information, and check out our brochure.


 


 

 

 #Brexit Papers 


Brexit Negotiating Documents
The 'Great Repeal Bill'
Brits working in the EU institutions

Article 50

Sir Julian King - The Last UK Commissioner
David Davis – UK Brexit Secretary.
Sir Keir Starmer
– Shadow Brexit Secretary.
Sir Tim Barrow
– UK Permanent Representative.
Michel Barnier
– EU Chief Negotiator.
Sabine Weyand – Barnier’s Deputy.
Guy Verhofstadt – EP Brexit Lead

Updated Timeline

 

Grayling Team

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