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Grayling's Brexit Bulletin - 26 May 2017

26th May 2017


The BREXIT Bulletin: A city united


On Monday night, the UK suffered the worst terrorist attack on British soil since the 7th July 2005 bombings in London.

This act of terror has been met with universal sympathy for the victims, incredible displays of compassion within Manchester’s communities, and an increase in UK security.

The General Election campaign was suspended on Tuesday and Wednesday and began again on Thursday. Manchester meanwhile remains in mourning.

This is the second major political campaign in just over a year to be paused due to an act of violence and comes only two months after the UK Parliament was attacked.

The focus of the media and political parties is quickly turning to security issues. It is expected that they will play a more prominent role in the final weeks of the campaign than would have otherwise been the case.
 
As the election campaign resumes, Monday’s tragedy will weigh heavily on proceedings for everyone in the UK. The way in which Manchester has responded to this tragedy is truly stunning.

In support of the city we have donated to the Red Cross appeal which others can do here: https://beta.redcross.org.uk/appeal/manchester-emergency-fund
 
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 weeks contents:

Network Insight - 

UK Highlights -

EU Highlights - 

Highlights from the Member States -

 



Network Insight: United States
 

Contributed by Jayne T. Fitzgerald, Senior Vice President and Director of Tax Policy, Dutko Government Relations' D.C. Office 

Deep US-UK Trade and Investment Links Make a Successful UK Exit from the EU an Imperative for US Companies.

U.S. companies have a significant stake in the outcome of the UK’s Brexit negotiations with the EU.  

U.S. firms have invested over $600 billion in the UK market, and UK firms have invested over $450 billion in the U.S. market. They are each other’s single largest foreign investor.  The U.S. investment in the UK supports approximately 1.2 million British jobs directly and millions more indirectly, while UK companies support roughly a million jobs in the U.S.  The UK has historically been viewed by U.S. companies as a safe, stable, and welcoming market from which to reach not only British consumers but other consumers across the EU.

In light of this investment and the partnership it represents, the U.S. business community is seeking input into the Brexit negotiations. Working through the U.S. Chamber of Commerce, (which represents more than 3 million businesses) (the “Chamber”), it has identified seven “priorities” for UK and EU negotiators

1. The UK should retain unfettered access to the European market in goods and services.
2. The UK must continue to allow the movement of labour without overly restrictive barriers.
3. Firms should still be able to provide financial services from the UK to customers across Europe and to trade in Euro-denominated derivatives.
4. The UK should continue to participate in certain common regulatory arrangements where appropriate, for instance, the U.S.-EU Open Skies Agreement. 
5. The UK and EU should implement consistent data protection legislation to ensure the free movement of data between the UK and the EU.
6. The UK should maintain an investment-friendly tax structure, while entering into effective cooperative tax collection arrangements with the EU to ensure no border delays as goods travel across the EU and UK borders.
7. There should be reasonable transition periods to implement changes agreed to in the Article 50 negotiations, and for new UK bilateral trade agreements to be negotiated.

The Chamber has also established the U.S.-UK Business Council (the “Council”), an advocacy vehicle through which to provide input to UK and EU negotiators, governments, and other institutions.  The Council currently has approximately 3 dozen member companies.
           
The Dutko Government Relations view

While the U.S.-UK Business Council offers the U.S. business community a viable means by which to weigh in on the outlines of a Brexit deal, whether any of the outcomes it has recommended can actually be attained is difficult to know at present.

As a consequence, many (although not all, for instance, Apple, which is planning a new UK HQ in London) U.S. businesses are reluctant to commit to new investment in the UK until seeing the outcome of the negotiations. Moreover, many companies, especially those in the financial services industry, are making contingency plans to move offices and workers out of the UK to the EU in the event of an adverse outcome, for instance, on Euro-denominated trading location.

These are valid concerns and warrant careful consideration as U.S. companies make plans for investment in the UK and the EU in the next two years.


For more information or for any questions please contact Jayne via email atjayne.fitzgerald@grayling.com
 

 


 

The highlights from the UK:

May-turns when she wants to on Social Care
The General Election campaign had been gaining momentum in advance of the terrible events of Monday night. UK Prime Minister, Theresa May, had just U-turned on one of her flagship policies. The policy, under which individuals would pay for any care home costs until their remaining assets totaled £100,000 was first made public in the Conservative manifesto. It was quickly seized upon by Labour and the Liberal Democrats who branded it a “dementia tax”, and the policy was widely condemned by social care experts and newspapers.
 
It has been reported that very few people within the Conservative party had been consulted in advance of the publication of the policy and that misgivings had been expressed by the few who had been given advance sight. Conservative parliamentary candidates were also inundated by calls from unhappy Conservative Association members worried about paying for their own care.
 
The Grayling View
May’s U-turn on social care indicates three things. First, it suggests that May’s reliance on a small group of advisers can get her into trouble. It will be interesting to see whether her team is widened to bring in further expertise after the election campaign as she (presumably) turns her attention to negotiations with the EU on Brexit. 
 
Second, it indicates that May can still be forced to change the direction of her policies by Conservative politicians and activists. This suggests she will be seeking a Brexit deal acceptable to the great majority of her MPs. 
 
Third, it shows that the Conservatives may be losing confidence. It is incredibly unusual to u-turn on an election pledge, but as it became clear that the Conservatives had lost control of the narrative on this policy they furiously rowed back. 
 
It is also likely this change was driven by the delivery of postal votes, a falling lead in the polls and May’s prime time election interview on the BBC on Monday. Despite this temporary blip, the Conservatives should still be confident of victory. 
 



The highlights from Brussels:

The EU machinery fine-tooled and ready for the starting gun
On 22 May the EU-27 mandated the European Commission to formerly open negotiations with the UK. The Commission’s mandate confirms the EU’s two phased approach to the negotiations and provides the Commission with detailed negotiating directives covering the initial withdrawal agreement.

Prior to the opening of negotiations, the European Commission will share draft negotiating documents with the EU-27 on those issues to be discussed during Phase 1 of the negotiations, in line with the overarching commitment to transparency. These include citizens' rights, Euratom, the ‘status of goods’ placed on the market before the UK's withdrawal, ongoing judicial and administrative procedures, the governance of the Article 50 agreement, and the financial settlement.

The EU has also provided clarity on the internal Brexit decision-making process. The General Affairs Council (GAC) configuration, which authorised the mandate, will provide the fora in which the Member States discuss the details of the negotiations. Determining the overarching objectives will remain the prerogative of the European Council’s Heads of State and Government.

Beneath the GAC a newly-established expert Working Party on Article 50 TEU has been established to assist in the preparation of meetings and provide technical support to the Member States’ Ambassadors.

The Grayling View
The details of the Commission’s mandate can best be described as yesterday’s news, in that they cleave extremely closely to the original draft. Beyond the ‘headline’ however, the formal bestowal of the mandate reveals much in regard to how the Brussels machinery will negotiate Brexit on a daily basis. 
 
In empowering the GAC, the EU has taken the details of Brexit off the agendas of the Heads of State and Government, allowing them to focus on other pressing issues. 
 
The GAC will allow the Member States to maintain comprehensive oversight over the Commission’s activities. Beyond even the GAC it is likely that much of the heavy lifting on the details will be taken care of by the expert Working Party, particularly on the negotiating directives for Phase 2. 
 

Highlights from the Member States:

Merkel looks set to captain Germany, against May’s UK
In a further blow to the chances of the Former President of the European Parliament Martin Schulz ascending to the Chancellorship, the Social Democratic Party (SPD) fell to defeat in Nord-Rhine Westphalia (NRW). The loss saw the SPD secure only 31% of the vote - an historic low in an industrial region which has long been a stronghold of the party. Responding to the result in his home region and Germany’s most populous state, Schulz admitted that it was “a difficult day for the SPD”.
 
The last time that the SPD polled similarly poorly in NRW, in 2005. In the subsequent federal election the SPD lost power to the Christian Democratic Union (CDU). The leader of the CDU then, as it remains today, is the incumbent Chancellor Angela Merkel.
 
The Grayling View
With 13.1 million inhabitants, representing a fifth of the German electorate, NRW is the embodiment of a bellwether state. To win in the Federal Election on 24 September, Schulz realistically needed to win big in his home state. As it stands, and following similar setbacks in Saarland and Schleswig-Holstein, the path to the Chancellery appears to be blocked for Mr Schulz.   
 
So, perhaps inevitably, Merkel will captain Germany against May’s United Kingdom during the Brexit negotiations. Two pastors' daughters - but there the similarities, at least on the political side, seem to end.
 



Brexit the new bestseller to Greece's classic tale
Greeks have long become accustomed to hearing the words "Extra-Ordinary European Council Summit" in reference to the long-running Greek sovereign debt saga. In 2017 Brexit is stealing Greece’s limelight, despite ongoing negotiations over a third Bailout Package.
 
Indeed, on 22 May, whilst the Commission received the authorisation to begin formal Brexit talks, Eurozone Finance Ministers convened to discuss Greece following the Greek Parliament’s adoption of a package of reform measures. Minister’s failed to reach an agreement and will meet next on 15 June.
 
The inconclusive talks follow in the wake of the Greek Government slashing its growth forecast for 2017 from 2.7% to 1.8% of GDP and a parliamentary statement by Deputy Minister of Foreign Affairs George Katrougalos suggesting that Brexit could cost the Greek economy upwards of 0.8% of GDP.
 
The Grayling View
The Greek debt saga is testament to the fact that Brexit is but one of the major challenges facing the EU. Indeed, there is still a danger that Brexit could detract from efforts to combat terrorism and migration, as well as from day-to-day legislative activity. 
 
Most pressing of these is structurally reforming the Eurozone. Any negative economic impacts of Brexit will not be confined to the UK, or even to Greece, but will reverberate throughout the EU. Without structural reform the Eurozone remains systemically vulnerable. 
 



Dates for your diary
8 June 2017 - UK General Election
19 June 2017 - Queen's Speech - Great Repeal Bill + 15 other Brexit Related Bills
11 June - 18 June 2017 - French Legislative Elections
1 July 2017 - Estonian Presidency of the Council
24 September 2017 - German Federal elections
End of October 2018 - Negotiations expected to end
Autumn 2018 - Spring 2019 - Likely Scottish independence referendum
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.

No task is too big, too complex, or too ambitious - 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.


Robert Francis

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