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Grayling's Brexit Bulletin - 1 June 2018

1st June 2018


The BREXIT Bulletin: Trump scuppers brave new trading world
 

Is this the week when the brave new world of a post-Brexit UK - trading freely and unencumbered with the rest of the world - came crashing against the reality of an overtly protectionist US President?

Last night President Trump lifted the EU's exemption from the US tariffs on steel and aluminium, which will take effect from today.

The EU, backed by its Member States, had already prepared a raft of retaliatory measures covering a wide range of products designed specifically to compensate for the expected costs of the tariffs. These measures could enter into force as early as the middle of June.

One of the pillars of the UK's Brexit narrative is that it will enable the country to agree trade deals with other key regions and countries of the world. Not only will this bring greater benefits to the country, it is expected that such deals will be agreed faster than deals made with the EU where the interests of all Member States need to be taken into account.

But there is an inherent risk here, namely that when the UK leaves the EU, it will also "leave" all the EU's current trade deals. 

Brexiteer Ministers argue that these can be replaced quickly and easily - of course, in the case of the US, there is no trade deal with the EU anyway - but third countries are not so sure.

India, for example, appeared very receptive to a trade deal with the UK, but, unlike Brussels events, when it comes to trade there is no such thing as a free lunch.

India wants visa-free travel for its citizens to enter the UK - a non-starter given the UK's anti-immigrant rhetoric, but that's India's condition, otherwise there's no trade deal with the world's second most populous country... 

As the US tariffs show, Donald Trump will want some bang for his buck too when it comes to a UK trade deal. Whether that results in chlorine-washed chickens appearing on UK shop shelves, it is clear that the UK will have to give up something. Trade, after all, is not a zero sum game.

There is a more than a hint of naivety in the UK's approach to trade to date. That third countries would willingly roll over their existing EU trade deals, or that countries would be banging down the UK's door cap-in-hand, has so far proven fallacious. 

Perhaps Trump's tariffs will represent a reality check to these lofty, and possibly unachievable, ambitions for a post-Brexit trade policy. 



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
 



This week's content:

The highlights from the UKThe highlights from BrusselsThe highlights from Poland The highlights from the US
The highlights from the UK

More action in Parliamentary Committees
On 23 May the Chair of the House of Commons Environmental Audit Committee, Labour’s Mary Creagh, sent a letter to the Chancellor of the Exchequer Philip Hammond requesting that the Treasury provide evidence to the Committee on the Government’s ongoing public consultation on environmental governance post-Brexit.
 
Opened on 10 May, the twelve week consultation aims to gather and collate stakeholder comment on a proposed Environmental Principles and Governance Bill.
 
The Government, led by the Brexiteer Environment Secretary Michael Gove, has trailed the creation of an independent environmental watchdog mandated to enforce the environmental principles, including the “precautionary principle”, which are currently enforced by the European Commission.
 
Elsewhere, the Chair of the Foreign Affairs Committee, Conservative Tom Tugendhat MP, gave a speech at the Royal United Services Institute (RUSI), an international defence think tank, in which he outlined his vision for the coordination of UK foreign and external policy post-Brexit.
 
It is Tugendhat’s opinion that the Foreign and Commonwealth Office (FCO) should be empowered to exercise a coordination role for external policy across Government, saying “we need to make the Foreign Office the strategic engine of our foreign policy again as it was in 1945”.
 
The Grayling View
In her letter Creagh refers to reports that the Treasury is opposed to establishing an independent environmental watchdog post-Brexit that would be able to bring enforcement action against the Government.
 
The Treasury’s reported opposition to an independent watchdog speaks to the power politics that is at play in Whitehall, as Departments jostle to be given jurisdiction over powers that will return from Brussels post-Brexit.
 
On this issue the Treasury does not want to be in the situation under which it currently operates where the European Commission can bring infringement proceedings against the UK Government for breaching environmental principles. The fines that result from lost cases are a draw on the Treasury’s resources that it would rather avoid, especially considering the fines usually result from the failings of other Departments, i.e. the Department for the Environment and Rural Affairs on air quality.
 
Perhaps the most politically charged discussion however, will be about how to coordinate the external relations powers that will return from Brussels. The FCO lost direct control of UK Trade and Investment when the Department for International Trade (DIT) was created following the Brexit referendum, and its influence has waned considerably since its peak during the British Empire.
 
Whilst Tugendhat has a point that the diplomatic service is best placed to lead a coordinated external relations policy for the UK, it is unlikely that those heading Departments like the DIT and the Department for International Development will relish putting themselves at the service of the Foreign Secretary Boris Johnson. 

 

The highlights from Brussels 

It’s not a game of hide-and-seek
Michel Barnier gave a speech at the 28th Congress of the International Federation for European Law (FIDE), earlier this week in which he updated his audience of lawyers on the progress made during negotiations and outlined the remaining three areas still to be agreed upon. Far from an easy task, these include an agreement on governance of the Withdrawal Agreement, a solution to the Irish question, and an agreed framework for the future relationship.

On governance Barnier explained, appealing to his audience, that a mixed committee was in no way a sufficient means to ensure the appropriate governance of the Withdrawal Agreement, and thus a jurisdictional system of dispute settlement was needed. Moreover, he argued that the role of the European Court of Justice must be ensured in such a dispute settlement system. Finally, he argued that the role of UK judges must also be respected in the context of the Withdrawal Agreement.

On the future relationship, Barnier was clear in his openess to the UK changing its red lines, but firm in his desire for greater clarity from the Britain, saying "a negotiation cannot be a game of hide-and-seek’." He called for realistic proposals from the UK, whilst reaffirming the EU’s position that the UK cannot cherry-pick legislation or membership of EU bodies. With regard to the setting of EU standards, he explained that "we cannot, and will not, share this decision-making authority with a third country", ruling out mutual recognition.

The Grayling view
The speech marks the only response from the EU on the UK’s future relationship slides to date. Barnier does not seem to be satisfied by the UK's attempts to put forward solutions. Significantly, he is affirming that mutual recognition is off the table, despite the UK continuing to push for it.  Both parties have adopted very different negotiating tactics, which are neatly highlighted in this speech. Where Barnier does not want a "game of hide and seek" but clear solutions, the UK has consistently shied away from laying its cards on the table for fear of weakening its negotiating position. Perhaps it is time for a change in style. 

 

The highlights from Poland 

Poland eyeing up investment benefits from Brexit
Mateusz Morawiecki, the Prime Minister of Poland, recently attended the Polish-American Economic Summit. Despite the fact that cooperation between Poland and the United States was the main topic of the meeting, Morawiecki raised the issue of Brexit in that context. He said that Poland is a very strong EU Member State and after Brexit might become an important ally of the United States in the EU, emphasising that Poland is a very good destination for investors. The Polish government favours a “soft Brexit” and is trying to lobby for this in the EU institutions. Morawiecki commented lately that the Polish government wants to keep the UK as close as possible to the EU, particularly in view of the military dimension.
 
The Grayling view
Poland is hoping for a "soft Brexit" - after all, the UK is one of Poland's main trading partners, and one of its priorities is to ensure the UK’s commitment to treat all EU citizens equally, given that a large proportion of foreign citizens in the UK are Polish. The Polish government would like to attract - and indeed is counting on - more investment as companies consider relocating away from the UK. The unemployment rate in Poland decreased last year to 4.5%, and employees are well educated and highly skilled. Despite the many uncertainties around Brexit, leading Polish politicians view it positively, at least when it comes to benefiting their own country.


To find out more about our Polish office in Warsaw, please visit www.grayling.pl 
 

The highlights from the US

Trump lifts tariff exemption for EU
In March US President Donald Trump proposed a tariff on imports of steel and aluminum from the EU, but granted an exemption to the EU as leverage in other negotiations until 1 June. On 31 May this exception was not extended, and the tariffs of 25% on steel and 10% on aluminum are now set to affect transatlantic EU trade.
 

The US imports nearly €385 million ($450 million) worth of steel from the EU per year, which is why the EU, falling into line with the tactics of Canada and Mexico, has prepared a listtotaling €6.4 billion in retaliation tariffs for its US exports.
 
The Grayling view
The US is the UK’s second largest trading market after the EU, and although the US and UK are noted for having a "special relationship" as allies, this doesn’t mean the US is guaranteed to continue this post-Brexit.

The UK thus far has had the power of the EU backing its economy and trade, but post-Brexit the United States might show preference to the EU over the UK. If it is more economically feasible to strike trade agreements with the EU, the US will continue partnering with it and strengthening that relationship. The US has also threatened to raise more tariffs on imports like automobiles in the coming months, and post-Brexit, without the backing and power of EU retaliation tariffs, the US is unlikely to grant the UK an exemption - significant given that nearly 16% of UK automobile exports go to the US.

 

Dates for your diary

28-29 June 2018 - EU Summit, and informal deadline for agreement on Irish border
1 July 2018 - Austrian Presidency of the Council
18-19 October 2018 - EU Summit and deadline for negotiations on Withdrawal Agreement 
1 January 2019 - Romanian Presidency of the Council
29 March 2019 - UK expected to leave EU
31 December 2020 - Expected end of transition

 


 

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
No-deal – Concrete impact

Grayling Team

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