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Grayling's Brexit Bulletin - 27 July 2018

27th July 2018


The BREXIT Bulletin: EU shows how to make friends and influence people

 

This week’s visit by European Commission President Jean-Claude Juncker to Washington underlined the EU’s ability to mobilise soft power and demonstrated its influence on the world stage.
 
The fact that Juncker managed to persuade Donald Trump to back down on future tariffs on cars from the EU and persuaded him to work towards zero tariffs on industrial products was by no means a given.
 
The Commission President, often portrayed as a drunk by certain elements of the press (and not just the UK press), may have just averted a costly trade war.
 
So what does this mean for Brexit?
 
The UK is so desperate to make its own trade deals with other countries and regions that it has chosen to leave the Customs Union and Single Market.
 
That is perhaps understandable to a point, but the EU remains the trading bloc with which most aim for a trade deal first.

Now, a few weeks after the EU and Japan signed their own free trade deal, the EU has done a deal of sorts with the US which has zero tariffs on industrial products as an objective. This is no mean feat.
 
The UK meanwhile is still finding its feet. This week UK International Trade Secretary Liam Fox was also in the US, but his sights were set rather lower.
 
The Senators for Delaware and Ohio whom he met had nice things to say about a future UK-US trade deal post-Brexit, but there are some very real issues around this - chlorine-washed chicken being perhaps the most publicised - which the British public just will not abide.
 
Post-Brexit the UK will have to somehow demonstrate its own “soft power” to influence what remains the world’s only superpower, as well as the world’s other major economies. 

In this, given the latest transatlantic developments, the Brits could do worse than take a lesson from President Juncker.
 



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EU



This week's content:

The highlights from the UK

The highlights from Brussels

The highlights from the US


The highlights from the UK

Is Article 50 revocable?
As the UK government trudges forward towards the deadline of March 2019, it is finding itself faced with a seemingly endless series of hurdles. Perhaps most notable of these were the amendments to the trade and customs bill, which saw hardline Tory Brexiteers rebel to force a tougher customs policy on the government, after which Tory Remainers were strong-armed into accepting a softer position on medical regulation. This parliamentary tug of war is making it seem increasingly unlikely that MPs will sign off on any deal the government can scrape together, assuming the EU even accepts one given the number of EU red lines which the white paper crosses.

In light of this apparent deadlock, and given the fact that Parliament will have to sign off on any Brexit deal, calls for a second referendum are again gaining in popularity. But if the possibility of a second referendum were to become reality, clarity on the legal position of whether and how Article 50 can be revoked will be crucial. Essentially there are three schools of thought on the issue: (1) Article 50 cannot be revoked, (2) Article 50 cannot be unilaterally revoked, and (3) Article 50 can be unilaterally revoked. The majority of opinions argue for the latter two, with Lord Kerr, the author of Article 50, stating that the UK could revoke it but would have to pay some kind of price, be it political or financial. The arguments for unilateral irrevocability are mostly made by legal scholars who wish to keep politics out of the discussion, though from a practical perspective it seems unrealistic to separate the two. Finally, it seems that only the most nervous hardline Brexiteers are of the opinion that revocation is impossible.

The Grayling view
In essence, this question of whether Article 50 can be revoked is political, but the politics will be to some extent determined by the legal position. For instance, if Article 50 is to be interpreted as providing a unilateral right of revocation, any obstacles in the form of the EU27’s approval will be heavily undermined and could end up incentivising other Member States to trigger the Article, only to revoke it last minute in order to secure themselves better positions within the EU.

Therefore, non-unilateral revocation seems to be the most realistic interpretation, and one which seems to be the most consistent with the intention behind Article 50. As such, the door to reversing Brexit may still be ajar, despite the government’s assertion that there can be no turning back, and while it seems unlikely that the EU will be unduly punitive towards the UK, there may be some form of price to be paid for the extensive time and cost which has gone into these negotiations if they were to accept a revocation.

 

The highlights from Brussels 

EU rejects UK customs proposal
The EU has rejected the UK’s customs proposals within the latter's recently published White Paper, which would have obliged the UK to collect and pass on tariffs and excise duties intended for the EU – essentially implementing the EU’s customs policy. “The EU cannot — and the EU will not — delegate the application of its customs policy and rules, VAT and excise duty collection, to a non-member who would not be subject to the EU’s governance structures,” clarified Michel Barnier at a press conference on Thursday.
 
The UK’s proposal was an attempt to circumvent the Irish border issue whilst enabling it to leave the EU’s Customs Union and Single Market – an idea which UK Brexit Minister Dominic Raab still says represents a “practical way forward.”

Barnier did praise the UK's proposals for future bilateral links on security and foreign policy and said he agreed with the White Paper on the need for a free trade agreement between the two parties. The UK also wants it stated in the Withdrawal Treaty exactly when a future trade agreement would be agreed during the transition period. The EU however insists that any trade discussions can only take place once the UK leaves the EU, and not during transition. It was further outlined that from an agri-foods perspective the UK’s proposal for selective regulatory alignment was flawed, since there is no way to ensure that those goods conform with EU standards, given that they are not checked at the borders.

The next negotiation phase will take place in mid-August, although hopes remain of an agreement on the Withdrawal Treaty by October.
 
The Grayling view
That the EU has rejected the UK’s proposal on customs should come as no surprise. It would require a large amount of bureaucracy, not to mention trust, to manage such a situation, and in any case there could have been the obligation for the EU to do the same for the UK – indeed, the UK Parliament had voted to force the EU to collect UK tariffs on its behalf in return, should such a proposal come into being. No wonder the EU took a dim view of such a proposal. So it seems that, at least regarding customs, we are back at square one. In terms of the Irish border, the EU’s backstop – keeping Northern Ireland within the Customs Union - still looks the most likely solution, although the EU may have to give a little here and perhaps make it time-limited to assuage the concerns of the UK government, and particularly the DUP which continues to prop up the Conservative government.

 

The highlights from the US

UK continues transatlantic overtures
Ardent Brexiteers have always been very optimistic about the UK’s trading future outside  the EU. During the leave campaign one of the most commonly cited arguments was that if the UK were free from the EU's shackles it would be able to strike lucrative trade deals all around the world. 

Yet so far it appears that, in Asia, British enthusiasm has not quite been reciprocated. Instead, the likes of China and Japan, who have always seen the UK as a back door into the Single Market, have prioritised securing their access to the Single Market over striking up trade deals with the UK. Perhaps it is fortunate then, that the US has shown that it does still have an interest in making a trade deal with the UK post-Brexit. Almost in parallel with Juncker’s visit to the White House, British Secretary of State for International Trade Liam Fox stated that “a trailblazing modern free-trade agreement” could soon be in the works. In order for this to happen, the UK must have completed its exit from the EU, and the Trump administration must give Congress 90 days’ notice of its intention to begin talks with the UK.

The Grayling view
The US’s encouraging attitude to a trade deal will be a welcome support to Brexiteers. However, while interest in establishing a UK-US trade deal seems relatively high on both sides, the UK’s negotiating position is likely to be relatively weak, especially if there is a no-deal Brexit. Additionally, the fact that the timing coincides with improved EU-US relations may be a foreshadowing of the US’s order of priorities. While the US may have a ‘special relationship’ with the UK, it seems that any agreement with them may come second to securing a stable trading relationship with the 
EU.
 

Dates for your diary

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.

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