|The view from the UK |
A politically toxic transition?
A transitional agreement looked highly likely to be agreed in March, with positive noises coming from both sides that indicated that a status quo situation would be acceptable. However, the publication on Monday of the EU 27’s negotiating guidelines for a transition period led to an increase in criticism from Brexiteers in the UK of a status quo solution. With UK Prime Minister, Theresa May, simultaneously facing growing criticism of her premiership, she surprised many in Westminster by announcing that an agreement was not as close at hand as had been presumed.
Only last Friday, Brexit Secretary, David Davis, had given a speech indicating that the UK was content with a transition period that largely mirrored membership of the EU. Importantly, he also inferred that free movement would continue during any transition period. Meanwhile, Trade Secretary, Liam Fox, warned his Brexiteer colleagues that there would be frustrations and disappointments during the negotiations. Minister after Minister lined up to say that a status quo transition was a price worth paying to eventually leave the EU.
Criticism was, however, growing on the conservative backbenches. Last Thursday, Jacob Rees Mogg had raised concerns regarding the UK being governed by Europe without any voting powers during a transition, an argument mimicked by a number of MPs over the week. Political pressure has also been increasing for May to be able to demonstrate that something does change on exit day in March 2019.
Under increasing pressure, May announced two primary concerns with the transition period. First, she stated that there must be some way of resolving disagreement with the EU 27 during that period. Second, she indicated that she will push for some form of change to free movement from March 2019 – suggesting that new arrivals would have to be registered.
The Grayling View
These new developments will cause concern for those who had been basing business decisions on an agreement of a transition in March. However, there is still broad agreement between both sides regarding the content of a transitional agreement. The form of May’s freedom of movement proposals will likely determine whether they are accepted by the EU. If she succeeds, then any change to freedom of movement could also buy May some much-needed good will with her Brexiteer MPs.
However, the primary concern for Brexiteers seems to be that the UK will have no say over any new EU laws which are developed during the transition period. Interestingly, this concern is shared by a number of businesses – particularly in The City – who are worried about regulatory changes being introduced which are designed to disadvantage UK based business. If the EU keeps to their negotiating position – specifically, that the UK will not be involved in decision-making during transition – then caving on this issue could prove politically toxic for May.
The view from Brussels
Brexit task force talks fair competition
On 25 January, the European Commission’s Brexit Task Force presented a series of scenarios to Member States on options for ensuring fair competition between the EU and the UK post-Brexit.
The so-called “Level Playing Field” would cut across various policy areas, most notably state aid, social and environmental standards and taxation.
In regard to state aid, the European Commission argues that the current international rules do not adequately address the distortive effects of subsidies on investment, trade and competition. As a result, the EU-UK Agreement will have to include robust provisions on State aid to ensure a level playing field.
Clear risks in relation to taxation were also identified; the European Commission argues that the UK could use targeted tax measures to attract investment and business. To advert the threat that of mutually detrimental tax competition between the UK and EU-27 Member States the recommendation is a common commitment to the existing arrangements as a minimum standard. Provisions could also be included in the future relationship for a good governance clause and binding requirements on the exchange of information, anti-tax avoidance and a code of conduct on business taxation.
In respect to labour and environmental standards, the European Commission highlights the risk that the UK could undercut the EU’s levels of protection. The UK industry could gain from EUR 4.7 billion per annum from reduced compliance costs according to European Commission estimates.
The Grayling View
This presentation is part of a series being used to brief EU-27 Member States on elements of the future relationship.
On this issue however, the Member States will already have been well aware of the threat that post-Brexit the UK could seek to engage aggressively in regulatory and tax competition with the EU. Indeed, national capitals, in particular Paris, are extremely energised on this issue.
Whilst the presentation outlines some possibilities for how “fair competition” can be secured the assessment is that the existing precedents for dispute settlement on these issues are inadequate. As such the conclusion is that a ‘bespoke’ solution tailored to the close relationship between the EU and the UK is necessary.
For the UK this is certainly positive language aligned with the Government’s general ambition for a ‘bespoke’ relationship. However, the European Commission’s conception of an effective solution on this issue would most likely imply the sovereignty trade-off that has driven the decision to leave the Single Market and the jurisdiction of the Court of Justice of the EU.
The highlights from the Member States
Visegrad pushes for EU integration
The Visegrad group (V4), representing the Czech Republic, Hungary, Poland and Slovakia, issued a statement on the Future of Europe on 29 January. This common approach clearly states that the EU is the appropriate governance solution to the internal and external challenges faced by the Member States.
The V4 are calling for the EU to focus on consolidating and improving on its existing achievements, including the Schengen Zone and the Single Market. Emphasis is also given to further enlargement in the East in respect to the Western Balkans, and for greater assistance to the Eastern neighbors in their convergence on European standards.
Unsurprisingly an importance is given to preserving democratic legitimacy as the cornerstone of the EU’s activities.
The Grayling view
This statement from the V4 whilst not about Brexit has discernable Brexit undertones.
Brexit signals the loss of an ally in the fight to limit the deepening of the EU. However, the in this statement the V4 use the language of European integration and further expansion.
This is perhaps reflective of the fact that following Brexit and a short-lived wave of general disillusionment with the EU, there has been a sense that we are now seeing a renewed optimism.
Here, the V4 are re-integrating these sentiments into their messaging using Brexit as a chance to push for further integration and enlargement. However, Brexit will shift the balance of power in the EU eastwards and as such the V4 fully aim for future integration and enlargement to be conducted more on their terms.
Dates for your diary
27 February 2018 - General Affairs Council (Art. 50)
4 March 2018 - Italian General Election
20 March 2018 - General Affairs Council (Art. 50)
22-23 March 2018 - European Council Summit
1 July 2018 - Austrian Presidency of the Council
End of October 2018 - Negotiations expected to end
1 January 2019 - Romanian Presidency of the Council
29 March 2019 - UK expected to leave EU
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