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Grayling's Brexit Bulletin - 3 August 2018

3rd August 2018


The BREXIT Bulletin: Withdrawal Agreement should be business' priority

The EU and UK Brexit negotiators have departed on a well-earned summer break. However, with the October deadline looming ever closer and significant progress still to be made, it will be difficult to stop minds drifting ahead to the w/c 20 August when negotiations are likely to resume.

So what did the negotiations achieve during the last negotiating before the break on 24-26 July?

Actually, on the future relationship, Michel Barnier’s statement this week suggests that the UK’s White Paper has precipitated fruitful discussions on a number of issues ranging from external and internal security to foreign policy cooperation.

Perhaps must surprisingly the negotiators appear to have made serious strides on the policy area which many learned commentators singled out from the earliest days of the negotiators as that which would prove most hard-fought - instead, financial services have however proved to be low-hanging fruit.

Barnier’s statement indicates that agreement has been forthcoming that the future relationship in financial services will be “governed by autonomous decisions on both sides” using the EU’s existing architecture for third countries as the model, i.e. equivalency decisions. This mirrors the wording in the White Paper that “equivalence would be an autonomous matter for each party”.

What progress on financial services further highlights is that on this issue the White Paper proposed a relationship largely compatible with the EU’s red lines of maintaining the integrity of the Single Market and preserving the EU’s decision making autonomy. A proposal built on the precedents that exist in the EU’s existing relationships with third countries.

The takeaway is that the financial services proposals in the White Paper were from the start more achievable in respect to the EU’s red lines and closer to existing precedents. For goods the implication of the European Commission’s receptiveness on financial services is that the UK’s call for a free trade area in goods will be deemed unacceptable.

Indeed, the EU’s response to the White Paper, whilst coming in waves to avoid fully undermining the UK Prime Minister, is progressively ruling out the UK’s suggestions on goods. Barnier has dismissed the facilitated customs arrangement and the free trade area in goods by reiterating that the European Council guidelines offer an ambitious free trade agreement (FTA) that builds on existing precedents.

Whilst firmer commitments to ensure that this lowest common denominator can be fully relied upon as an ‘insurance solution’ would be welcome, business should be re-assured that the foundations of the landing ground are assured.

However, breaking ground on even the foundations of a new construction requires a contract. For Brexit that contract is the Withdrawal Agreement, and business should mobilise to ensure that the contract is concluded.

The White Paper has not unlocked progress on Northern Ireland. In fact many in Brussels are of the opinion that the political message sent by the amendment to the UK's Customs Bill making the Commission’s ‘backstop’ illegal has further heightened the risk of a ‘no-deal’.

Securing the Withdrawal Agreement remains the priority, and business has a responsibility to ensure that this remains at the fore-front of decision-makers minds.
 



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This week's content:

The highlights from the UK

The highlights from Brussels

The highlights from the US


The highlights from the UK

UK Government limps into the pit lane
As Parliament settles into recess for the summer, Theresa May sought temporary respite with an alpine walking holiday, only for her plans to be cut short for the sake of a last minute meeting with Emmanuel Macron in an apparent lobbying effort to encourage the French President to soften France’s position on the Brexit negotiations. May’s efforts are a response to Michel Barnier’s decision to pen an op-ed in 20 European newspapers, hammering home the Commission’s red lines on the integrity of the Single Market and customs controls, as well as continuing concerns over the Northern Irish border.
 
Meanwhile, newly-appointed Foreign Secretary, Jeremy Hunt visited Austria where he cautioned against the danger of “no deal by accident”, while outgoing Bank of England Governor Mark Carney also added his voice to the building chorus of concern, telling BBC Radio 4’s Today programme that the risk of the UK crashing out of the EU in March 2019 was “uncomfortably high”. Carney went as far as to warn that prices could be expected to rise and that there would be “disruption to trade as we know it”.
 
On the home front, the Government is licking its wounds, thankful that it managed to limp to the end of the sitting without hitting the 48-letter threshold required to trigger a confidence vote in the Prime Minister. The Conservative Party is perilously divided on the Chequers paper, but given the unlikelihood of the Commission accepting its key tenets, the question increasingly becomes one of which side of the ‘no-deal’ versus ‘off-the-shelf’ Single Market/Customs Union divide Tory MPs find themselves on.
 
The Grayling View
With Parliament now in recess, the high-drama of the legislative battles that punctuated British politics throughout June and July has given way to briefing battles and wars of words, as Theresa May and Michel Barnier seek to curry favour in European capitals, whose leaders will ultimately determine the future relationship between the UK and EU-27. But there has been a change in tone among UK ministers, who are audibly discussing the prospect of ‘no-deal’ in a way that would have been considered unseemly even months ago.
 
This reflects two things: firstly, that Ministers believe simply that by discussing ‘no-deal’ in public, the idea will begin to seem more palatable simply by virtue of being familiar. Additionally, and somewhat paradoxically, it represents an attempt to signal to business that the Government is listening to concerns about Brexit preparedness and the need to take all necessary steps to reach a deal, following months of media pressure from industry. 
 
Time will tell as the UK White Paper circulates European capitals and the Commission draws up its official response. But the likeliest outcome remains that the EU-27 will reject the thrust of Chequers, namely the proposed facilitated customs arrangement, and UK legislators will be confronted with a stark choice between crashing out without a deal to defend the Government’s Brexit mandate, or breaching their own red lines by opting for an ‘off-the-shelf’ arrangement for the sake of economic surety. It remains unclear how a Conservative Government headed by Theresa May could survive either scenario. 
 

Every cloud has a silver lining? 
A range of British local government councils have been gaining unusually high media coverage this week. Sky News, having submitted a freedom of information request, managed to obtain a number of Brexit planning documents from local government authorities across the UK which identify the key risks posed by a 'no-deal' scenario.

For Pembrokeshire County Council the availability of food and medicine are of key concern. However, ever the optimist, they note one silver-lining to Brexit: people may move away from the area thus leading to less pressure on public services.

In contrast, Bristol Council fears social unrest and disillusionment as the Leave/Remain rivalry augments, whilst East Sussex Council is concerned by the effect of a decline in EU nationals on the social care sector.  The Shetland Islands Council is more concerned by the potential decrease in the value of agricultural land.

Following the release of the reports, a Government spokesperson confirmed that efforts were underway to coordinate preparedness measures across councils, managed by a Brexit Ministerial Local Government Delivery Board.
 
The Grayling View 
The lack of guidance received at the local level from the UK Government and the lack of understanding within local government across the UK is a troubling sign. As ever, the UK’s efforts to coordinate some sort of preparedness plans across the UK seem to be too little too late, with a feeling that local councils are being left behind, as the negotiations and preparedness measures remain confined to the those of a top-level political nature. 
 

The highlights from Brussels 

Adequate preparations for data adequacy?
Post-Brexit the UK will become a third country in relation to the EU, which will mean that transfers of personal data to the EU/EEA will no longer be allowed and could disrupt business and impact consumers. In a joint letter to the Commission, insurance stakeholders called for more legal certainty on the issue. The General Data Protection Regulation (GDPR) may provide several solutions to the issue, with Article 45 of the Regulation allowing for the Commission to determine whether a country outside the EU offers an adequate level of data protection, something which the UK should have no problem in meeting. This is clearly the preferred option for Michel Barnier, who has said “The UK must understand that the only possibility for the EU to protect personal data is through an adequacy decision”, although the UK Information Commissioner Elizabeth Denham seems to favour a treaty or an agreement between the UK and EU rather than the one-sided assessment in the form of an adequacy decision.

The Grayling View
At this stage it seems that an adequacy decision would be the preferred way of maintaining legal certainty and ensure a smooth continuation of personal data sharing. However, a central issue is that the Commission cannot yet begin its adequacy assessment, since the UK is not yet a third country. If an agreement is secured and a transition period implemented, this will not be an issue since the assessment will be able to be conducted during that period, but in the event of a no-deal Brexit there would be a gap during which data sharing would not be possible until the UK is recognised as "adequate" by the Commission’s formal procedure. This could carry some serious implications for businesses and consumers if no contingency measures are established.

 

The highlights from the Rest of the World 

In the Hunt for trade partners 
New UK Foreign Secretary Jeremy Hunt was in China this week, drumming up support for a post-Brexit UK-China trade deal. Whilst this approach was endorsed by Hunt’s counterpart Wang Yi,  the two parties disagreed on human rights in Hong Kong, a former UK colony. The visit came at an uncomfortable time for China, as it faces a trade war with the US. A few days after Hunt’s visit, US President Donald Trump threatened to further raise tariffs on Chinese goods worth $200 billion from 10% to 25%. Unfortunately, it also proved rather uncomfortable for Hunt, when he mistakenly told his hosts that his wife is Japanese – in fact, she is Chinese…
 
The Grayling view
China, like most major economies, is of course interested in a trade deal with the UK post-Brexit. Who wouldn’t be? It may even appear keener than its Asian rivals India and Japan, as it tries to find alternatives to the US in the wake of the current trade dispute with Trump.  But China comes with baggage of its own, from a reputation for trade dumping (just ask the European Commission!) and alleged human rights abuses including Tibet and, of course, Hong Kong, which is a particular British sensitivity. Yet again, “Global Britain” is crashing up against global reality. A trade deal with the likes of China is such a major undertaking it would surely take many years to agree and ensure adequate safeguards concerning dumping and human rights. In any case, as the UK Foreign Affairs Select Committee has recently been told, China will likely prioritise EU trade to offset the Trump dispute over a future deal with the UK. 
 

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.

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.


Grayling Team

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