|What happened this week:|
- The Commission published the legal document formalising transition arrangements and suggested that Northern Ireland should stay in the Customs Union post-transition.
- A “technical note” prepared by the UK government asks third countries to treat the UK as an EU Member State during transition as a means to guarantee the continuation of international agreements.
- Germany finally has a government, led by Angela Merkel, and with the SPD in line for the Foreign Ministry.
- MEP Roberto Gualtieri insisted that the European Parliament would call for citizens to enjoy free movement with the UK during transition.
- Italy is continuing to contest the decision to move the European Medicines Agency to Amsterdam - the latter narrowly beat Milan in a contest before Christmas.
The view from the UK
Still no clarity on negotiating objectives
Theresa May’s Cabinet Brexit subcommittee have spent the week deep in conversation regarding the UK’s negotiating objectives. It is reported that Olly Robbins, May’s Brexit Sherpa, set out a number of options which the UK could seek. Meanwhile, the Treasury’s internal Brexit analyses continued to leak. The details, which were splashed across the media, saw all sectors and regions losing out under all options modelled.
It is not clear if the outcomes modelled by the Treasury were the same options as those presented by Robbins. In response to the leak, a number of Government Ministers have argued that the Treasury’s options do not reflect the Government’s negotiating objectives. However, this begs the incessant question – what even are the Government’s negotiating objectives?
The reports that have leaked out from the meeting, suggest that "It was all very high-level stuff. They didn't get into the weeds." It is also understood that May didn’t proffer her preferred outcome, but rather allowed every Minister to have their say.
Outside the Cabinet, the legacy referendum battle rumbles on. Arch-remainer Anna Soubry called for May to throw hard-Brexiteers out of the Conservative party, warning that they were not true Conservatives. Meanwhile the Telegraph and Daily Mail turned their ire on billionaire George Soros’s funding of ‘Best for Britain’ – an anti-Brexit campaigning group expected to launch a surge of advertising over the coming months.
The Grayling view
Despite the warnings set out in the Treasury’s Brexit analyses and the continuing re-running of the referendum by various campaign groups, polling out this week shows that the British public have not changed their minds about Brexit. Although these developments have huge importance in Westminster, it seems that the electoral forces that are driving the UK Government’s Brexit policy have not changed.
Just as the public mood remains unchanged, no vote was taken by the Cabinet on the options placed before them. Although this may cause frustration to those who thought the Government might make up its own mind, this method follows a pattern of decision-making that May has used throughout her premiership. Before Lancaster House and Florence, it is understood that May convened her Cabinet, let everyone have their say, and then went away and made up her mind. She then presented Cabinet with the respective speeches as afait accompli.
This may be a sensible way of running government. But it is taking time. Before Christmas, in evidence session after evidence session, businesses lined up to call for a political agreement on transition by March. The UK Parliament is now in recess until February 20th, and it is reported that technical negotiations have also been put on hold for that period. With no clarity on the UK’s Phase Two negotiating position, the momentum for transition is being undermined.
From our Grayling colleagues in London - www.grayling.co.uk
The view from Brussels
Commission legalises transition position language
On Wednesday the European Commission published its so-called Position Paper on "Transitional Arrangements in the Withdrawal Agreement". It translates into legal terms what the Commission has already proposed regarding transition, namely that the UK will remain bound by EU legislation and under the jurisdiction of the European Court of Justice (ECJ) until the end of December 2020 but will have no formal decision-making role. The transition arrangements were discussed with the UK this week, during which time it was revealed that the UK opposes the provision, actually in a footnote on the back page of the Position Paper, which states that the EU can "suspend certain benefits" of the UK's participation in the Single Market if there is a dispute which would take too long for the ECJ to resolve. David Davis called the provision "unwise" and "discourteous".
The Grayling View
The Position Paper merely puts into legal language much of what we already know regarding the EU's position on transition. The main headline has been the UK's reaction to the "suspended benefits" issue, but there does not seem to be any dispute regarding the broad lines of the agreement - full recognition of the EU acquis, no decision-making presence, ECJ jurisdiction - there were even no protests at citizens still being able to circulate freely during transition. The UK cannot contest much of this document given the timeframe and the fact that the country needs such an extension in time, so it does feel day-by-day that a status quo transition is what will happen. The question then is not so much how it impacts the EU, but what the reaction will be in the UK to a 20 month period of taxation without representation.
The highlights from the Member States
In what direction will the German coalition take Europe?
A German coalition was finally announced, after months of negotiations, on 7 February, with Angela Merkel remaining at the helm of this new government. The agreement was formed between Merkel’s Christian Democrats (CDU), its Bavarian sister party the CSU, and the Social Democrats. It is largely felt that Merkel made a number of concessions, showing the extraordinary lengths she went to, to form a government.
The CDU gained the defence, economy, health, education and agriculture ministries, whilst the Social Democrats secured higher spending on pensions and public services. They also gained the finance and foreign ministries, highlighting their significant power in this new partnership. Whilst Germany will continue not to take on new debt and the right to asylum will remain unchanged, it was health and labour policy which proved to challenge the forming of a government.
The Grayling view
As Brexit negotiations have been trudging along, Germany has appeared to be in a mess, failing to form a government. Whilst Merkel comes out of the coalition negotiations looking weak, having been forced to make concessions to the SDP, her ability to form a government reinstates her position of power in the face of a comparatively weak Theresa May.
Whilst the coalition agreement does not explore the topic of Brexit in much detail (it is mentioned by name only once), it has a significant impact on the negotiations between Britain and the EU and for the future of Europe. The coalition agreement hinted at a desire to poach the financial services industry from the UK, whilst being committed to pay more into the EU budget post-Brexit.
The SPD called for the creation of a so-called United States of Europe by 2025, mirroring Emmanuel Macron’s positive vision for Europe. If Martin Schulz had taken on the Foreign Minister role it would have been problematic for the UK, as he is a former President of the European Parliament and something of a pro-Europe firebrand, but he was persuaded not to stand following a backlash in his own party. Nevertheless, the renewed power of the SDP in the coalition suggests European reform could still be very important to this government. The appointment of a replacement for Schulz will be very significant in informing the route Germany will take with regards to Europe and specifically to Brexit. The main point to take away from the German election however is continuity - the same Chancellor, the same Grand Coalition, and - most likely - the same strict approach to Brexit. This will not be music to Prime Minister May's ears.
The highlights from Asia
The promise of a UK-Japan FTA
On 8 February Theresa May met with Japanese investors in Britain, along with Chancellor Phillip Hammond, Business Secretary Greg Clark, and International Trade Secretary Liam Fox. Nissan, Toyota and Honda attended the talks, along with representatives from banks and pharmaceutical companies. After concerns were raised with regard to export tariffs, May was set to reassure the investors that she was seeking to agree a transition deal as soon as possible and to ensure a trade deal which is as frictionless as possible.
May also told Japanese business leaders that Brexit would allow the UK to strike a free trade deal with Japan, highlighting the very important trade relationship between the UK and Japan. She recognised that Japan’s investment in the UK amounted to £46.5bn in 2016 and that many Japanese businesses have made Britain their European base. Nonetheless, the Japanese Ambassador to the UK countered that if companies' profits begin to decrease, they will look to go elsewhere.
The Grayling view
This meeting comes amid growing concern over the impact of Brexit on the British economy and highlights how important Japanese business is to the UK, in the face of Brexit, as well as the destabilising affect Brexit could have on the motor industry.
Whilst the magic solution might appear to many to be staying in the Customs Union and the Single Market, this meeting signaled a weak attempt on May’s behalf to turn Brexit into an opportunity for the British-Japanese relationship, with the promise of a Free Trade Agreement. Nevertheless, it seems as though we are no closer to any concrete resolutions or further clarity on transition, so desperately needed by business. The Ambassador's cautious warning to the UK following the meeting also casts some realism on the issue. There is, as he himself said, lots at stake right now, for the UK, and for the UK-Japan business relationship.
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
31 December 2020 - Expected end of transition
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