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Grayling's Brexit Bulletin - 9 March 2018

9th March 2018


The BREXIT Bulletin: Italian elections do not presage another Brexit

 

The Italian elections on Sunday gave another bloody nose to the EU, with two eurosceptic groups – though rather different in outlook – coming first and second.
 
Italy's anti-immigration right-wing coalition, led by Matteo Salvini, of the Lega Nord, and including Silvio Berlusconi’s Forza Italia party, came top with 37% of the vote, with the anti-establishment 5 Star party garnering 32.6%.
 
Most Brussels watchers – including us here at the Brexit Bulletin – saw this coming. After all, Italy is neither France, nor Germany.
 
The country has been forced to undergo some severe austerity measures, and unemployment, particularly in the south, remains extremely high. 
 
Voters in regions such as Calabria feel far removed from their national politicians in Rome – so how remote must Brussels feel?
 
Italy has also felt the brunt of the migrant crisis from Northern Africa, and perhaps it has some justification in complaining that the EU has not helped them enough.
 
Given these results, UK readers in particular may expect Italy to pull out of the Eurozone and perhaps hold a referendum on EU membership. Yet this won’t happen. 
 
Even Greece – the country hardest hit by austerity measures, which has effectively handed over its fiscal policies to the EU troika – has no desire to leave the Eurozone.
 
Similarly, just across the Alps from Italy, the right-wing populist Freedom Party of Austria is currently a partner in the ruling coalition, yet no-one expects rich and prosperous Austria to set aside the Euro or leave the EU.
 
To the east, Hungarian Prime Minister Viktor Orban has become the bête noire of EU politics and is regularly criticised by the EU institutions – he returns the favour – yet Hungary still benefits hugely from EU funding and despite not being a member of the Eurozone, is not about to leave the EU.
 
Why other countries are so reluctant to go the whole hog and “do a Brexit” is a bit of a mystery. We have some suggestions:
 
a) they would prefer EU reform rather than divorce; and
b) that the benefits of EU membership – such as the freedom of movement, the convenience of a common currency, and the safety net of bailouts if it all goes to pot – still hold sway.
 
In a world where Donald Trump can, almost overnight, slap tariffs on products coming into the US from the EU, it’s good to be part of a gang, even if the gang’s rules can sometimes be difficult to stomach.
 
The Italian elections have thrown cold water over what was thought to be a renaissance of the pro-EU centre in EU politics following Macron and Merkel’s elections.
 
But populist movements in Europe are nothing new. Where they gain in Italy, they lose in the Netherlands, and so on.
 
But as for leaving the EU, that particular choice belongs just to one country right now – and it’s not Italy.



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 and Timeline
 



This week's contents:

 

The highlights from Brussels

The highlights from the United States

Grayling Brexit Unit Events 

10 April 2018 - Ninth Installment of the Brexit Lunch Club with Emmanuel Brutin Head of EU Affairs at the UK's National Grid

Venue: Grayling’s Brussels Office, Floor 4, 46 Avenue des Arts, Brussels 1000

For more information contact Alexander Rowlatt - alexander.rowlatt@grayling.com
 

 
The highlights from Brussels

EU guards its cherries  
This week saw the EU firmly set out its vision for the future UK-EU relationship. Politicoleaked the draft European Council guidelines for the negotiations on Phase 2, which once adopted at the European Council Summit in March, will provide the framework within which the EU will approach the negotiations on its future relationship with the UK. At its simplest, the guidelines set out a free trade agreement with zero tariffs, covering all goods.
 
At the same time, the European Parliament’s Brexit Steering Group, led by Guy Verhofstadt,published the draft of its non-binding resolution on Phase 2 that is due to be debated in the European Parliament next week, following the same line as the Council guidelines.
 
The documents set out a future relationship based on a balance of rights and obligations that ensure a level playing field and the autonomy of the EU legal order and the role of the Court of Justice of the EU, whilst prohibiting UK participation in EU institutions, agencies, or bodies. On goods, appropriate Rules of Origin would be included, as well as appropriate customs cooperation that preserves the autonomy and integrity of the Customs Union and a framework for voluntary regulatory cooperation.
 
The Parliament's draft resolution is perhaps even more explicit than the draft guidelines in ruling out regulatory mutual recognition and also makes it clear that any alignment would involve the UK voluntarily accepting binding convergence towards EU legislation, i.e. becoming a rule taker.
 
The Grayling View
The contents of these documents should not come as a big surprise; the provisions on goods are those with precedent in the EU’s existing FTAs and rule out the UK’s desire to negotiate mutual recognition. The proposed FTA could cover services to an unprecedented extent, however there is no certainty on this, particularly for financial services. 
 
Nevertheless, they show that the EU and the UK’s expectations for the future relationship remain divergent. The guidelines ruled out the UK’s continued participation in EU agencies and bodies, access to which Theresa May in her Mansion House speech had hoped to negotiate on a case-by-case basis.
 
Left open to interpretation in the European Council guidelines, the draft Parliament resolution concretely states that in the absence of common rules, institutions, supervision, enforcement and adjudication, third countries cannot enjoy market access on the same terms as a Member State “even those with identical legislation or full regulatory alignment” and that “regulatory cooperation … cannot fully replicate … frictionless trade”.
 
Therefore, the EU has firmly ruled out ‘cherry-picking’, after May’s Mansion House speech was interpreted by some as the UK trying to retain certain Single Market benefits, whilst ridding itself of its obligation to the bloc. This shows just how vital it is for the EU that the UK does not enjoy similar rights and benefits after Brexit, with the aim of ensuring that other Member States do not follow suit.  The draft Council guidelines state that the offer is open to evolution if the UK indicates that it is willing to reconsider its red lines that rule out Customs Union and Single Market membership, an option that is not currently politically feasible for Theresa May.
 

Timely reminders of the extent and depth of EU convergence
On 7 March the European Commission published more of its Brexit preparedness notices to stakeholders, including on guarantees of origin of electricity from renewable energy sources,inland waterways, the trade in protected species of flora and fauna, and electronic commerce and net neutrality.

Operators of inland waterway transport companies based in the UK will lose access to the more than 37,000 km of inland waterways, as EU law requires that they be based in a Member State and that their vessels are also registered in a Member State. UK operators would also lose the ability to operate internally to one Member State, a practice known as cabotage, and UK certified boatmasters would also lose their right to boatmaster on EU waterways.

On guarantees of origin, those issued by UK designated bodies will no longer be valid for energy produced from renewable and cogeneration sources. Installers of renewable technologies, i.e. solar panels, will also lose their ability to install in the EU-27 if their certification was issued by a UK authority.

With regard to e-commerce, providers of so called information society services are subject to the law of the Member State in which they are established, not those in which they supply services. Should negotiators fail to reach an agreement, UK-based information society service providers would remain entitled to provide services in the EU, however they would be subject to the patchwork of individual Member State legislation. 

The Grayling View
The publication of even more Brexit preparedness notices comes as a timely reminder of the complexities of Brexit, with negotiations set to move on discussing the future relationship. They also reveal the depth and extent of EU law and are an interesting exercise in establishing its reach. For instance, whilst Grayling’s Brussels team features some members of staff who have truly earned their stripes, the Brexit Unit struggled to find a team member familiar with the Council Regulation on the trade in protected species of wild flora and fauna.
 
If you are interested, in the case of a ‘no-deal’ the export of a ‘protected specimen’ from the UK to the EU-27 will require prior presentation of an import permit issued by the Member State of destination at the customs office of entry, and the export from the EU-27 to the UK will require an export permit issued by the implicated Member State. 
 

The highlights from the United States

Trump launches quasi trade war 
On Thursday US President Donald Trump announced that he would apply import tariffs on steel and aluminium of 25% and 10% respectively, justifying his reasoning on the basis of national security. Mexico and Canada are exempt, but this is conditional on sufficient progress (sound familiar?!) being made in the NAFTA (the North American Free Trade Agreement) renegotiation. Borderlex reports that Trump may be ready to negotiate some form of exemptions with the EU, although it is unclear what he would like in return. EU Trade Commissioner Cecilia Malmström is due to meet the US Trade Representative Robert Lighthizer on Saturday. The EU has said it may file a WTO dispute settlement case, but in the meantime the list of products which the EU would target with import tariffs from the US has been made available via Politico. The list contains around 200 industrial, steel, cosmetics, and agricultural products.

UK Secretary of State for International Trade and prominent Brexiteer Liam Fox said that what the US is doing is “wrong”, adding “(w)e are only responsible for one percent of American steel imports, it’s five percent of our tonnage by volume… We also make steel for the American military programme. So it’s doubly absurd that we should be then caught on an investigation on national security”.

The Grayling View
The Trump measures are a hugely significant moment for business around the world, the WTO, and trade in general. From a Brexit perspective, it perhaps demonstrates the fact that the US is currently an unpredictable and potentially volatile trading partner. Even if the EU is granted some exemptions to the tariffs, Trump will want something in return, and it is not clear whether that “something” will be palatable.
The UK’s insistence on leaving the Customs Union means that, post-Brexit, it will need to deal with issues like this on its own, not as part of a 28-country, 500 million population trade bloc. It also adds a dose of reality to the situation – part of the Brexiteer narrative was all about going after major trade deals with the world’s big players, yet is this even desirable if the US turns in on itself and becomes increasingly protectionist? Trump’s latest moves should be a cause for concern for all, not just Brexiteers, but in advance of Brexit, the UK will be watching on with some trepidation.

 

Dates for your diary

20 March 2018  - General Affairs Council (Art. 50)
22-23 March 2018 - European Council Summit
17 April 2018 - General Affairs Council (Art. 50)
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

 


 

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.


Robert Francis

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