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Grayling Brexit Bulletin - 20 July 2017

20th July 2017

The BREXIT Bulletin: Round 2 - Negotiating "at pace"


The past week has seen the EU and the UK’s negotiating teams get down to business on round two of the Brexit negotiations.

The most interesting aspect is that both sides managed to keep their respective ships water-tight for four consecutive days. With leaks to the press not forthcoming, the attention of Brexit watchers turned to today's eagerly anticipated press conference.

Those present in the conference room and watching online must be left wondering whether more concrete progress could have been achieved if the UK had matched the EU’s transmission of position papers.

With progress having only been made on the issues on which the UK has published position papers, the shared assertion from both parties that “incremental progress cannot be expected at every round” and Davis’s repeated claim that the negotiations had been conducted “constructively and at pace” was glaring.

The outcomes of the second round can therefore be summarised as an exercise in identifying differences and reinforcing similarities, both of which could have been identified earlier.

These differences and similarities are to be published in the coming days in a joint-position paper detailing areas of concern and future discussion.

Davis is now asking for dynamism and flexibility from both sides, whilst Barnier wants further details to be transmitted to the EU on the UK’s positions, particularly on the financial settlement.

Perhaps the most memorable moment of the press conference was an attempt at light-heartedness from Davis, who, echoing Barnier,'s previous comment, joked “to coin a phrase Michel, the clock is ticking”.

Barnier’s dry response, simply, “it is true”.  

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:

In-depth Insight -

UK Highlights -

EU Highlights - 

Member State Highlights - 

The highlights from the  United Sates:

Our Read of the Week - 


In-depth Insight -

Position Papers on Ongoing Judicial Procedures
In the latest of our series on the recently published position papers, this week we focus on the issue of ongoing judicial and administrative proceedings – something on which both the UK and the EU have recently published their positions.
This issue may be better termed “the role of the European Court of Justice” – for this is at the heart of everything noted within each party’s positon paper.
The EU side begins by saying that the ECJ should continue to adjudicate in issues pending on the withdrawal date which includes infringement procedures against the UK and requests by UK courts for preliminary ECJ rulings. It adds that the ECJ can adjudicate in cases brought by UK courts relating to facts that occurred before the withdrawal dates, whilst ECJ judgments in general remain binding in the UK after the withdrawal date.
Any financial penalties issued by the ECJ to the UK before the withdrawal date should be honoured.
In contrast, the UK position paper opens with the clear assertion that leaving the EU will end the ECJ’s jurisdiction. Whilst the UK is willing to admit that some cases involving the country post-Brexit may continue to be under ECJ jurisdiction, it also says that criteria will need to be agreed with the EU to determine which "pending" cases should continue to be held under ECJ jurisdiction, and which should not. This criteria, the UK says, must be agreed before the withdrawal date and should be clear for both parties.
The UK also argues that, since EU law will cease to apply to the UK post-Brexit, cases brought against the UK should not continue – this includes any cases based on facts which occurred before the withdrawal date.
The Grayling view
The jurisdiction of the ECJ is at the heart of this issue, and is one of the harder issues to unpick. Whilst the EU assumes that the term “pending” is generally understood, the UK wants to open this Pandora’s box and draw up criteria to designate which pending cases should be continued under the ECJ. This adds a degree of uncertainty to the process and could extend the time over which this is discussed. It is surely for the UK to do the running and come up with some proposals on this matter.
The UK is also determined that it will not be governed by the ECJ post-Brexit, even concerning cases where it was in breach of EU law before the withdrawal date. This may be another hurdle to overcome, but the UK is actually one of the more compliant Member States when it comes to obeying EU law and, as pointed out in the UK position paper, such cases are comparably rare.
It is just as well that this issue is not seen as one of the priority issues which need to be agreed before the second stage of negotiations begins. Whatever the outcome, what needs to be avoided is any degree of uncertainty on the withdrawal date. It should be crystal clear which pending cases may be continued under the ECJ, and which not, and the degree to which the ECJ can have any form of jurisdiction over the UK.


The highlights from the UK:


Legislating to Leave – The Withdrawal Bill
Last week the UK Government published its long-awaited Withdrawal Bill. Previously referred to as “The Great Repeal Bill”, it seeks to transfer all EU law into UK law so that it applies in the same way on the date before and after departure. It also makes provision for new regulatory frameworks and the power to correct laws through secondary legislation in areas currently reserved to the EU institutions.
There has been widespread acceptance from all parties and commentators that such a Bill is necessary if the UK is to leave the EU without overly straining Parliamentary time and civil service capacity. Estimates of the number of EU regulations and other sources of law requiring transposition range as high as 20,000. Some form of cut and paste process has therefore been accepted as sensible by all parties, but disagreements are already mounting in regard to the form of the proposed process.
The Bill contains a number of sweeping powers which have been condemned by the opposition Labour Party, the devolved governments of the UK, and constitutional experts. For example, the Bill contains powers that allow the Government to “make any provision that could be made by an Act of Parliament”. Under so called ‘Henry VIII’ powers, Ministers would be able to amend or repeal EU law via statutory instruments in order to make EU law “operate effectively” or to address a “deficiency”. Concerns over the breath of these powers have also been voiced within the Conservative Party.
Clarity is not offered in the Bill as to the day on which EU law will be transposed into UK law, stating only that EU law “is repealed on exit day”. The Bill states that this is at the discretion of the Government, despite the 29 March 2019 Article 50 deadline.  
The Grayling View
A recent Report from The House of Lords Constitution Select Committee foresaw that the Withdrawal Bill would provide a “massive transfer” of power from Parliament to Government. There is no doubt that this has proved to be the case. The ability of Government Ministers to alter Acts of Parliament concerned with EU law represents an unprecedented transfer of power over a massive volume of legislation. Though the Government claims that any changes will be subject to thorough Parliamentary scrutiny, it is worth noting that only some regulations referred to in the Bill require enhanced scrutiny. Furthermore, the last time Parliament rejected a statutory instrument – the expected vehicle for most changes – was in 1979. 
The opportunities for businesses and organisations to make their case for the repeal or alteration of unfavourable legislation is vast. Initiatives such as ex-Cabinet Minister Oliver Letwin’s cross-party ‘Red Tape Initiative’ are already examining which rules and regulations are ripe for reform. Targeting key groups of influencers and decision-makers in Government will undoubtedly provide a far simpler, efficient, and effective road to legislative reform than lobbying for change through an Act of Parliament.


The highlights from Brussels:

EU informally raises WTO quotas
Two news outlets, Politico and Reuters, reported variations of a Brexit-related trade story: that a joint UK-EU proposal would be put to the WTO in October and would be discussed informally on the sidelines of the second round of the Brexit negotiations. At issue are the ‘schedules’ or terms of WTO membership, which cover tricky questions of, for example, the tariff quotas on agricultural products.
Brexit will require adjusting these quotas, for which Sabine Weyand, the EU’s Deputy Chief Negotiator, has drawn up three options. Firstly, maintain the status quo by reallocating the UK’s quotas among the EU-27. Secondly, a compromise which would see the UK negotiate to take a portion of the EU’s quota, for instance on sensitive products like beef. Thirdly, a separation of the quota with the EU lowering its quota and the UK adding its own.
It has been suggested that the EU-27 would prefer Option 3, an option that would be unpalatable for the UK as it looks for maximum room to manoeuvre in striking its own trade deals post-Brexit.
The Grayling View
There are complicated arguments about how the new schedules should be set, but the first critical point is that the lead for this has come from the EU side- breaking their own self-imposed ban on not talking about the future trade relationship in Phase 1 of the talks. This is not however a sign of weakness; rather, that the EU-27 can afford to introduce items into the negotiations almost at will. Moreover, it is the EU that has been exploring the various quota options and may well force the UK to adopt its favoured approach. The Brits have provided no input (yet) to the thinking. It will be interesting to see if they feel confident enough to do similar things on issues on their wish list.
Secondly, there is a clear win-win to both sides if they can agree a sensible re-working of the schedules and other WTO items. If there is a preliminary deal by October, it will be an early sign of success, encouraging movement elsewhere in the negotiations. The WTO ‘sideline’ is therefore a useful bellwether for Brexit more generally.


The UK playing hard ball Brexit bill exasperates EU
During this week’s negotiations, the UK did not come up with a counter proposal regarding the so-called ‘divorce bill’, and instead interrogated the EU on its methodology, focusing on the legal argumentation. At the start of the week, the UK appeared to climb down from its earlier position that it would not pay a cent to the EU on leaving, saying it admitted it had financial obligations. Yet in the negotiating room, the UK argued that each part of the budget is a separate legal act, and – as an example - that it is particularly reluctant to contribute to EU farm subsidies after it has left. The EU, for its part, is maintaining its position that there can be no talks on the future relationship (i.e. discussing a trade deal) until the issue of payment has been settled.
The Grayling view
In theory it should not be too difficult to reach a solution on the ‘divorce bill’ – the problem is that it has become a political football in London, with eurosceptic MPs in particular keen to show themselves against paying any money to the EU once it leaves. The reality, however, as acknowledged by the Government earlier this week, is somewhat different. The UK does owe money. The question is, how much, and how will this be calculated. The UK is currently playing its cards close to its chest, but the clock is ticking, and eventually we can expect the Government to come forward with its own proposal for a methodology – one that demonstrates the UK does owe money after all. For the EU’s part, Chief Negotiator Michel Barnier has allegedly threatened to suspend negotiations if sufficient progress is not made soon on the financial settlement.

The highlights from the Member States:

Airline companies fly away to Austria to escape Brexit
UK airline EasyJet is planning to set up a new company in Austria to protect its European business after Britain leaves the EU. The new airline, EasyJet Europe, will be based in Vienna and could be ready to operate flights within the EU in late 2018.
The airline opted to make this step because, since 1997 it needs an air operator certificate from an EU Member State to allow it to continue operating EU internal flights post-Brexit.  Airlines including EasyJet and Ryanair have benefited for this arrangement to grow to their present size.
These airlines are now working to ensure that such ‘frictionless traffic’ can continue post-Brexit and have been lobbying both the Department for Exiting the European Union (DEXEU) and the European Commission’s Brexit Taskforce to this effect. Airports are also in the conversation and have highlighted their exposure to Brexit and the potential fallout for passengers.
A spokeswoman for Prime Minister Theresa May described EasyJet’s move as a "commercial decision" and insisted that maintaining "liberal access" to European aviation markets will be a top priority during Brexit negotiations.
The Grayling View
Aviation is widely recognised as one of the sectors most at risk from Brexit – the potential disruption for air travel is both real and substantial. With the legalities of the future relationship between the UK and the EU’s Single Aviation Market yet to be devised, the uncertainty will soon cast a shadow, with airlines and airports starting to plan their routes, slot allocations, and networks for 2019.
The EU-27’s regional airports are the most dependent on connectivity with the UK. Without a clear resolution, air transport in Europe risks facing significant disruption – regional airports and their communities probably suffering the most. Therefore, to help plan their seasonal schedules and mitigate such disruption, airlines and airports need to be at the forefront of the negotiations after the summer break. However, Phase 1 does not cover aviation matters, and sufficient progress on its issues could come too late for 2019 scheduling.

For Austria, with a regulatory system in aviation considered as relatively equivalent to the UK's and with a strategic geographical advantage, not to mention the home of leading international institutions, it can reasonable expect others to follow EasyJet's lead. 

The UK’s Brexit position smells fishy to the French 
National and local French public figures reacted after the UK announced it wants to withdraw from the 1964 London Fisheries Convention with the stated aim of recovering ‘total control over their coasts’.
On 17 June the French Fisheries Minister Stephane Travert declared that common ground must be found to protect the French, Belgian and Dutch fishing activities. The UK is likely to focus a part of the negotiations on its ability to implement more sustainable and eco-friendly quotas, compared to the stock-based quotas currently used under EU legislation, which, it has been claimed, causes over-fishing.
Minister Travert also supported comments by Xavier Bertrand, the President of the Regional Council of the Haut-de-France (covering Calais), asking the UK to “reconsider” a “one-sided and hasty call”. The Minister, however, pointed out that he wanted both the UK and other parties to make the most of a potential agreement.
The Grayling View
The apparently rigid stance taken by the UK is unlikely to bear much fruit as it is not in a position of relative strength, as pointed out by the former Director-General for Food and Farming at the Department for Environment, Food and Rural Affairs (Defra) and Former UK Deputy Permanent Representative to the UK, Andy Lebrecht. For the UK there is the need to maintain access to French waters for British fisherman and to secure the UK’s waters to unilaterally reap more of the benefits from the revival of cod stocks in the North Sea. The EU would prefer that the UK remains under its quota system. It is also likely that the UK fishing industry would reject a ‘hard fishing border’ with tariffs, as it exports large volumes to the EU.
There is a significant risk for the UK fishing industry that, considering its minor role in the UK economy (less than 0.5% of GDP),  it is sidelined in the negotiations in favour of blue riband industries like financial services.

The highlights from the  United Sates:

UK and US to discuss trade deal in Washington D.C.
On 24-25 July the inaugural meeting of the UK-US trade and Investment Working Group will take place in Washington D.C. Talks will centre on a possible future bilateral trade agreement post-Brexit, although the UK is unable to officially negotiate any trade deals until it has left the EU. UK International Trade Minister Liam Fox and US Trade Representative Robert Lighthizer are expected to take part. A US official quoted in Reuters said that the discussions will “focus on laying the groundwork for commercial continuity for U.S. and UK businesses as the UK leaves the EU and exploring possible ways to strengthen trade and commercial ties, consistent with the EU's common commercial policy”. Other issues expected to be touched upon include aviation, particularly the ability for US airlines to continue to access the UK post-Brexit, commercial data flows, and trade in nuclear materials and technology.
The Grayling view
This meeting could be viewed as premature, not least because there is no clarity on what the future UK-EU relationship will look like, and this clearly has implications for any UK-US trade deal. The EU could take a dim view of the UK – still an EU Member State – entering into informal discussions when it is disbarred from doing so – but what progress can be realistically achieved during this meeting? In truth, not a lot, it’s all for show. Liam Fox can return to the UK, perhaps suggesting that a UK-US trade deal is ‘in the bag’ and that the deal is all set to be activated post-Brexit. But of course, trade deals take literally years to be agreed, and with the current uncertainty, such a deal, if it even happens, is far into the future.


Dates for your diary

w/c 28 August 2017 - Third Negotiating Round
7 September 2017 - European Union Withdrawal Bill Second Reading
11 September 2017 - European Union Withdrawal Bill Second Reading - Vote
w/c 18 September 2017 - Fourth Negotiating Round
24 September 2017 - German Federal elections
w/c 9 October 2017 - Fifth Negotiating Round
19-20 October - European Council Summit
1 January 2018 - Bulgarian Presidency of the Council
1 July 2018 - Austrian Presidency of the Council
End of October 2018 - Negotiations expected to end
Autumn 2018 - Spring 2019 - Possible Scottish independence referendum
1 January 2019 - Romanian Presidency of the Council
March 2019 - UK expected to leave EU



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