Between Scylla and Charybdis

Author James Gilray

Jane Lambert

Yesterday, in my October Brexit Briefing I mentioned Charles Grant's predictions on how Brexit will unfold. One of his predictions was that there will be no bespoke trade agreement between the EU and the UK. The deal that the British government would like would be one "that provides better market access than the Canada model (a free trade agreement with only limited provisions on services) but much less than the Norway model" but that is unlikely to happen. Grant offered two reasons for that.  The first is that our government will avoid making detailed proposals for a future economic partnership because a detailed plan would be hard to get through a divided cabinet. The second is that the EU will require the British government to choose between full access to the single market on the Norwegian model, limited access on the Canadian model or no special terms at all.

On the very day that Grant's predictions were published, Michel Barnier addressed "The Obligation to Grow - Europe after Brexit" conference in Rome (see the Commission's press release Speech by Michel Barnier at the "Obbligati a crescere – l'Europa dopo Brexit" conference, Rome 9 Nov 2017), In his speech Monsieur Barnier said:

"to lay a proper basis for our future relationship, we must all understand and explain objectively what it means to leave the European Union, the single market and the customs union. These choices have consequences.

• It is not possible to be half in and half out of the single market.

• It is not possible to end the free movement of persons, while retaining the free movement of goods, services or capital by means of a generalised system of equivalences.

• It is not possible to leave the single market and continue to set the rules.

• It is not possible to leave the customs union but expect to enjoy frictionless trade with the EU."

In other words, it is not possible to have your cake and eat it.

Grant notes that "the UK is counting on the unity of the 27 fracturing. It hopes those most dependent on UK trade will see that it is in their interests to give the British a better deal than the Canadians, that is to say one with more provisions on services." Or put another way, the Germans still want to sell us their cars and the Italians their prosecco.

That may happen though there are no signs of splintering yet. Not even among the smaller states that are most dependent on British trade such as Ireland. If anything, the Irish position on the border is hardening and a resignation at least among Irish business interests that the choice on offer is a hard border or the incorporation of Northern Ireland into the single market and customs union (see IBEC's Brexit Tracker for October 2017).

Important that the British market may be for Irish and Continental exporters its importance is not paramount. What is paramount is keeping the single market intact because it is, as Monsieur Barnier put it, "our main economic asset".

Earlier in the week, Wilbur Ross, the US Trade Secretary, addressed the CBI Conference on the terms of a trade deal with the USA (see Sarah Gordon Wilbur Ross outlines US terms for post-Brexit trade deal 6 Nov 2017 Financial Times). In his speech he warned Britain to avoid signing up to “hindrances” to trade in its Brexit negotiations and that a deal with the US will require lower tariffs and compromises in areas such as food regulation.

That speech did not go unnoticed on the Continent. Monsieur Barnier referred to it specifically in the context of the possible future relationship negotiations that he may be called upon to conduct and whether it was yet another undermining factor:

"And when I hear the US Commerce Secretary Wilbur Ross, in London, call on the British to move away from Europe in order to move closer towards others – towards less environmental, health and food regulation, and no doubt financial, tax and social regulation too – I have my doubts."

It seems that we can have a preferential trade deal with Trump's America on Mr Ross's terms or a preferential one with our EU partners but not both. A growing fear for British businesses must be that we may well end up with neither.

Brexit Briefing - October 2017

Author Furfur
Licence: Creative Commons Attribution-Share Alike 4.0 International

Jane Lambert

For much of the month, attention in Britain has shifted away from Brexit to domestic concerns for two reasons. First, a spate of complaints of serious misconduct by politicians on both the left and the right which resulted in the resignation of two senior ministers, the withdrawal of the whip from several more and a tragic suicide.  Secondly, a frosty but not quite frozen communiqué of the 27 remaining EU member states at their Council meeting on 20 Oct 2017 which offered the hope of negotiations on the UK's future relationship with the EU (see the Conclusions 20 Oct 2017). Thought has at last been given to the nature of that future relationship.

On the 9 Nov 2017 Charles Grant, Director of the Centre for European Reform. published his predictions on how Brexit will unfold in The Guardian (see Charles Grant How Brexit will unfold – Britain will get a deal, but it’ll come at a price The Guardian 9 Nov 2017).  In his view, there will be:
1. A deal on citizens' rights, Ireland and the divorce settlement in December 2017;

2. A hard border between the Republic of Ireland and Northern Ireland;

3. A transitional arrangement on the EU’s terms;

4. No agreement on the future relationship between the EU and the UK before the UK leaves the EU;

5. No detailed proposals from the UK on a future economic partnership;

6. No bespoke agreement for the UK;

7. Some access to the single market in some sectors;

8. No undercutting by the UK of EU regulatory standards;

9. No preferential access to the EU's financial markets for the British financial services industries; and

10. Some kind of free trade agreement between the EU and UK.

That is probably the best that can be expected from the negotiations. There are many who fear that no deal will be reached at all.  The Confederation of German Industry, the German equivalent of the CBI, has warned its members who trade with or invest in Britain to prepare for a very hard Brexit indeed (see German Industry Federation advises its Members to prepare for a Hard Brexit 5 Oct 2017). As the UK will cease to be represented by the EU in international trade negotiations, the British and EU  representatives to the World Trade Organization have indicated to the other contracting parties how they will collaborate (see UK's Future Relationship with the World Trade Organization 16 Oct 2017).

It is said that progress in the negotiations has stalled over money and that may well be the case in the short term. In the long term, however, it is likely to be the absence of a means of holding the UK to account if it refuses to acknowledge the jurisdiction of the Court of Justice of the European Union. The Institute of Government considered a number of alternatives in Some Proposals for Dispute Resolution from the Institute for Government 8 Oct 2017 none of which is entirely satisfactory. As the issue has arisen first in the protection of citizens' rights, it is worth looking at HMG's Technical Note: Citizens; Rights - Administrative Procedures in the UK. I would not be attracted by those proposals if I were a negotiator for the EU 27. I think it is overly optimistic to expect a deal by December, but we shall see.

In the meantime, if you want to discuss this article or Brexit in general, call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact form.