Brexit Briefing No.25 - A Game of Cat and Mouse

Michel Barnier and David Davis met for the first time in person this year as the EU chief Negotiator visited London on Monday, itself an unusual occurrence as he has generally remained on the other side of the channel throughout the negotiations.

He came with a message, that it was time for the UK government to decide what sort of relationship it wanted with the EU. However the two sides appear to be talking past each other as the UK government repeated its position that the UK would not remain in the customs union and that it wanted a future free trade agreement with the EU.

From the EU perspective there appears to be little to no recognition that the general UK position has not changed since the Florence speech in September, and the fundamentals have not altered since the Lancaster House speech a year ago. The Prime Minister, Theresa May, outlined the general framework, of a comprehensive free trade agreement, outside the single market and the customs union, but with cooperation on a number of areas beyond trade, during both speeches. Part of the EU reaction may be not lack of understanding, but a belief that the UK does not really want the position outlined by the PM, and given the parliamentary arithmetic may not be able to deliver it. Michel Barnier met with Labour’s front bench team this week and was almost certainly given a different message about what the UK would want under a Labour government, and this is likely to muddy the perception even more in Brussels. Moreover, given the Labour leadership’s divisions on Brexit, he may well have received one message from Labour Brexit spokesman Kier Starmer and another from Jeremy Corbyn, only adding to the confusion.

Florence speech

The challenge and frustration from the EU side (which is used to dealing with technicalities rather than general principles) is that there is little detail beyond those general principles. And those general principles still leave unanswered questions, for example how to ensure a smooth Irish border and frictionless trade if the EU and the UK are separate customs territories and in separate internal markets.

On this point the government has been extremely careful with its words. It has ruled out “the” customs union and now “a” customs union, but it has not ruled out customs cooperation with the EU. There are various ways this can be achieved, either through using existing customs cooperation tools, such as those which exist with Norway and Switzerland (who are both outside the customs union) and rules which govern transit through the EU. In the case of the latter some sort of reciprocal transit system will need to be set up to deal with the problem the Republic of Ireland has, as most of its goods for export to the EU go through the UK. These would need to be complemented by a new and bespoke customs relationship with the UK to cover border procedures. As with everything in these negotiations the devil is in the detail, and the British government has been clear that it is open to a variety of options as long as it is able to do its own trade deals with third countries.

Customs

However the stumbling block is that each side is waiting for the other to come up with the concrete proposals of how to achieve this. The EU is taking the position that as it’s the UK that wants the change, it will wait for the UK to present concrete proposals. The UK government, in part due to mistrust that the EU will simply attempt to discredit any further detailed proposals it presents beyond its series of position papers on the issue, has not moved significantly beyond the general principle that it wants to leave the customs union.

This is a pressing issue and could hold up the negotiations on the transition period because the UK needs to avoid being in the customs union but without access to any trade deals during that period. There are signs that the EU will relax its position on this but only if it receives detailed proposals which it feels addresses the problem on the Irish border, whilst the UK certainly feels it is not up to it alone to come up with proposals for tackling an issue in part created by perceived EU intransigence that risks harming a remaining EU member state, Ireland, more than any other party.

The Commission published its draft text on the transition period on Tuesday this week, which was very much as expected and in line with the EU27 council mandate agreed previously, setting out clearly how the UK would be bound by EU law and decision-making, with no voting rights during that period, although consultation is foreseen on fishing quotas. The full text can be read here: https://ec.europa.eu/commission/sites/beta-political/files/transition.pdf. It does not mention freedom of movement because the Commission expects this to continue as before.

Fishing

There was however one footnote in the text which immediately raised concerns because it gives the EU power to suspend some access to the single market in the event of a dispute, without referring the dispute to the European Court of Justice.

From the EU’s point of view, due to the short length of the transition period an ECJ case could take too long and so it wants to take unilateral action, with itself as the arbitrator.

The text is not clear as to what kind of dispute could give rise to these unilateral sanctions, so it is effectively a carte blanche to the EU to restrict UK access to the single market. As a starting point for negotiations it makes tactical sense, but it is hardly likely to engender goodwill into the negotiations and the UK can be expected to push back on this proposal.

So the scene is set for the next few months of negotiations. Crunch time is looming, mainly because it is now time to move beyond general principles and begin to agree detailed proposals on the customs relationship for the transition, and on the future trade deal going forward. In developing those details some risks still remain to the government’s stability, even if the Cabinet are united on the fundamentals. Further reported crunch Cabinet meetings are taking place this week, on issues including Northern Ireland, immigration and trade, the focus is on the future relationship rather than the transition period.

Unravelling the UK from the EU was always going to be immensely complex, given the range of EU policies, the fact that the UK has been a member for over 40 years and that the UK is the first major country to attempt to leave. Add in the difficult parliamentary arithmetic in Westminster, including an opposition leadership which is not yet sure of its own position and it appears even more challenging.

So far we have not really had any of the negotiations which focus on the practicalities of the UK leaving, even the phase one talks essentially revolved around principles. Transferring those principles into concrete policy will be fraught with difficulties. The Commission is banking on the UK government to blink first, whether the Irish government is as happy to take that gamble remains to be seen.