Brexit Briefing No.26 - Cultural Differences

The last few days have shown that, as reported in earlier Brexit Briefings, the transition period is far from a done deal, many compromises need to be agreed by both sides, and quite simply, it has never been done before, so it creates logistical and legal challenges for both sides.

Last week ended with a testy solo press conference from the EU's Chief Brexit Negotiator Michel Barnier and briefing and counter-briefing as to whether the UK had pulled out of a joint press conference on Friday in reaction to the Commission publishing proposed transition period legal text without discussing it with the British government first.

Often headlines about Brexit disagreements are somewhat overblown, but at the end of last week there appears to have been real anger on the British side, and Mr Barnier's performance on Friday saw some notably pointed comments, not least in saying a transition period was not a done deal. The EU has also taken a strong stand against the government's suggestion that EU citizens arriving during the transition period would not have the same settlement rights as those arriving before, which it sees as an unacceptable compromise of the principle of free movement it expects the UK to abide by to receive unhindered access to the single market. This weekend also saw reports of growing dissatisfaction within the EU27 with the Chief Negotiator's performance, with some real unease that his hard-line stance risked a UK walkout.

The Commission text that sparked Friday's row included a controversial provision allowing the EU to unilaterally limit UK access to the single market. Whilst this might have made sense to the technocrats in the Commission, as a neat solution to the problem that the European Court of Justice process would take too long to resolve a dispute during the 21 month transition period, in reality it hit the wrong note politically. No party would sign up to any international agreement that would allow the other side to act as judge, jury and executioner with no possibility of appeal, and the British government promptly announced that it would withhold financial contributions were the EU to take such punitive unilateral action during the transition period. So the Commission's actions, ultimately under Mr Barnier's watch, significantly undermined what goodwill there was between the two sides.

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Trust and goodwill has already been tested by the Commission's communications to British companies warning them to prepare for all eventualities in the Brexit talks, the most recent example was a VAT information note it sent to British exporters. The Commission warned British exporters they faced having to pay VAT upfront at the border and would no longer be able to claim refunds for foreign tax using electronic systems, as today. Furthermore they warned UK companies operating in the EU might have to employ a permanent VAT representative and that they would have to register with all 27 remaining tax authorities. Much of this is the de facto arrangement for most non EU countries, however as non- EU countries including Norway do have VAT cooperation partnerships, this posturing appears to be an overt attempt by the Commission to raise the stakes and threaten the UK with no post-Brexit trade arrangements at all.

A similar issue has cropped up in the road haulage industry, with the Commission again issuing a unilateral statement that UK driving licences would no longer be recognised by the EU. As a result the UK is scrambling to accede to a 1968 treaty on international driving permits which would allow Brits to drive in Europe after obtaining an international driving permit. However, for hauliers, even after going through this process there are only a limited number of permits available to third countries to drive HGVs in Europe, the UK could expect around 1,000 post Brexit. Currently around 75,000 British trucks drive through Europe.

Both sides hope to reach an agreement which recognises the specific trading links between the UK & EU, because not doing so would cause significant unnecessary disruption to both EU and UK haulage and many other industries.

Up to a point this issue has been created by cultural differences between the two sides. The UK is offering a blank page, flexibility and enthusiasm to deal with problems as they come up and to agree the details during the negotiations. The Commission, following their lead from Michel Barnier, is expecting detailed and fixed technical proposals from the British that can be a base to work for technocrats to work from. Both sides are talking past each other, but the UK can’t offer detailed proposals given the heightened media scrutiny of every proposal and the immediate demands for reaction and refusal from the other side. It is concerning that after nearly two years, the Commission still hasn’t grasped that this isn’t a normal negotiation of an EU law, but something much more complex, fluid and political and which has come about in part because the UK has rejected the EU method of law-making. To try to subject the UK to the same method during the negotiations for a future framework is unlikely to work and is more likely to lead to a breakdown in negotiations.

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If some of the Commission's actions have concerned the UK, there are growing signs of unrest within the remaining EU27 with Mr Barnier. This dissatisfaction can be overestimated, as it seems clear France and Germany are largely in sync with the Commission, but up to a dozen other member states are less happy, and worried the Commission has prioritised the enforcement of a hard bargain in order to make it clear that leaving the EU has penalties, as opposed to protecting enhanced trade links with the UK.

A number of national officials complained about the Commission publishing the transition text last week that so annoyed the UK. None of these divisions are that surprising, the EU finds it hard to act with one voice at any time, and whilst negotiating the financial settlement all countries had a common interest in securing as much money as possible from the British government, on trade priorities are very different. Ireland would be harder hit than any country, including the UK, by a no deal scenario, and there are significant concerns in Belgium and the Netherlands about the impact on their economies of a collapse in talks or a restrictive trade agreement. The UK imports far more than it exports to the EU27 and the ripple effects of damaged trading links with their largest export market would not be insignificant in the EU27.

Meanwhile, despite annoyance with the Commission, the UK is pressing ahead in presenting its vision for EU-UK relations. A series of speeches on the Road to Brexit are going to be made over the next few weeks, beginning with the Foreign Secretary issuing a Valentines Day call for unity. Boris Johnson stressed continued close defence and foreign policy cooperation with the EU, and the wider theme of the speech was that Britain was not turning its back on Europe. As part of this series there will be two speeches from the Prime Minister, one on security this Saturday in Munich and the second on the future relationship at a yet to be announced date. Other speeches by the Brexit Secretary David Davis, Liam Fox at International Trade and David Lidington from the Cabinet office are all going to be rolled out over the next few weeks as well. These will give much more detail to the British position and aim to provide new impetus to the talks. It has become increasingly clear that impetus will have to come from the UK side, with the Commission happy to sit back and ask for ever more detail as the clock ticks down.

Unless the member states intervene, which is a distinct possibility, that pattern will continue. That approach might work with regards to the transition agreement, given the tight time frame and the fact that the UK government probably bears more risk than the Commission if a transition agreement can’t be reached. However it is not an approach the EU can realistically afford to take on the future relationship, which will start to be discussed in the very near future.