Brexit weekly: 5 things

A Brexit victory…

In a statement released on Friday 6 July after a 12-hour meeting at a Chequers away day, Prime Minister, Theresa May, announced that the Cabinet collectively agreed on proposals for the UK’s future relationship with the EU. At the core of this agreement – which forms the basis of the White Paper published on Thursday setting out the government’s plan for Brexit – is the proposal for a UK-EU economic partnership that would entail a free trade area for all goods including agri-‐food, based on a ‘common rule book’.

Committed to breaking the deadlock between the ‘customs partnership’ plan and the ‘maximum facilitation’ option, members of the Cabinet also paved the way for a third possible model, agreeing on the phased introduction of a new facilitated customs arrangements that would remove the need for customs checks and controls between the UK and the EU ‘as if the former were still within the latter’s customs territory.

As these new commitments begin to take shape, Downing Street is hoping to swiftly move on to the next phase of Brexit talks to secure an agreement with Brussels by October. Significant though it may be in the negotiation process, the agreement – which clearly hints at a soft, Norway-style Brexit deal – has been met with strong criticism from a string of hard Brexiters and Conservative MPs who raised concerns that, as a result of Mrs May’s proposals, the UK would in fact not be able to secure a trade deal with the US, which have different standards in goods.

Given the short period remaining before the necessary conclusion of negotiations, the Cabinet finally agreed to step up the preparations for a no-deal scenario.

Which caused a fresh wave of resignations from angry hardline Brexiters…

What Theresa May initially claimed to be a ‘Brexit victory’ eventually turned out to be a major blow to the UK Prime Minister, as the Chequers agreement triggered the successive resignations of the Brexit Secretary, David Davis, and Foreign Secretary, Boris Johnson.

Mr Davis explained he was no longer the best person to deliver the PM’s Brexit deal as he did not believe in it, adding that the UK was ‘giving away too much and too easily’. In his resignation letter, Mr Davis, who gave his job to Dominic Raab (another true Brexit believer), stated that, in light of ‘the current trend of policy and tactics’, it was ‘less and less likely’ that the UK would leave the customs union and single market.

As for Mr Johnson, who has been replaced by Jeremy Hunt, he argued that the Brexit ‘dream was dying’ and Britain was ‘headed for the status of a colony’.

Following the sudden departure of  two senior Cabinet members, the main challenges now for Mrs May will be to reassert her authority as Prime Minister, ensure Cabinet stability and restore her leadership over Brexit in the context of a hung parliament. Although she appears to have avoided – at the present time – a motion of no confidence in the House of Commons, the question remains whether the current political rebellion will have the effect of forcing Mrs May to make any further concessions to Brexiters. On the other hand, one could argue that with the resignation of two leading Brexiter, Theresa May will now be given a free hand to impose her new vision for a softer Brexit in the negotiations with the EU with (or without) the support of the Conservative Party.

And a relatively unenthusiastic reaction from the EU

The Chequers plan was received with scepticism and suspicion within EU circles, as leaders, diplomats and officials are reported to consider the proposed facilitated customs arrangements as a complex and unworkable mechanism.

Additionally, Brussels will most likely not compromise on the single market issue, allowing the UK to cherry-pick elements of the EU’s four freedoms, with a full access to the single market for goods and different arrangements for services. Commission officials, indeed, have steadfastly maintained that trade in goods cannot practically be separated from trade in services. The European Commission’s chief Brexit negotiator, Michel Barnier, further made it clear that the single market, which lies at the ‘heart of the European project’, was not to be regarded as a ‘big supermarket’.

In spite of those concerns and stumbling blocks, Mr Barnier appeared to be ready to hold the door open for a closer cooperation and ‘constructive discussion’ with the UK, saying the EU was prepared to refine its Brexit position should Theresa May soften her negotiating red lines on the single market and customs union.

As the Article 50 clock is still ticking down, it is to be hoped that this positive change of tone and the new proposals contained in the Brexit White Paper will now take the negotiations forward and allow the UK and the EU to reach a substantive agreement on the Future Framework alongside the Withdrawal Agreement before October’s deadline.

A ‘special relationship’?

Meanwhile, as he just arrived in the UK for a four-day visit, Donald Trump has not hesitated to interfere in British domestic politics and questioned Theresa May’s Brexit plan. At the NATO summit in Brussels on Thursday, the US President noted that Brexit was taking a different route to the one British people initially expected and that Mrs May’s proposals would leave the UK ‘partially involved with the EU’.

A few days before, the US President declared that the UK was ‘in turmoil’ amid the dramatic resignations of David Davis and Boris Johnson and further distanced himself from Mrs May, praising instead Britain’s former foreign secretary.

Deeply convinced that he is popular in the UK thanks to his position on immigration policy, Donald Trump is expected to be greeted in London by thousands of protesters, a large ‘Human Rights Nightmare’ banner on Vauxhall Bridge…and a 20ft balloon depicting the US president as an angry baby wearing a nappy. A new proof of the ‘special relationship’ that exists between the UK and the US.

Brexit means EXIT!

While the Brexit White Paper was praised by various industry groups, including the EEF (i.e. the manufacturers’ organisation), the Confederation of British Industry and the British Chambers of Commerce, it was heavily criticised by UK finance and TheCityUK, a membership body representing UK-based financial and related professional services.

It must be said that, in a country where the service industry accounts for almost 80% of the economy, the new arrangements on services – notably those on financial services – give some reason for concern among businesses and professionals. Aiming to provide regulatory flexibility, the new arrangements may, in fact, have the potential to threaten the existing and future commercial opportunities for UK service providers. This is because they would be based on equivalence agreements, not mutual recognition, in line with the prevailing view in Brussels that the UK cannot have the cake and eat it.

In practice, this means the EU would have to assess whether the financial regulations in force in the UK achieve the same regulatory objectives even if they do not follow the exact same specifications as EU law.

As the reciprocal recognition of regulatory equivalence cannot be taken for granted, this may lead to an increase in and intensification of relocation plans from financial services institutions.