Thursday, August 03, 2017

Don’t believe the bad news about Brexit

Published on CapX
Nobody should blame the British media for taking a critical look at whatever the British Government does. A scrutinising media is a great asset and mainland Europe can probably learn something from the UK. But when it comes to Brexit negotiations, there’s plenty of negativity being reported, and not enough attention paid to the progress being made.
Take, for example, the rights of EU citizens in the UK and British in the EU. After only three days of negotiations, agreement was reached on 50 per cent of issues listed in a joint negotiation document.
The most sensitive point here is the EU’s insistence that its own top court, the European Court of Justice (ECJ), where the UK will have no judge, is the arbiter of citizens rights and judicial disputes. But this particular demand has already been undermined by the Germans, who have said they would be open to a solution whereby a joint EU-UK panel serves as the ultimate judge.
The UK’s Brexit Secretary, David Davis, agrees with the Germans and has suggested that a judicial body including “a mutually agreed chairman and somebody nominated from both sides” might be acceptable. Indeed, some EU officials have intimated the EU is willing to drop this particular demand.
So rather than the talks stalling over the ECJ, it looks like EU negotiator Michel Barnier only needs ask EU member states if they can update the list of demands he’s obliged to defend. (It’s worth remembering that Barnier’s room for manoeuvre is limited – he has to work within the mandate set by the European Commission). If a solution is found through a joint panel, that may serve as a precedent for a long-term arrangement in the relationship between the UK and the EU.
True, there are other tricky areas. No deal has been struck over the thorny issue of the “financial settlement” of Britain’s obligations towards the European Union. But the UK government did try to smooth things over by stating that “the UK has obligations to the EU”. This was deemed by Brussels to be a potentially important development, and dissuaded them from stalling negotiations – although Barnier has since repeated his threat.
In fact, Britain’s plan seems to be to sign up to the principles of the financial settlement, while delaying any deal on a specific figure until the very end of the negotiations. But Barnier has already said that for the EU “to compromise … we want clarity on [the financial settlement].” If the UK were to publish a position paper on the methodology for the divorce bill, this could persuade the EU Commission to relax its initial decision not to open talks on Britain’s trade status before there is material progress on the financial settlement.
The EU certainly seems open to suggestion. It has also substantially relaxed its earlier refusal to discuss any issue besides citizens, finances and Ireland. Since it has agreed to opening talks on “wider separation issues”, which include trade in goods but also Euratom, police and security cooperation, it may as well agree to start proper trade talks in October.
One of the loudest complaints from the media has been the lack of clarity regarding what the UK wants its future relationship with the EU to look like. In reality, there aren’t many options to choose from. In my opinion, there are two models: the Norwegian, whereby Norway enjoys full market access in return for essentially implementing all of the EU’s trade rules without being able to vote on them, and the bilateral Swiss-Canadian, where market access and the extent to which both sides adapt their market regulation is subject to negotiation.
Britain’s financial sector is expecting the bilateral model to win out – and they may well be right. Could anyone really imagine the UK being bound by EU legislation without being able to vote on it? Of course not, especially as British membership of the Single Market seems now completely off the table.
But regarding the issue of whether the UK should leave the Customs Union, the decision is being taken on the ground. Now that the American President has shown such enthusiasm for a US-UK trade deal, it sounds increasingly unrealistic that the UK will not leave the Customs Union at some point, perhaps after an interim period.
Progress has also been made in the debate on how to move to a permanent Brexit settlement. The UK Government has agreed that there should be a transition period, after the idea was backed by “Brexiteer” Trade Secretary Liam Fox. He has, however, stressed that this should be “time-limited and limited in its scope”, and end “before the election” in 2022.
The fact that the UK is happy to accept a transition stage may also make discussions over the financial settlement easier, given that Britain could be willing to contribute to joint projects during that period.
A point which does still need to be resolved (though, tellingly, it’s also a bone of contention within the UK government) is whether the UK will be allowed to restrict immigration from the EU during that period. There’s a way around the difficulty: the UK could join the European Free Trade Association (EFTA) and then rejoin the Single Market or “European Economic Area” temporarily. It’s how Lichtenstein is able to restrict freedom of movement while being a member of the Single Market.
 If Britain wouldn’t join EFTA, the EU could still in theory tolerate restrictions on freedom of movement. Part of the transition debate must therefore be how to arrange British control over EU immigration in this eventuality (even though EFTA membership could protect national sovereignty better, affording, for example, the power to delay the implementation of EU rules).
The UK Chancellor, Philip Hammond, and some of his colleagues would seem to have ruled this out. It looks like the Chancellor prefers the EU’s offer that in return for full market access, Britain would – during the transition – respect EU rules, oversight and judicial supervision, and also allow unrestricted freedom of movement, with some minor adjustments. Be this as it may, a statement by the British PM seems to have overruled him, as it stressed that “free movement will end in March 2019” – when the transition stage after Brexit is due to begin, adding “precisely what the implementation model will look like is up for negotiation”.
In any case, the EU side also seems keen to prevent the UK from remaining in “transition” indefinitely, as the European Parliament has explicitly insisted in its “red lines “ that the transition “must not last longer than three years”.
So with both sides showing willingness to be flexible on certain matters, and with MEPs on the same page as Liam Fox, then surely Brexit negotiations can’t be going so badly after all.

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