The future relationship between the UK and EU – what to make of it?

EUUKAbout a week ago, Theresa May has hailed the draft agreement on post-Brexit relations as “right for the whole of the UK” and insisted a deal “is within our grasp”. The political declaration – outlining how UK-EU trade, security and other issues will work – has been “agreed in principle”, the European Council says. London and Brussels have already agreed the draft terms of the UK’s exit from the EU on 29 March 2019. The withdrawal agreement is legally-binding – the political declaration is not. The prime minister told MPs it would deliver the Brexit people voted for…but at the risk of sounding repetitive who knew what they voted for two years ago?

What do I make of this proposal? Well, let me be clear on three counts:

  1. Every single British citizen should be made to read this proposal through a legal obligation. Here is the link to it. There is a legal requirement to fill in the UK census, which brings little benefit in comparison to understanding what people are about to experience with BREXIT. There should be NO EXCUSES to anyone for not knowing the outline.
  2. It sets out broad aspirations for the kind of relationship the UK and the EU will have after Brexit. Most of the wording of it is non-committal and allows both sides to keep their options open. Not much of an agreement that people can vote on.
  3. The UK becomes, and excuse my French, the ‘bitch’ of Europe. I can only quote May: ‘This proposal would ensure that we leave the EU, without leaving Europe‘. Please thank your friends, colleagues, neighbours that have voted leave! Don’t believe me? Chapter 4, section 3.4 paragraph 22, and I quote ‘In areas where the UK commits to a common rulebook (which is pretty much everywhere), where the UK makes a choice to commit to ongoing harmonisation with the relevant EU rules and requirements, it will be important for the UK to be able to share its views with the EU as those EU rules are developed. While the UK would not have a vote on relevant rule changes, its experts should be consulted…’. If you know the RACI methodology you will understand that consulted is not accountable and responsible. Basically, the EU will listen but do whatever they see fit for purpose and for the greater of goods for the EU.

Some of my key highlights, reflexions below. I will keep the structure of the document to make it easy.

Chapter 1 – Economic partnership

Section 1.2 – Goods

  • The EU is the UK’s biggest market, therefore there is a need to establish a free trade areas for goods. Clearly EU has the upper hand in negotiations with just that statement. As stated, the ‘UK CANNOT have all the benefits of membership of the Single Market without its obligations‘. Solution: establish a new free trade area and maintain a common rule book for goods and the introduction of a new Facilitated Customs Arrangements (FCA). Remember my common rulebook statement above

But you would be within your rights to ask what is the FCA. The FCA tries to mirror the EU’s customs approach at its external border. The idea is that goods entering the EU via the UK have complied with EU customs processes and the applicable EU tariffs have been paid. This would be done by the UK customs authorities (which would be the same as currently with UK being an EU member). The thought is, that this would remove the need for customs processes between the UK and the EU, including customs declarations, routine requirements for rules of origin, and entry and exit summary declarations. This means that where a good reaches the UK border, and the destination is clear, the UK tariff will apply if it is destined for the UK and the EU tariff will apply if it is destined for the EU. In case the destination is not clear at the point of import, the higher of the UK or EU tariff will apply. Where the good’s destination is later identified to be a lower tariff jurisdiction, it would be eligible for a repayment from the UK Government equal to the difference between the two tariffs

So what? The conclusion from all of this is, that the UK can only agree FTA’s with third countries which have an FTA with the EU as well. One important Brexit deliverable for the UK is for the UK to conclude its own FTA’s. That objective cannot be reached since the UK’s bottom line choice will effectively be limited to those countries which have an FTA with the EU already. That is the same result as under the alternative of the UK entering into a customs union agreement with the EU. And this is an option that the UK has always refused.

  • The good new is that there is an elimination of tariffs between the UK and the EU in principle.
  • In terms of manufactured goods, the adoption of a common rulebook means that the BSI could not put forward any competing national standards.

What should you ask yourself: who is going to pay for that FCA? and how much it will cost not just the tax payer but also businesses?

What should you think? Well the EU clearly has the upper hand and the UK won’t have much of a say. If it did break away, it would impact seriously its ability to trade with the EU.

Section 1.3.4 – Financial services

Once the UK leaves the EU and Single Market, the UK can no longer operate under the EU passporting regime.

What is a EU passport? It enables financial firms in the UK to sell their services right across the EU. So, for instance, a UK-bank based in London can sell financial services to a company based in Prague as easily as if that company was based in Preston. There are no regulatory barriers. The EU is a huge market of 500 million people and some 22 million firms, so it’s clearly problematic if UK-based financial firms find it more difficult to offer them services. The Financial Conduct Authority regulator says that around 5,500 financial firms in the UK currently have EU passporting rights and the British Bankers Association says UK financial firms exported over £20bn of services in 2014. The Financial Times has reported that some in the City estimate that as much as 20 per cent of UK-based firms’ investment and capital markets revenue (around £9bn) could be disrupted if the UK loses the EU passport. Yet there is no doubting the importance of the overall financial services sector for the UK economy. It accounts for around 7 per cent of total UK economic output and supports around 1 million jobs. Finance is also a critical UK exporter and a major recipient of foreign direct investment. Anything that damages this sector (and losing the EU financial services passport will unquestionably damage it) can be reasonably expected to have serious negative effects on the overall UK economy.

The proposal is to create a new economic and regulatory arrangement with a bilateral framework of treaty based commitments.

What should you ask yourself: how much more administrative burden will this add and will these financial institutions be happy to deal with them? Or will they leave

What should you think? When the UK leaves the European Single Market, financial firms domiciled within the City of London will lose their ‘passporting rights’. This means that many UK-based banks and other financial institutions will need to relocate a significant portion of their operations, capital and staff to alternative financial centres which remain inside the EU. Frankfurt has consistently been identified as one of the potential beneficiaries of this process, alongside Dublin, Paris and Luxembourg.

Section 1.4 – Framework for mobility

It is clear that this proposal ends free movement of people but Irish citizens will continue to enjoy a special status in the UK.

It proposes visa-free travel for EU state members but paragraph 87 states ‘UK  wants to minimise admin burden for those seeking permission to travel, enter and reside in each other’s territories. I am confused, what is it!

the UK wants to continue to be able to use the European Health Insurance Card to receive healthcare.

The UK proposes a UK-EU youth mobility scheme, which I am pleased to see.

What should you ask yourself: is this going to impact my business, especially if I employ low skilled migrants? will the tourism industry suffer from the above, and therefore impact many jobs directly and indirectly?

What should you think? this should satisfy Brexiteers in the main. However, using the EHIC will come at a cost and not knowing exactly the travel visa process remains a key sticky point.

Section 1.7.5 – Electricity and gas

Trade in electricity takes place through interconnectors. There are currently 3 between the UK and EU. The proposal gives 2 options, which have not been thought through yet. One is to leave the Internal Energy Market and the other…not to.

The free flow of energy across interconnectors is necessary to keep “a level playing field that keeps costs down for consumers and ensures decarbonisation and security of supply. Any imposition of tariff or non-tariff barriers to the flows of energy across interconnectors would increase the cost of the low-carbon transition and set back action on climate change. In the event of option 1, then clearly it will drive up your energy bills

What should you ask yourself: do you want your bills to keep going up?

What should you think? Hell no. Why shall I pay more

Chapter 2 – Security partnership

Section 2.3 – Law enforcement and criminal justice cooperation

T. May make a raft of proposals and in the main do make sense to me. However, a statement does alarm me. Paragraph 14. The UK recognises that leaving the EU will have consequences for the nature of the security relationship between the UK and the EU.

There is a lot of common sense about sharing critical and vital information but this comes at a price. Surely no saving here, the bill will have to be paid to the EU

Also, the proposal stipulates that where the UK participates in an EU agency, the UK will respect the remit of the Court of Justice of the European Union (CJEU). Well let me be clear by telling you that under this proposal, the UK will seek to access many EU agencies!

Finally, there is no clear decision made regarding Galileo. Billed as the EU’s answer to the USA’s GPS system, and aimed at giving Europe some degree of autonomy from its American cousins. In the event of no deal being struck with the alliance of European states, the government has admitted the UK would lose access to the encrypted Public Regulated Service (PRS), which will upset the military. UK businesses, academics and researchers will also get a kicking, since they will be unable to bid on any future Galileo contracts

What should you ask yourself: I don’t know about you, but in this day and age I would rather that there is a great relationship and not jeopardise my safety. Also what incremental costs for the UK budget?

What should you think? Overall I am satisfied with the document but things like the above makes me nervous, especially if you have a family! The UK cannot operate effectively alone in terms of security and therefore will need to be part of EU agencies. Therefore surrendering any decision making to the EU.

Chapter 4 – Institutional arrangements

Section 4.2 – A practical and flexible partnership

The new relationship would rely on a new framework, which sees the creation of a Joint Committee. This committee would:

  • Steer the development of the future relationship
  • Manage and monitor the implementation of the future relationship
  • Resolve disputes
  • Provide additional administrative functions

If there is a change in legislation going forward, it will be dealt by the Joint Committee and the UK Parliament will have the opportunity to provide the Government with its opinion. It will only be consulted. If the UK DOES NOT passes the legislation there would be consequences from breaking the UK’s international obligations

What should you ask yourself: Who is going to pay for this? We already have this setup and it is called the EU council.

What should you think? As a European and British, we should be 100% against this framework. All we will end up doing is paying useless politicians to take decisions. It clearly is a mini EU council.

Conclusion

Theresa May did her best. I genuinely believe this. But in my mind, this deal will still not get what 51% of British people that vote Leave want. The deal they want is not possible without suffering huge economic and social consequences.

I will not pretend that I am an expert, but there is a lot of uncertainty in this document. If this was created to re-assure me, well it hasn’t. Saying that, is this deal better than NO deal? Without a doubt YES. Is this deal better than remaining in the EU…certainly not!!!

On a personal level, I would rather it gets rejected but only if a new vote is to be put forward with the ability to kill Brexit once and for all. It is for all to see that there is no good deal possible. People need to wake up and realise that the UK is not that strong nation it once was and that the best deal is to stay in the EU. Don’t be upset, only by being unified will we be able to fight against the US and China.

In any case, you now need to read the full proposal and understand what you are voting for. No one should tell you what to think, you should make up your own mind like I did.

Benoit Mercier

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