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Brexit: battle lines emerge

2020-01-10 07:40:56

Well, we're that much closer. After three days of proceedings, the Withdrawal Bill has cleared its third reading, with the Commons voting 330 to 231 in favour. Predictably, all 330 supporters were Tories, relying on their general election victory to get their version of Brexit "done".

The Bill now goes to the Lords, where it is expected to get an easy ride. There was some talk earlier of Lib-Dems making a stand, but that doesn't seem to have materialised. Attempts might be made to lodge amendments but a Commons majority will soon sort that.

Meanwhile, Michel Barnier is subtly stoking the fire with a speech in Sweden at the Commission's Representation in Stockholm, setting out the battle lines for the coming negotiations.

It was there that he noted that 2020 marks "a new beginning in the EU's relationship with the UK", conceding that "it is now clear that the UK will leave the EU at the end of this month". He is looking forward to forging a new partnership with what he calls "this great nation".

He also noted that, because it will cease being an EU member at the end of the month, the UK will no longer participate in the EU institutions. This, Barnier says, "is not our choice. It is the UK's choice". But it will remain in the Single Market and the Customs Union until the end of 2020. During this transition period, free movement of people, goods, services and capital will continue to apply.

Interestingly, having raised the issue in ad hoc comments after von der Leyen's speech on Wednesday, Barnier again reminded us that the UK will "automatically, mechanically, legally, leave 600 international agreements". We will have, together EU and UK, and the UK for its part, alone to rebuild everything, he says. "That is what is at stake for the next stage of the negotiations".

Failure, he went on to say, would mean that the transition period will end on 1 January 2021 without any arrangements for a new future relationship in place. This would herald "the return of tariffs and quotas: a total anachronism for interconnected economies like ours", not something the EU wants but "a scenario that everyone must continue to prepare for", at EU and national level.

Here, then, we start to get some detail of what the EU is looking for. Barnier refers to "a partnership that goes well beyond trade and is unprecedented in scope: covering everything from services and fisheries, to climate action, energy, transport, space, security and defence". But then he concedes that this is "a huge agenda". We simply cannot expect to agree on every single aspect of this new partnership in under a year, he says.

Referring to the 36 pages of the Political Declaration, he bluntly warns that "if we want to agree on each and every point" in it which would lead to an unprecedented relationship "it will take more than 11 months". Thus, the Commission will have "to prioritise on what we can do in 2020".

Speculation here, from a variety of sources, including this one, has it that the parties will opt for sector-by-sector agreements, making as many incremental, stand-alone deals as possible, securing them before the shutters come down.

But if that is supposed to be the game plan, there is no hint of it from Barnier. With his feet firmly on the ground, he puts as his first priority new capacity building, setting up mechanisms and institutions that will enable the EU and the UK to work together in the future.

Secondly, he wants to build "a very close security relationship", enabling both the EU and the UK to improve their security policy "by looking beyond their borders and building alliances". This would again suggest that much of the effort will be devoted to capacity building, with the EU looking very much to post-transition developments.

Only then does Barnier get to the "economic partnership" and immediately he links this to the "level playing field". Europe, he says, is proud of its reputation as a global leader on labour rights, consumer protection and environmental sustainability.

As the world goes digital, there is growing demand for a "European way" of regulating new technologies. On the other hand, he says, "Competing on social and environmental standards can only lead to a race to the bottom that puts workers, consumers and the planet on the losing side".

With that, we effectively get a glimpse of the "red lines" that are going to frame the negotiations. "We will insist", says Barnier, "on making our economic partnership subject to a level playing field on environmental and social standards, state aid and tax matters". There is no messing here, no equivocation and no room for compromise.

Backing that, we also see the iron fist in the velvet glove. The UK represents nine percent of all EU-27 trade, Barnier concedes. "But more significantly, the EU-27 account for 43 percent of all UK exports and 50 percent of its imports". So, he says. "it is clear that if we fail to reach a deal, it will be more harmful for the UK than for the EU-27".

This is all the more so, he adds, "because EU Member States can rely on each other or on the many other partners that the EU has free trade agreements with". Thus, the EU "will insist on a trade partnership with zero tariffs, zero quotas, but also zero dumping". Again, we see a remarkable lack of equivocation.

Clearly, this does not speak to talks on sectoral deals, indicating that the EU might be going for nothing more than an over-arching, cross-sectoral trading framework. If we can tack on to that an MRA on conformity assessment, we will probably have to count ourselves as fortunate.

For the rest, I expect the Commission to rely on upgrading its contingency plans, forged to deal with the possibilities of no-deal outcomes. These will keep the show on the road until, after the end of the transition period, we will see talks resume. It is then, and only then, that we can expect the EU to entertain detailed sectoral deals.

As to timetabling, the Commission will be ready to propose a mandate for the negotiations to EU Member States by 1 February. As long as that is approved, it expects to launch negotiations at the end of February or the first days of March.

Then, obviously giving Johnson a chance to recant on extending the transition period, the aim is to make as much progress as possible by June, allowing the EU-27 and UK leaders "to take stock of the negotiations".

"Nobody should doubt the determination of the Commission" and his determination, says Barnier, "to continue to defend the interests of the EU-27's citizens and businesses and to defend the integrity of the Single Market".

Making it abundantly clear where he stands, he then treads familiar ground. "The Single Market is much more than a free trade zone. It is an ecosystem, with common laws, common standards for the environment, rights for workers and consumers, common regulations, common supervisions, and on the top of this, a common jurisdiction: the Court of Justice".

"To be clear", he concludes, "the integrity of the Single Market the four freedoms has never been, and will never be, negotiable", ending up with the declaration that: "This is the spirit in which I will work in the next 11 months, at least".

Yet, whether this message is getting through seems highly dubious. In the Johnson fanboy gazette we are still getting "hard Brexit" rhetoric which defies reality. Under the headline, "City grandees call for London to distance itself from Brussels after Brexit", we see Nigel Wilson, chief executive of FTSE 100 insurer Legal & General, asserting that the insurance industry is one of those that could stand to benefit most from a relaxation of rules.

British insurers, we are told, spent hundreds of millions of pounds last decade readying themselves for stringent capital requirements introduced under the EU's Solvency II regime.  Yet instruments such as the "Solvency II" package, on capital requirements, have international dimensions. Specifically, it implements recommendations from the International Association of Insurance Supervisors, the International Accounting Standards Board, the International Actuarial Association and nine other agencies alongside the World Bank and the IMF.

Bound by international agreements as we are, the UK would find very little difference once we leave the EU, while the direction of travel is towards greater international involvement. Reality, though, seems to be taking a well-earned break. Given what's coming, it will need the rest.