December 21, 2016
The political hangovers of 2016 are sure to last longer than this year’s Holiday party season. Reality will soon take over.
Our Holiday ‘Brexit Bowl’ highlights the political upheaval in Washington, Brussels and London, proving that corporates around the globe are right to be concerned. As we look forward to 2017, we can pinpoint three takeaways:
The UK’s Supreme Court heard the case on triggering article 50 at the beginning of this month. The Justices heard arguments from the claimant and the devolved administrations (the governments of Scotland, Wales and Northern Ireland), as well as the UK Government. The lead claimant, Gina Miller, argues that a formal act of parliament is required to override the 1972 European Communities Act. The government, for its part, argues that the EU referendum was itself made possible by an act of parliament, meaning another one is unnecessary.
A second court case may be on the cards after a barrister successfully raised money to fund a case in the high court of the Republic of Ireland to establish whether an article 50 notification could be overturned at a future date.
Alongside the Supreme Court case, the House of Commons held a vote on triggering article 50. On 8 December, MPs voted by 448-75 in favour of the government’s timetable for leaving the EU. Theresa May agreed to publish the government’s Brexit strategy after a rebellion of some in her own party. The motion included a commitment by the government to trigger article 50 by the end of March 2017. The veteran pro-European Ken Clarke, a former Home Secretary, Justice Secretary and Chancellor, was the only dissenting Tory. The vote is not binding, but does demonstrate cross-party parliamentary support for the British people’s decision to leave the EU.
There remains ongoing debate about the status of EU citizens currently living in the UK. Parliamentarians – including a report by the House of Lords EU Justice Committee – and advocacy groups have called on the prime minister to guarantee their residency status after the UK leaves the EU, but Theresa May has so far refused, saying only that EU citizens’ residency will be guaranteed so long as British citizens enjoy the same rights in European countries.
It was reported this month that the British Ambassador to the EU had warned that a potential EU-UK trade deal could take up to ten years to negotiate. European leaders are intent on forcing a hard Brexit on the UK. Angela Merkel has vocalised her opposition to the UK ‘cherry picking’ the parts of the EU it likes; the prime minister of Malta said the EU is not bluffing over its stance on the single market and freedom of movement; and Donald Tusk is saying the UK must have a ‘hard Brexit or no Brexit’.
The Chancellor, Philip Hammond, has been pushing for a soft Brexit, whereby the UK retains membership of the single market. He has warned against the UK using WTO rules for British-European trade. His comments come despite Theresa May’s commitment to not offering a ‘running commentary’ on the government’s Brexit strategy.
David Davis, the Brexit Secretary, told MPs that his department plans to publish its proposals no earlier than February 2017, but did not say in what format the strategy would be presented (i.e. green paper or white paper etc.).
Having barely managed to salvage the EU-Canada trade deal at the end of October, the EU’s fragile confidence was further shaken by Donald Trump’s victory. Whilst it is too soon to tell, President-elect Trump’s election might well throw some spanners in the Brexit works.
The political drama was not, however, confined to one side of the Atlantic. In Europe, political change is alive and well: the Green/independent Alexander Van der Bellen narrowly beat an extreme right candidate to become Austrian President; Italian Prime Minister Matteo Renzi resigned after losing a constitutional referendum; and French President Francois Hollande announced that he would not seek re-election in the forthcoming 2017 French Presidential election.
The EU has put on a brave face and attempted to get on with some ‘business as usual’. The European Commission proposed a new macro-prudential package for banks as well as a significant and wide-ranging legislative package on energy issues.
The issue of Brexit, however, remained close to the surface. Michel Barnier, the EU’s chief Brexit negotiator, had a busy month with further travels to the EU27 capitals, a first meeting with technical experts from the EU27, as well as meeting the leaders of the European Parliament’s (EP) political groups. In his first official press briefing on 6 December, he made clear that the EU27 want a swift and orderly Brexit. Negotiations should start within weeks after the UK officially triggers article 50, he said, in order for them to be concluded by October 2018 (ahead of EP elections in spring 2019).
Such an expeditious Brexit is, however, likely to be a pipe-dream, not helped by rising tension between the EP and the EU27 heads of State over their respective roles in the upcoming negotiations. Both President of the Parliament, Martin Schulz, and the EP’s Brexit negotiator, Guy Verhofstadt, have warned heads of state against the marginalisation of their institution in the talks.
EU member state leaders again reiterated their refusal to begin negotiations until the UK triggers article 50. European Council President Donald Tusk reiterated this principle while replying to a letter sent by members of the UK Parliament, and rejected their demand for a fast-track agreement that would secure the rights of British and EU expats post-Brexit.
The final get together of EU heads of state took place at the European Council summit in Brussels last week, where the EU27 heads of state agreed a detailed approach and process for Brexit, and which emphasised their own close involvement throughout. While the EP’s role was formally acknowledged, it will not get a seat at the main table. And while it has been reported that Barnier and the 27 leaders decided on a three-stage Brexit approach including withdrawal, transition and then a ‘new relationship’, this is still unconfirmed.
While the European Parliament cannot be expected to roll-over, partly because it is approaching a process of internal personnel changes and must elect a new President in January (as well as new Committee chairs), and so the Brexit views of the respective candidates might become a decisive factor for internal elections.
As the Brexit plot slowly thickens in Brussels, it has become clear that Brexit is ‘chefsache’ for the EU27 – a matter for the boss.
Whatever the outcome, companies should not view the EU’s internal quarrels as a sign of inactivity on the Brexit front. On the contrary, the EU institutions are in full Brexit preparation mode and companies should not hold back from sharing their views and concerns.
View From The U.S.
Is “Mr. BREXIT” Good Or Bad For The UK (And BREXIT Itself)?
The jury is still out on the impact of the U.S. presidential election on the UK and its Brexit strategy.
For pro-Brexit campaigners, the election of Donald Trump – who has called himself “Mr. Brexit” – is outright positive. It offers a promise of tighter trade and political ties with a long-standing ally at a time the UK is about to cast away from the EU (and potentially, lose access to its single market). On the other hand, Trump’s policy instincts – with its mix of protectionism, isolationism and warmer ties with Russia – go against the UK’s long-standing interests. Given the genuine uncertainty as to how far Trump would go to honour his election pledges, his victory could bring both opportunities and the risks for the UK.
But let’s start with the positives. During the campaign, Trump rejected President Barack Obama’s warning that the UK would go to the “back of the queue” for a trade deal with the U.S. He’d like Brexit to succeed and could prioritise an agreement with the UK over the stalled and tortured EU-U.S. trade agreement. The new U.S. administration could also use its influence in Brussels to help the UK secure a better exit deal. In addition, Trump’s questioning of the nature of the U.S. obligations to NATO could bring security issues back on the EU’s agenda and strengthen the UK’s position in upcoming talks. In the face of Russia’s expansionism abroad, the UK’s military and intelligence capabilities may become more valued and possibly, convince Moscow-wary Eastern EU member states to review their Brexit stance.
However, there are equally strong reasons for the EU to play hardball with the UK. To keep in check European populists (especially ahead of Dutch, French and German elections next year), EU policymakers may
push for a painful Brexit, which would likely take the UK out of the single market. Under this scenario, a trade deal with the U.S. could hardly compensate for higher trade costs with the EU. About half of all British exports go to the EU, compared to 15% that are absorbed by the U.S. On top of that, the UK also runs a trade surplus with the U.S., which could lessen Trump’s appetite for a deal that could worsen the U.S. trade deficit.
Finally, Trump’s protectionist policies could upend the global trading system and hamper the UK’s efforts to forge new trade pacts. Trump has blamed free-trade deals for hurting American jobs and wages. He promised to tear up the North American Free-Trade Agreement with Mexico and Canada and impose a 45% tariff on imports from China. Should other countries get sucked into a downward protectionist spiral, the UK may find itself seeking new trade deals at the time when everyone else is starting to look inward. This, of course, would further complicate the long and uncertain Brexit process the UK is set to embark upon.