Public Policy

April 5, 2018

Brexit negotiations – where is the UK heading?

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On 29th March 2019, the UK’s exit from the EU is scheduled to take effect. Yet, even as we approach the midpoint between Article 50’s triggering and its closure, no one can honestly claim to know exactly how it will end, nor whether terms will be agreed by this date. Nonetheless, from our current position, we can begin to discern direction of travel and some possible end points.

What we know so far is that the UK’s negotiating position is perilous. Up against an organised opponent in the form of the European Commission acting carefully on behalf of Member States, the UK has come to realise the difficulty of the task at hand.

The UK has also found itself on the wrong side of some basic rules of negotiation: knowing exactly what you want before you start; not setting arbitrary deadlines; and importantly, holding the pen. Domestic politics have meant that the government has been unable to pick its timing and set out just what it wants, in contrast with the EU, who wrote down what they wanted and negotiated from that point and then codifying the outcome in treaty language.

Another key problem is that Brexit negotiations are taking place in public. Political and popular opinion are plastered across media, along with live debate and social media. This blaze of publicity fuelled by a divided nation and political class makes the job even more challenging for the negotiating teams.

Perhaps the largest obstacle lies in understanding the EU’s negotiators, who fundamentally see things differently. All of the other 27 Member States entered the Union after a period of political or economic turmoil, whereas the UK entered after a period of relative political and economic stability. This underpins a basic difference in the two sides’ motivations.

The driving forces for the founders and other members, as outlined in the Treaty of Rome – to “lay the foundations of an ever closer union” and “to strengthen peace and liberty” – are far broader than trade and economy which motivates the UK. Therefore, we may misjudge which outcomes are ‘in both sides’ interests’. For example, the UK and Germany both exporting more cars may appear in both sides’ interests – from the UK’s perspective, this makes sense; through the broader objectives of the other Member States – and the Commission – it may not.

Article 50: the process for leaving

Completing Article 50 requires arranging withdrawal agreements, a transition period, and future relationship. During the withdrawal agreement phase, we have to agree both a financial settlement, as well as the rights of EU citizens in the UK and vice versa. Both are tricky arm-wrestles but can be foreseeably settled. However, the most intractable problem will be finding an agreement on the Irish border. Patently, there is no way to have no border and be outside the customs union, and the Commission knows this and has leveraged the issue.

As we move towards the transition agreement stage, complex procedures and protocols will continue to need agile behaviour and innovative solutions. Opportunities for the UK and its trade partners are stymied by legal ramifications. Unfortunately, the European Commission is vast, slow and inflexible, requiring approval of all 27 members prior to making and effecting decisions.

Over the course of negotiations, the discourse has also begun to shift from visible goods to intangible services. Theresa May’s Mansion House speech reflected this but, whilst 80% of the UK’s economy is based on services, less than 1% of the speech focused on them. Phillip Hammond’s EU speech hinged on the importance of securing a free trade agreement covering financial services, notwithstanding the EU’s opposition to this.

The sectors that were first out of the blocks, including pharmaceuticals and automotive, have made the greatest progress to date. Evidently, each sector is going to have to fight its corner as the government lacks the bandwidth to do it all. The industries which proactively researched both specific and wider impacts from the start have been the most effective in supporting potentially improved Brexit terms for themselves and the UK.

In terms of the outcome of our future relationship, or a potential managed transition, there is still a wide array of possibilities. Off-the-shelf models, like Canadian or Swiss style relationships, may show elements of the way forward, but the UK is seeking a bespoke deal given unprecedented circumstances. This seems difficult given pressing time constraints and the EU’s lack of flexibility but, as they say in Whitehall, politics always finds a way.

This article is based on a talk from Warwick Smith, Head of Instinctif Partners Global Public Policy practice, for the Professional Services Marketing Group, on 6th March.

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