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2 March 2018

May’s ‘road to Brexit’ remains strewn with obstacles and pitfalls

Written by: Pawel Swidlicki, Consultant Analyst at Edelman

Government Affairs

The backlash triggered by the publication of the EU’s draft legal text of the UK-EU withdrawal agreement – which called for Northern Ireland to de facto remain within the EU’s customs union and single market – meant that the stakes were high ahead of May’s Brexit speech today. The key test was whether she could put something on the table that could simultaneously gain the support of the EU and be delivered domestically. While the speech struck the right tone and made concrete progress in certain areas, it was still too vague in others and contained much of what the EU will undoubtedly consider to be wishful thinking and ‘cherry picking’. As such, it is unlikely to pass the test referenced above.

May strikes conciliatory and pragmatic tone

One thing that stuck out about the speech was its conciliatory tone, both as regards the domestic audience – with a belated reach-out to Remain voters – as well as vis-à-vis the EU in repeatedly referenced shared values and talking about the UK as “a modern, open, outward-looking, tolerant, European democracy”. It was also a much more grounded speech eschewing any triumphalism – in particular compared with her 2016 Conservative Party Conference speech – which acknowledged that Brexit entailed challenges and hard choices.

May sets out contours of a relatively softer Brexit…

The speech will have come as a disappointment to those Brexiteers who want to see a more radical break with the EU. While May reiterated that the UK will leave both the single market and customs union and this would mean “life will be different”, she was also at pains to stress that in practice, much would stay the same. She repeated her call for unique and bespoke UK-EU trading relationship with new balance of obligations and benefits that was neither a copy of the Norwegian or Canadian models. She was right to assert that all FTAs are by definition an exercise in ‘cherry picking’ and that few two non-EU countries have identical relationships with the bloc, but the EU likes simple and neat solutions and has been trying to move away from the Swiss-style ‘pick and mix’ relationship which is the closest existing precedent to what May is proposing.

May also further blurred her red line on the ECJ; although she reiterated that its judgements cannot be directly applicable on the UK and that the new relationship must be governed by an independent arbitration mechanism, she also conceded “EU law and the decisions of the ECJ will continue to affect us”. She also announced the UK would seek to retain associate membership of key EU regulatory agencies including those responsible for medicines, chemicals and aviation safety, and that this would entail the UK “abiding by the rules of those agencies and making an appropriate financial contribution.” May noted – correctly – that such an arrangement would also benefit the EU given high level of UK expertise in these areas.

…but with regulatory alignment mostly on the UK’s terms

In terms of regulatory alignment, the issue that so bedevilled the Cabinet Brexit subcommittee discussions, May said that in order to facilitate market access and help prevent a hard border in Ireland, UK and EU standards in areas like manufacturing, environmental protection and food safety would remain substantially similar and whilst not necessarily identical, they would “achieve the same goals”. She said that this “can be achieved via a commitment to ensure that the relevant UK regulatory standards remain at least as high as the EU’s… we recognise this would constrain our ability to lower regulatory standards.” She also talked about the need for “binding commitments” in areas like state aid and competition rules, ironically the one area where Labour want more freedom from the current EU regime.

The extent to which regulatory alignment would be enforced versus being ‘voluntary’ remains a key fault line, with the speech not entirely clear on that question. Ex-Remain ministers believe that the EU will not accept a commitment not to undercut its regulatory standards on good faith alone, while for many Brexiteers being able to diverge from EU rules was a key tenet of Brexit and many believe this could unlock considerable economic benefits including new trade deals with the likes of the US. May’s speech therefore represents a carefully constructed intra-Cabinet and intra-party compromise, but the EU has already said that it cannot accept such a favourable arrangement for the UK on the basis this would undermine the legal order of the single market.

No new thinking on the Irish border

The weakest section of the speech was the one dealing with the contentious Irish border issue. May reiterated that a UK independent trade policy – covering both goods and services – means that a new UK-EU customs union as proposed by Labour is out of the question as this would entail a common external tariff hindering the UK’s ability to sign new trade deals. Instead, May said the solution to the Irish border – which she accepted was the UK’s responsibility as the departing member state – would be a combination of the regulatory alignment identified above and one of the two proposals set out in last year’s Future Partnership Paper.

To recap, these are either completely unprecedented ‘new customs partnership’ entailing the UK adopting two separate customs and regulatory regimes, one for goods bound for EU and one for UK bound goods from third countries – with responsibility on enforcement ultimately resting on businesses – or a ‘streamlined customs arrangement’ entailing administrate, procedural and technological fixes such as exemptions for SMEs and trusted trader schemes for larger firms.

The problem is that these have already been rejected as insufficient and/or unrealistic by the EU and Ireland in particular, so it is concerning that May had nothing new to say here. One possibility is that the EU will not bother seriously engaging with those options as long as it believes there is a chance of binding the UK into a new customs union post-Brexit, and the fact that the government has had to pull the customs and trade bills from the parliamentary agenda for fear of defeat suggest that their calculation is not entirely unfounded.

Conclusion

May’s speech represents welcome progress in certain areas, but it still leaves several fundamental questions unanswered, most notably as regards the Irish border, over-relying in places on lofty rhetoric as opposed to detailed proposals. May is right that in any negotiation neither side can have everything that it wants but the EU remains confident that its greater clout in the negotiations, as well as the fact that the UK needs the transition period to be agreed in principle at March’s summit as it is not prepared for a WTO Brexit in March 2019, mean that the final outcome will be far closer to its negotiating directives unless the UK further dilutes its red lines.

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