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Friday, 20 January 2017

Chamber Blog: Prime Minister May lays out plans for Brexit

By Alex Davies - Research Analyst, Greater Manchester Chamber of Commerce

Following Theresa May’s speech laying out Britain’s objectives going into the forthcoming Brexit negotiations, overall, we don’t know a great deal that we didn’t suspect already, but we now have confirmation of a few things in particular.

The Prime Minister made it clear that the deal she wants for Britain cannot mean continued membership of the single market. The objective instead is to work towards a “bold, comprehensive and ambitious” free trade deal with the EU in order to maintain “the greatest access possible”. I’ve explained before why the term ‘access’ is meaningless, but there were a few more details. May said that she is not against the idea of replicating aspects of the single market, specifically mentioning financial services and the automotive industry, and saying that it makes no sense to start from scratch.
May has made it clear in the past that she does not view our status within the customs union as a binary thing, and reiterated this in her speech today. She made it very clear that we would seek to find ourselves outside of the EU’s Common Commercial Policy – allowing us to do our own trade deals – but again, May mentioned something along the lines of an associate membership of the customs union in order to keep trade flowing freely.

The other main announcement was that the final deal would be put to a vote in both Houses of Parliament, a welcome development for many but one which for now has no clear implications. Nobody seems to know what would happen if Parliament did reject a deal, supposedly towards the end of the two-year negotiating period. At this point would we revert to WTO rules and the hardest Brexit of all? The pending legal case on the revocability of A50 will surely have a massive impact on exactly what this means.

May rounded off her speech by proclaiming that “No deal for Britain is better than a bad deal”. This echoes the Chancellor’s previous sentiment that in the event of a rock-hard WTO-rules Brexit, Britain would strip regulations and lower taxes to establish itself as a Singapore on Europe’s doorstep – something the EU would be concerned about certainly. For now, this strategy is being put forward as a worst case scenario backup plan, and as a mild threat to the EU27 to work with us in good faith towards a new arrangement. The reaction to this from the rest of Europe however, remains to be seen.
There were a few other good details in the speech. On EU citizens in Britain, May said that the government would seek to guarantee those rights as soon as possible, but perhaps in a veiled jibe at Merkel’s previous refusal at such a deal mentioned that there is no unanimity on this from the other side. There was a commitment that workers’ rights would be fully protected and indeed bolstered once within our remit. There was also a commitment to continued collaboration on matters of crime and foreign affairs, as well as science, research, technology and medicine. May suggested that it is reasonable for us to continue to pay into the EU budget for some of these privileges, but that these sums would not be vast.

Another unclear but important part of the speech covered how the PM sees the Brexit process happening. May is hoping for an agreement on the future relationship by the end of the two-year negotiating period, followed by a “phased implementation” utilising multiple “interim arrangements”. How this is different than a transitional arrangement is anybody’s guess, but it was made clear that a cliff-edge is to be avoided. How much detail the PM expects us to agree upon within two years is not clear at all, as would be impossible to negotiate even the trade deal alone within such a time. Instead, it feels as if the PM is hoping to agree upon a broad position within two years, but is happy for the minutiae of process to take much longer, my guess would be a decade or more.

I’m sure that many leavers got a bit tingly during parts of the speech, but the main criticism of it will be that it is undoubtedly a ‘have your cake and eat it approach’, despite being told by the EU27 that such an approach is unacceptable. It seems from how May addressed the ‘phased implementation’ strategy though, that the position she is talking about is the end-game, not where we will be in 2019. The suggestion of multiple interim arrangements necessitates that May understands realising her vision of a global Britain in full won’t be happening in the near future, most likely not during her premiership. In reality, exiting the single market and the customs union was almost always an inevitability at some point in the future of post-EU Britain, but we still don’t have a lot of clarity over the steps we will be required to take to get there. The type of trade deal May is proposing would be more comprehensive than Canada’s CETA agreement, and when such an agreement has never been concluded in less than seven years, often taking more than ten, it could be a long time before we drop out the SM. Until then, interim arrangements will surely be some kind of quasi-membership until we have figured things out, which makes me still reluctant to call this a hard Brexit. In fact, any new UK-EU trade deal will require an independent dispute resolution regime handled by a supranational court. May explicitly said that she is okay with supranational institutions, just not any as strong as the EU ones. This points us directly towards membership of EFTA, which has its own court ready to take the European Court of Justice’s place. Alongside a comprehensive FTA, this would essentially put us in a Swiss-plus position.

Once again, the vital missing piece of the puzzle here is timelines. If following the negotiations, we accept that we won’t be able to do any of this stuff for a long time, then what do we do in the interim? May even conceded that interim arrangements would be up for negotiation. In terms of our final destination then, May has been quite clear as to the government’s objectives. As to what steps we take to get there though, I would still say that nothing is off the table.