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LAST WEEK IN BREXIT 28/11/2016

28/11/2016

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I'm going to bend the rules slightly this week and focus on the developments that broke into the news this morning. Last week, the idea of a transitional or interim position took a further step into the limelight. Theresa May reassured businesses at the CBI's annual conference that whilst she will not delay exiting the Union, she will seek to avoid a "cliff edge" by securing a transitional arrangement. Mark Carney is reported to have had talks with senior business and finance leaders last week where he outlined a plan to keep Britain within the single market for at least two years following our official exit.

Things got a little more interesting this morning. The government is facing a new legal challenge from pro-single market group British Influence, who are arguing that invoking A50 and exiting the EU cannot automatically end our membership of the EEA, as this process can only be triggered through invocation of A127 of the EEA agreement. If this is deemed to be the case, it would pave the way for Britain's continued membership of the single market post-Brexit through membership of the EEA, essentially landing us something very close to the Norway option. Looking at all the known intentions of the government to date, this could be the answer to Theresa May's prayers, although it would be met with anger from a large part of the increasingly anti-single market Leave collective, who would surely paint it as a undemocratic betrayal, and EU membership in-all-but-name.

This has the potential to be the most significant development since the referendum. The media, the politicians and the public are slowly catching up with the fact that negotiating a comprehensive trade deal that replaces our membership of the single market and gets around the trade facilitation issues from exiting the customs union is impossible within A50's two years. The realisation is that there may only be two broad ways of doing Brexit, one is to utilise the EEA agreement or something very much like it, and the other is to sever all ties and fall back on WTO rules, which would get things over with quickly but could cause enormous and needless damage to Britain's economy. There is perhaps a third option, which would be to stay in the EU for for the foreseeable future whilst extended negotiations take place, but this would surely be even more unacceptable and politically difficult, dragging things on for years to come, and all the time the risk of no agreement being made and defaulting to WTO rules would persist.

I say catching up because I sort of said this toward the start of the year, again before the referendum, and again after it, although I claim no credit as a whole bunch of bloggers have been saying this for much longer. Richard North in particular came to this conclusion as much as three years ago in the first versions of his exit plan, Flexcit.

If what British Influence are suggesting is found to be correct, it really changes things quite a lot. There would be no need to negotiate a trade agreement with the EU in the first instance, and the time constraint of A50 would be no longer be relevant when we did. In theory, we could use the A50 period just to get out of the EU and the remit of the ECJ, and to make sure that single market membership could be maintained through the EEA agreement, making the whole thing much, much easier for everybody involved.

Then again, this would require the EU-27 to agree with this interpretation, and allow us to take this route, which certainly cannot be guaranteed. Then there is the fact that EEA membership outside the EU would be contingent on membership of EFTA, which might not be straightforward. It also rubs up against the issue of freedom of movement to an extent, although as we know by now, there is some scope to limit freedom of movement not just within the EEA, but more than people realise within the EU as well.

Time will tell how influential this development becomes, but it is beginning to feel like some kind of progress and broad trajectory may be forming. Other stories from last week add to this. A group of 81 British lawmakers have written to Donald Tusk asking that assurances are made as to the post-Brexit status of both British ex-pats in the EU and EU citizens residing in the UK. Polish Prime minister Beata Szydlo has said in an interview that the EU must compromise to secure a deal that suits both sides, and promised to be a "constructive partner" to Britain in the negotiations.

After weeks of basically nothing positive happening, in just a couple of days we have at least seen glimmers of people coming together and trying to make progress. Let's hope that it continues, and that we may have some sense of certainty by the new year.

alex.davies@gmchamber.co.uk

​@GMCC_Alex
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last week in brexit 22/11/16

22/11/2016

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Another week of not particularly useful developments in Brexit land. The government prepared a "bombproof" 3-line Brexit bill to be voted on in parliament; the Supreme Court confirmed that Welsh and Scottish law officers could take part and have a say in the government's upcoming appeal against the A50 High Court ruling; National Front leader Marine le Pen took an early lead in the French election polls, promising an EU referendum if she wins; and finally, Boris Johnson got wrecked by Carlo Calenda, Italy's economic development minister.

reading list

Nick de Bois writes for Brexit Central about "the hidden threat to free trade" -  de Bois reiterates the importance of non-tariff barriers and how our regulatory framework will always need to be aligned with the single market to an extent, a point made by many before but arguably not this well, and a point that cannot be stressed enough.

Vicky Ford MEP writes in the Times about how many EU countries restrict immigration much more than most realise. EU officials constantly reiterate the inseparability of the four freedoms, but reality shows there is ample scope to increase restrictions on freedom of movement from within the single market, certainly more than Britain does now.

On that theme, the IEA released a report this week making the economic argument against restrictions on legal immigration, clearing up a few common misconceptions about migrant's impact on the economy.

Jolyon Maugham tries to make some sense of Labour's wobbly position on Brexit, and the potential implications for the parliamentary vote on A50.

​To end, here is an interesting and perhaps divisive blog on the revisionism being used to change the Brexit agenda and push us towards a complete exit from the single market. I can't find out who wrote this or when, but it seems to have come from a follow-worthy Twitter account called UK-Positivefuture. Mysterious, but I liked it.

alex.davies@gmchamber.co.uk

@GMCC_Alex
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last week in brexit 14/11/16

14/11/2016

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Almost nothing to do with Brexit happened last week. The media was pretty pre-occupied with Donald Trump winning the US election, and to be honest, there just isn't much else to talk about. Speaking on the phone with Theresa May, Trump made it clear that the UK-US  relationship was very important and that the UK is a "very, very special place" to him. The interesting part of this development will be how Trump approaches maintaining this relationship with a post-Brexit Britain, but as with all things Trump, nobody can be certain. 

One thing is clear, Trump is a Brexit fan, and he sees Britain as a trailblazer of sorts in the same anti-elitist revolution he purports to represent. The Obama administration had previously warned that Britain would be "at the back of the queue" when it comes to new trade deals, with Trump in power however, we might have jumped to the front. Trump's view on trade is generally protectionist though, certainly compared to the massively pro-free-trade stance taken by our Government post-referendum, and so things should prove interesting. 

On home turf, the only real developments of note were that the Lib Dems and a group of other MPs said that they would block Article 50 unless promised a second referendum on the exit terms; the government started to toy with the idea that A50 could be revoked; and a group of ministers caught on to the idea that we need a transitional arrangement based upon something like the EEA agreement.

reading list

Richard North has some good analysis of the week's events over on his blog. North broke down the suggestion that A50 could be revoked from a legal point of view, finding no clear answers, but suggesting that if A50 is deemed revocable the Government may win its appeal over the A50 High Court ruling. If the government presses this issue all the way though, it may have to seek the advice of the European Court of Justice, which is very likely to make a pre-March 2017 invocation unlikely. North also looks at the call from ministers for a transitional arrangement, something which North and many others have been saying for a long time. Chairman of RBS Sir Howard Davies echoed these calls, suggesting that banks would not wait around to see the final position, and that a transitional period must be promised. 

alex.davies@gmchamber.co.uk

@GMCC_Alex
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LAST WEEK IN BREXIT 07/11/2016

7/11/2016

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One big event last week: the High Court Article 50 ruling, in which it was decided that there must be a parliamentary vote to trigger A50. Before this ruling, the government could invoke A50 of its own accord without parliamentary involvement, but it will now require a majority vote from MPs in order for the process to move forward. Theresa May has been adamant that this will not slow Brexit down, and that we will still be serving A50 by March 2017. I'm not so sure.

The government has chosen to appeal the decision, and the case will go to the Supreme Court in December, although there is little reason to expect a different result. 

Some people are thinking that this may lead to an effort to block Brexit, but this is unlikely. Many pro-remain MPs have already said that they will vote to invoke A50, as the government should implement the decision the public made in the referendum. The outcry at this result should be enough to show MPs that blocking Brexit is a dangerous path to go down. What this does mean however, is that MPs can seek guarantees from government on the exit strategy before allowing the process to continue, meaning that the government may now be forced to reveal its negotiating strategy to much greater extent that it had intended. Jeremy Corbyn initially suggested that Labour could hold the process up unless guaranteed access to the single market, which is a nice try despite that terminology being completely meaningless. Days later, Tom Watson said that Labour would not stand in the way and Corbyn retreated and confirmed this. I suspect the Lib Dems will do their best to step into the functioning opposition void and keep things interesting.

Of course, Nigel Farage had to do the rounds suggesting that we are on the verge of a "great betrayal". Farage seems to think that a vote to leave the EU was also a vote to leave the single market, which it fundamentally was not. A small but vocal part of the leave voter base, and even some within the various Leave campaigns voted specifically with continued single market membership in mind, at least as a transitional arrangement.

Either way, and in spite of the media narrative, every signal the government has given us thus far indicates that they fully intend to maintain full membership or at least preferential access to the single market through something similar to the EEA agreement, because that is basically the only way that Brexit can be done in two years; so in reality, this ruling may affect the timescale but is unlikely to affect the outcome.

Jolyon Maugham breaks down the implications of the ruling for Prospect Magazine , indicating that A50 by March 2017 is very unlikely. Opinions on the ruling vary significantly, as shown by this host of commentators giving their opinion in the Guardian.

Ian Dunt argues for Politics.co.uk that for one sweet moment, Britain is sober again. Jamie Foster is much less pleased over on his blog, but sees the ruling as no more than a temporary setback. The pro-leave Spectator also chipped in, calling for Brexiteers to accept that Brexit means protecting UK laws and courts.

Reading list

If we don't end up with an EU trade agreement and find ourselves falling back on WTO rules, then British exports to the EU would be subject to the EU's common external tariff. Under Most Favoured Nation (MFN) rules, any tariff we impose on the EU in retaliation must also be applied to anywhere else. One option however, is that we do not retaliate against anybody, and instead embrace unilateral free trade, as Louis Rouanet argues we should for CapX.

Research organisation The UK in a changing Europe released a report last week looking at the process and some of the options lying ahead of us. The report offers some timely new insights whilst retreading some old ground, but is a worthwhile read for people trying to keep up with the process.

Duncan Weldon writes for the Guardian that anybody expecting a single market deal that includes limits to free movement are going to be disappointed. Former Canadian PM Stephen Harper offers advice to the UK on doing trade deals in the Telegraph, making it obvious that something like CETA cannot be done in just two years. Vincenzo Scarpetta writes for OpenEurope that WTO provisions provide a good framework for transitional arrangements between the UK and the EU-27, and require that all bridges lead to something better.

Finally, Sam Bowman of the Adam Smith Institute looks at the rash reactions to the falling pound from both sides of the Brexit debate in the IB Times, and argues that with the right politics, we can overcome the shock of Brexit.

alex.davies@gmchamber.co.uk

@GMCC_Alex
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