Saturday, 14 July 2018

UK-EU Future Relationship - the UK Proposals July 2018 - Number (2)

The Previous post 12 July considered the important Institutional Arrangements put forward by the UK in the government's Policy White Paper - The future relationship between the UK and the EU.  This post takes an overview of the proposals for an Economic partnership set out in Chapter 1. 

The long-awaited White Paper did not get off to an auspicious start in the House of Commons.  The debate on 12 July - see Hansard - was remarkable in that MPs had not been given copies of the Paper!

The White Paper is, in reality, the only proposal on the negotiating table and, as such, has to be examined seriously and not dismissed out of hand.

At the heart
of the proposal is a Free Trade Area for Goods but Services (around 80% of the UK economy) would be dealt with by other means.  The EU will undoubtedly wish to protect the EU Single Market based on the four freedoms of people, goods, services and capital.

The government is reportedly stepping up planning for No Deal.  The only viable alternative to No Deal would be to remain in the EU.  Embarrassing certainly but a far better option than the immense damage to the UK economy that No Deal will cause. 

The overriding sadness, at least for me, is that the nation lacks the political leadership required to tackle the 2016 referendum outcome informed as it was by lies, misinformation and the antics of bodies such as Vote Leave - see HERE - and Cambridge Analytica.  Surely, there is no need to follow a referendum result given that it is now clear that it will lead to ruin.

Before looking at the White Paper proposals it is useful to focus on some figures taken from the White Paper itself and which show the extent of the risk posed by a No Deal outcome.-

The White Paper states that -

As a full EU member, the UK already enjoys the deepest and most comprehensive economic partnership there is.  In reality, the White Paper is seeking to replicate that (as far as possible) with new bespoke arrangements as if the UK has some kind of entitlement to a special status rather than being treated as a "third country."  If, as stated, the UK is the world's fifth largest economy it is in this position by virtue of (a) the fact that 80% of the UK economy is in SERVICES and not goods and (b) the very fact that the EU is the UK's largest market.

: Key features of the White Paper :

A Free Trade Area for Goods, including agri-food.  The UK would maintain a common rulebook and would commit to ongoing harmonisation with EU rules on goods but this would cover only those necessary for provide "frictionless trade at the border."  The common rulebook would be legislated for by Parliament.

The free trade area would include -

(a) a new Facilitated Customs Arrangement;

(b) the elimination of tariffs;

(c) a common rulebook for manufactured goods;

(d) a common rulebook for agriculture, food and fisheries products; and

(e) robust market surveillance to ensure that the rules are upheld in both markets.


Services and Investment would be subjected to new arrangements that would provide regulatory flexibility.  This would entail -

(a) general provisions to minimise the introduction of discriminatory and non-discriminatory barriers to establishment, investment and the cross-border provision of services, with barriers only permitted where that is agreed upfront;

(b) a system for the mutual recognition of professional qualifications;

(c) additional, mutually beneficial arrangements for professional and business services; and

(d) a new economic and regulatory arrangement for financial services.

Passporting (explained HERE) is the best option for financial services but the UK will no longer be able to operate under the EU's "passporting" scheme because this is intrinsic to the single market which the UK will have left.  The White Paper proposes an expansion of "Equivalence" (explained HERE) to reflect the fact that equivalence as it exists today is not sufficient in scope for the breadth of the interconnectedness of UK-EU financial services.

Further reading on "passporting" and "equivalence" is at Institute for Government  and also see this European Parliament Briefing.

The problem with a change to "equivalence" is that the EU may decide that it no longer applies and so it may not prove to be a sound foundation for long-term investment plans.  Furthermore, to remain equivalent, the UK could be forced to implement rules it does not like leading to loss of regulatory control.  IF equivalence is to work it will need to be backed up by a detailed agreement providing certainty and setting out how disputes would be settled.  The White Paper contains proposals to aimed at achieving this.

Framework for Mobility - Immigration has been a consistent theme during the time Theresa May was Home Secretary and also as Prime Minister.  The 2017 Conservative manifesto spoke of net migration being too high at 273,000 and it needed to be reduced to "sustainable levels" - in the "tens of thousands."  Leaving the EU would enable control over immigration from EU States but, the manifesto added, it was necessary to "attract the skilled workers our economy needs."  It is also beyond doubt that concern over immigration was a factor in the Leave Vote in the 2016 referendum - see The Independent 28 June 2017.

The White Paper tells us that 3.5 million EU citizens are living in the UK and approximately 800,000 UK nationals play an equally important role in communities across the EU.  In the future it will be for the UK to determine the domestic immigration rules that will apply and free movement will end as the UK leaves the EU.  The Immigration Bill will bring EU migration under UK law, enabling the UK to set out its future immigration system in domestic legislation.

The UK will make a sovereign choice in a defined number of areas to seek reciprocal mobility arrangements with the EU and this should be achieved in an appropriate framework for mobility.  The UK's future economic partnership should provide reciprocal arrangements, consistent with the ending of free movement, that :

The proposals are without prejudice to the Common Travel Area arrangements between the UK and Ireland, and the Crown Dependencies.

Digital - While the UK will not be part of the EU's Digital Single Market, the UK wants to develop an ambitious policy on digital trade with the EU, as well as globally.  A relation is proposed which covers -

(a) digital trade and e-commerce;

(b) telecommunications and digital infrastructure;

(c) digital technology; and

(d) broadcasting.


Open and Fair Competition - the UK has made strong domestic commitments to maintaining high standards on the environment, climate change, social and employment, and consumer protection, and will continue to meet its international obligations in these areas.  The White Paper states -


Socio-economic cooperation - the UK will seek close cooperation in many areas where the UK and the EU economies are closely linked.  The UK's proposals include:

Note: When the UK sent the Article 50 notice to the EU it also indicated withdrawal from Euratom.

Independent Trade Policy - it is claimed that the UK's proposal for its future economic partnership with the EU will provide a strong foundation for the UK to establish a broad and ambitious independent trade policy with the rest of the world.

New international trade agreements would be negotiated covering goods, services, investment, data, government procurement, and intellectual property, consistent with the commitments in the economic partnership.

and later the paper states ....

There is no mention of current problems with the World Trade Organization.  It is certainly under attack from the USA Trump administration - see Economic Times 6 March 2018.

: Reaction :

Unsurprisingly, the White Paper has been condemned by the hardline Brexiteers - The Guardian 12 July.

Ireland's Foreign Minister foreign minister welcomed the UK's Brexit White Paper and described it as "a step towards a much softer Brexit".  Simon Coveney said that while the paper had some contradictions, the UK had now taken a "much more credible" position.  He also called for it to be given a fair assessment.  "I don't think we should be going through the White Paper and trying to undermine it and trying to find inconsistencies," he said.   BBC 12 July

Reaction from the EU is awaited - Bloomberg 12 July - where it reported that the EU's Chief Negotiator (Michel Barnier) said -“We will now analyse the Brexit White Paper” with other EU member states. The EU’s offer is for an “ambitious” free-trade deal, plus joint working on other issues, including security, he added. “Looking forward to negotiations with the U.K. next week.”

Some notable commentators have given the White Paper vociferous criticism.  See Professor Chris Grey (HERE) and Ian Dunt at - (HERE).

Nevertheless, to return to the start, the White Paper is, in reality, the only proposal on the negotiating table.  Whilst I stand by my own criticisms in my earlier post, the White Paper must not be dismissed out of hand.  The future welfare of our nation depends on it.  It is now to be hoped that the forthcoming negotiations - to be conducted by a new Minister representing the UK - will bring a sensible Withdrawal Agreement and Framework for Future Relations.

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