Brexit Briefing No.38 – Customs conundrum, Devolution debate and Security spats (Week Beginning 14th May 2018).

This article was kindly given to the SSCA by Daniel Dalton MEP, Conservative MEP for the West Midlands (daniel.dalton@europarl.europa.eu).

Another week where both everything and nothing has seemed to change in the Brexit talks. The noise around the negotiations, both inside the UK and between the UK & the EU, remains deafening but often it is not clear if anything has really happened. The 24 hour news machine has only made this worse, something must happen, because there is airtime to fill, and the line between news and speculation becomes blurred.

However the reality this week is that little has changed. The broad parameters remain the same in that the stumbling block to future negotiations remains the customs issue and its knock on effects on the Irish border.

In that respect this week has seen multiple different accounts of the status of the British Cabinet discussions on the future Customs relationship between the UK and the EU, with new lines coming out of Dublin and Brussels to add to the mix.

Quite frankly no one really knows what will happen right now. Speculation is rife that one or other of the Customs options - MaxFac or Customs Partnership (discussed in previous Brexit Briefings) has the upper hand. The Irish government also threw a curveball in putting its backing behind a reformed version of the Customs Partnership, which Brussels had previously rejected.

Herein lies the challenge for the British government. The MaxFac option is by far the simpler route and allows the UK to pursue an independent trade policy yet it has been ruled out by both the EU and Ireland as being insufficient in ensuring an open border between the Republic and Northern Ireland. As a result it is not clear how negotiations can continue if the UK coalesces around this model particularly as there is also domestic opposition to it in the Westminster parliament.

However the Customs Partnership model is complicated and potentially flawed as it would not properly allow the UK to offer reduced tariff access to third countries in trade deals. Instead the UK would collect the EU tariff and hand back the difference if the goods were staying in the UK, paying the tariff to the EU if the good was going onto the EU. However this option appears to be more of an opening gambit than a concrete offer, as its chief advantage is that it could, especially given the Irish government’s comments this week, at least get everyone around the table to start seriously planning and negotiating the post-Brexit customs options.

Whatever the outcome of the domestic debate in the UK it is clear that talks need to get underway soon if the withdrawal and transition agreements are to be agreed and then ratified in both the British and European Parliaments before March next year. Given the fact that those agreements will include only general statements regarding the future relationship between the UK & the EU, the smart money is still on an agreement being found in the autumn, if the customs impasse can be broken.

However, customs also has the potential to hinder the transition agreement because there has been increasing speculation (denied by the government) that the UK may seek to either extend the transition period or the customs element of the transition until 2022 to ensure that the necessary electronic systems are tested and in place for a seamless move out of the Customs Union. It has been apparent for some while now that it would be difficult for a viable non-disruptive customs arrangement to be in place in Ireland, and at all UK ports, in time for 2020. Yet the original agreement on the transition period was due to run out at the end of 2019, so that it coincided with the end of the multi-year EU budget.

An extension would therefore mean the future UK budgetary contributions beyond 2019 would need to be discussed. Given that the commission has proposed a significant increase in the EU budget for the post-2019 framework this could reopen and significantly complicate the transition discussions.

However debate in the UK is mainly focused on the long term future UK/EU relations. Many areas remain to be clarified and the reality is that given the short time frame imposed by Article 50, most will only become clear after the UK has left the European Union.

In this regard departments across Whitehall are working on the government’s White Paper, due ahead of next month’s European Council meeting. This aims to cover in depth the government’s approach to every part of that relationship and is expected to include the government’s approach on customs, once that is agreed in the coming weeks.

However in a reminder of the challenges that face the British government, the Scottish Parliament this week rejected the government’s EU Withdrawal Bill in a motion denying consent.

Legally the motion makes no difference, and the reality was that the SNP-controlled house was always going to reject the bill, not due to its content (which was overwhelmingly approved by the Welsh parliament) but because it allows the SNP to create a narrative that Westminster is grabbing powers from Scotland which they believe will help their bid for Scottish independence.

The reality is somewhat different. The withdrawal bill grants both Scotland and Wales significantly more powers than they currently have. Most of the 158 devolved policy areas currently decided in Europe would go directly to the Scottish and Welsh devolved institutions.

However in 24 areas it proposes temporarily retaining powers at Westminster, such as in fisheries, food labelling and public procurement. This is in order to protect the UK single market in areas such as food, because it makes little sense to have different food labelling rules in different parts of the UK.

In legal terms Westminster’s power to be the ultimate decision maker is not in doubt, but the government is keen to avoid a protracted fight with the Scottish government, whilst the SNP administration have an interest in maximising the dispute, so there are likely to be more manoeuvrings in this debate going forward, even if in private, most SNP politicians appear to be quite happy with the new powers gained by the parliament they control.

The ugly ongoing dispute over Galileo, and its implications for the closeness of the future security partnership rolled on this week. The Commission has been weaponising UK access to Galileo for the last few months in an attempt to gain further leverage over the UK in the talks. It is threatening to shut the UK out of access to the secure encrypted information from the satellite project and ban UK companies, many of whom have been instrumental in the creation of Galileo, from bidding for further tenders as ‘third country’ companies are not allowed access to the proprietary information in the programme. In response the UK, which holds a veto over all tenders worth more than 400 million euros, i.e. the most important ones, has threatened to use this veto to ground the process to a halt.

The UK Space Agency is also looking at developing its own version of Galileo if necessary. The UK has the expertise and capability to do so, even though it would do it reluctantly and out of necessity if it was frozen out of the European system.

This is an area where both sides have an interest in reaching agreement. If the UK is out of Galileo it will entail substantial costs on both sides to plug the gap, but the Commission’s red lines and overly technocratic approach to the negotiations may prove to be a large stumbling block here.

This technocratic approach was also apparent when Michel Barnier addressed the future security partnership in Brussels this week, he rejected many of the UK aims for close cooperation with EU security agencies.

For the Commission there is a careful balancing act here. They need a close security partnership with the UK both in military and intelligence terms. The UK is (along with France) the most important military power in Europe and needed to help bolster defences in the Baltic States against the Russian threat - something that makes the threat to cut the British military out of Galileo particularly puzzling. It also has the most capable intelligence forces, vital for crime fighting and to address the terrorist threat. The UK provides most of the information for a variety of crime fighting EU databases.

Given the fact that the Commission cried foul a year ago when the UK threatened to trade security access for a trade deal with the EU, it seems strange that the Commission position is now that it doesn’t need close security cooperation with the UK. This is seemingly only because now the UK has asked for it. It is a position that is unlikely to hold, particularly given the common terrorist threat to both parties.

So less than 10 months from Brexit day, the Commission is still holding the line that a country leaving the EU needs to be seen to suffer for that decision, even if that sanction hurts European citizens as well.

This is counterproductive and almost certainly not necessary for the Commission to achieve its ends. In reality the UK is probably the only country that realistically can leave the EU. It is not in the Euro or Schengen, it has many justice and home affairs opt outs and crucially it is the only EU country which currently does most of its trade outside the EU. No other member state is in this position.

So another week on in the Brexit process and things are not yet any clearer than before, the clock is ticking and both sides are grappling with fundamental problems and internal debates.

Daniel Dalton MEP