What might the Brexit deal look like?

Helen Dunne reviews a lively debate

MARK GALLAGHER, FOUNDER, PAGEFIELD

Right now, the Government, and the two thirds who are genuine Brexiteers of the Parliamentary Conservative Party, are aiming for a liberal Brexit. The political objective is to bring as many of the Remain supporters and voters as we can. There is a clear understanding that there’s an awful lot of work to bring at least some of that 48 per cent who voted against with us for the ride.

I think what you’ll see on the front of the Article 50 letter is a series of unilateral and quite liberal declarations about what Britain wants in its relationship with Europe and what sort of country we want to be after we leave the EU in March 2019. First of those is a unilateral declaration on free trade. You’ll have seen in Theresa May’s speech about the great Repeal Bill that that includes a transfer of all statute and regulation emanating from Brussels and transferring that into UK law and under control of the British Parliament. What that means is that if you look at that great body of regulation and statute –  some of the stuff is very good, some neutral, some bad – but it’s going to take a long time to pick through the haystack of what’s good and bad.

What we don’t want to do is start a process of de-Europeanisation of sorting the wheat from the chaff and connecting that to the divorce deal. You can’t do that job in two years. So the idea is that you transfer the whole lot into UK law and you take your time in picking through the wheat and the chaff.

Transferring all those statutes and regulations into UK law makes Britain fully compliant with the single market. You can probably expect a declaration that says We intend to trade with you, the EU 27, on exactly the same basis as we traded with you while we were members of the European Union. Should you the EU 27 decide that, because we’re no longer paying the fee and we’re certainly not accepting the four so-called freedoms – most particularly the freedom of movement – you wish to impose any kind of trade sanctions on the UK as a result of that, that’s up to you. This changes the nature and discourse of the negotiations.

The second unilateral declaration is around those three million EU citizens who chose to live and work in the United Kingdom when they could have chosen any of the 28 countries. The absolute intention, if we can possibly make this work, is for all of those three million living and working in the UK to be invited to stay, to be given a British passport or permanent leave to remain.

This is considered by most of the Brexit elders to be absolutely critical. We think that some sort of declaration that protects the three million but comes with a message that says Thank you for choosing the UK when you had the legal right to come here is a very important change in tone, body language and direction.

Some of us are lobbying that this policy should apply even if we don’t get reciprocal arrangements for UK citizens, of which there are 1.2 million, living in continental Europe. If that means we have to contribute a little extra out of the savings we’ll make from the membership fee to top up the health provisions for the various grannies living on the Costas, then that’s fine. It’s a price worth paying to secure the right tone and body language for the negotiations.

That links in with a clear declaration around immigration policy that we’ll have after March 2019. The intention for that is to be open, to be genuinely global, non-discriminatory between people from the EU 27 or people outside the EU 27. You can probably expect something along a two-tier system, whereby for very skilled workers from anywhere around the world, there’ll be a fast-track system. The system that replaces the free movement of labour will be more pro-business. For lower skilled workers, where there is most concerns amongst Brexit voters, then something more along the lines of a work permit system, where you can come for a temporary amount of time but then need to go back afterwards, is what’s being argued for strongly.

The High Court action has seriously galvanised all of the component parts of Camp Brexit and we’re effectively back on the campaign trail. We recognise that we have to be back on the campaign trail really for the next two and a half years until we’re out.

I think the general view in Government is that the election of Donald Trump [as President of the US] has got to be a good thing for Brexit Britain. There’s at least a chance that we can pole-vault from the front of the queue to the back of the queue when it comes to a trade agreement with America, with the high end objective being a North Atlantic free trade area, rather than a North American free trade area.

The Prime Minister is acutely conscious of what the Referendum meant from a political perspective. People voted to Leave the European Union, who listened to the very rational arguments about some of the benefits of the single market and said Yeah, but we don’t feel those benefits and we need to start feeling that we have a better stake in our society.

There’s a bunch of people led by The Times and Financial Times and The Economist who effectively are carrying on the Referendum debate, which is so unhelpful and is not going to get us anywhere. What we need to do is focus on delivering the best possible result for our country now that we’ve decided to leave rather than refighting the Referendum. I wouldn’t advise the Prime Minister to focus on the negatives before we’ve set out the positives.

If your company position is We need to stay in the single market, we need to stay in the Customs Union and we want free movement of labour then don’t waste your time lobbying the Government. If on the other hand you recognise that it’s difficult, that there are lot of cliff edge issues and you recognise an opportunity for a much more pro-business immigration policy, for example, this is the time to get stuck in.

The Government’s door is very much open on these sorts of things. Some are bit further down the line than others, in terms of individual policies, but if you’re a lobbyist representing a company or trade sector, now is the time to engage in that dialogue with Government because you will have a great opportunity.

TOM FRACKOWIAK, EXECUTIVE DIRECTOR, CICERO 

The brutal truth is that nobody knows what the Brexit deal is going to look like. There are too many moving parts and too many political agendas at play. I don’t think there’s enough analysis on the process itself and how that will influence what the final deal looks like. We need to talk about transitionary arrangements.

This is actually two negotiations. The first negotiation is Article 50 and this negotiation is to leave Europe. As part of that negotiation, we will try to come to an agreement with the other EU members about how much we’re going to contribute to budgets, how much we still owe for civil servants’ pensions in Brussels. We will discuss issues like citizenship, UK citizens abroad and what that means for EU citizens in the UK.

Once that agreement is done, there’s likely to be a period where we’re actually just out of the EU. We then need to negotiate a new deal with the EU and that is the deal that lots of industry and civil society are interested in. Do we get single market access? Do we get passporting rights? Will there be tariffs?

If we trigger Article 50 in March, that essentially starts a countdown clock and we have two years to try to negotiate a deal to exit Europe. If we don’t negotiate that deal in that time, either the European Council has to unanimously agree that we can extend the negotiating period or we just pop out of Europe. So there will be no deal: I assume we’ll move to World Trade Organisation rules.

We underestimate the number of influences on how this deal is going to look. The European Council will give the European Commission a mandate to negotiate with the UK. After two years, if we reach to an agreement then that needs to go back to the European Council for a qualified majority agreement, which is 55 per cent of the 27 members. It then goes for final approval to the European Parliament, where there is something like 720 MEPs: over 50 per cent need to agree.

You can see how there are many different entry points for our European partners, from the member state angle, from the European institutions and then from the politics of the Parliament, to actually influence what the final deal looks like. I would suggest that the UK Government needs to spend much more time understanding all those different pressure points and actually engaging with them.

The political players that we start with when we trigger Article 50 might all change by the time we come to ratify an agreement. [There are Dutch, French and German elections in 2017.] We have European Parliamentary elections after March 2019. Even if we did have a good grasp on what our European partners think now, we may be dealing with very different people in two years’ time.

If we have a new deal, because it is likely to be the most significant deal that the European Union has ever signed with a third-party country, bigger than the Canadian deal, it will touch on national competencies. If a trade deal touches on national competencies, it has to be ratified by all 27 European Parliaments.

The Canadian trade deal took seven years to negotiate and was almost thrown out at the last minute by the Wallonian Parliament in Brussels, one of seven regional Parliaments, over trade issues and agriculture issues. The dialogue in the UK is that This is easy, we can do this, they need us as much as we need them. Actually this is very, very complicated.

Before we even get into the deal, we need to talk about transitional arrangements. If we negotiate Article 50, pop out of Europe and then have to negotiate a new trade agreement, which potentially could take seven years, that creates massive legal uncertainty for companies, industries and our general relationship with Europe. We need some form of agreement to allow companies to still access the single market during that period in the middle. Business people have to manage risk, and they won’t wait for the political process. For financial services the transitional arrangements are absolutely key. Unfortunately, some banks in particular will take the decision that they have to move certain divisions to Europe just to get on and do that business.

This deal is going to be heavily influenced by the domestic agendas [of the 27 members]. For example, the Visegrád group, which is Poland, Slovakia, Hungary and the Czech Republic, have hundreds of thousands, if not millions, of their citizens living in the UK at the moment. Anything around freedom of movement or restricting that or restricting citizens coming here is going to be very difficult.

The UK Government like to talk about Germany, that it wants to offer the UK a good deal because we import lots of German cars. That may well be true, but Germany’s position in Europe is a lot weaker than it was two years ago when they did the Greek bail out. There are a lot of countries in the 27 who’d be quite happy to see Germany lose out in this negotiation.

The one thing that pulls together the 27 countries is the four principles. Clearly there will be politics at play in this, but in Brussels and a number of member states, politicians are very conscious that if they give the UK an easy deal, then it encourages other countries in the 27 to follow.

What I’m not seeing out of Number 10 or those Brexiteers is any messaging to the people who voted for it that actually this might get tougher before it gets better. Things around single market access and how long this trade negotiation could take could really affect people who live in Middlesbrough or Birmingham, if there are difficulties around tariffs and manufacturing et cetera. It doesn’t seem to me that anybody is really communicating to those people. This could take ten years until we’re in a better position than we are now.

 

ANDREW MAYER, HEAD OF PUBLIC AFFAIRS UK AND IRELAND, BASF 

Just as a bit of background, we’re the world’s largest chemical company and in the UK, we’re about £2 billion to £2.5 billion worth of business. In the manufacturing sector, we’re on the route of just about every major supply chain – automotive, aerospace, electronics. You name it, we’re in it. There are probably five things that matter to us in the [Brexit] deal: tariffs, people, innovation, energy and regulations.

Firstly, tariffs. In free trade agreements, people care about access to markets. Service companies care about access to markets and trade bureaucracy - maximising the former, minimising the latter. Manufacturing companies care about that too but we also have to worry about tariffs, taxes on trade. If we leave the single market and there’s no new free trade arrangement in place between the EU and the UK, we’re going to be hit by a variable tax in both directions on imported materials and exported finished products. 

To give you an idea of what this means, in the Harmonised Commodity Description and Coding System, or the Harmonised System for short, there are 21 tariff sections, 96 chapters and around 5,000 headings and subheadings. These cover things like spacecraft launch vehicles, which is 4.2 per cent plus VAT, or the frozen half carcass of a non-pedigree goat meat, which is a mere 12.8 per cent plus 128 Euros per 100 kilograms, but no VAT.

The chemicals sector has to worry instead about 1,500 different tariffs. There are different rates on the components of fresh air, from 3.7 per cent on hydrogen to 5 per cent on oxygen. As a company, we sell about 250,000 different products which are amalgamations of different chemicals. All of those need to be categorised, registered and processed through a trade database to apply the right rates.

For us, these will be between zero and 13 per cent, and the average is about 4.8 per cent, of which 22.5 per cent are zero rated. We’ve estimated the cost to the global business of leaving the single market is about £53 million if everything goes wrong. It’s entirely random where that lands. Our fish oil factory in Scotland, for example, will see almost no impact. Our water treatment chemical factory in Bradford gets hit for six per cent in both directions. In context, that £53 million is about 25 times what we pay in the UK on business rates, which are already considered by many as a barrier to investment in manufacturing here. So if we get this wrong, it’s going to be extremely damaging. We’re like Nissan – we need a tariff-free trade deal.

We’ve got a sneaking suspicion that the UK Government talks a tough game on immigration but doesn’t have the first clue how to do anything about it without causing serious economic damage. It doesn’t know how to talk about it without causing deep and grievous offence to countries with which it needs to get new trade deals.

However, my side lost the referendum. We are where we are. Someone now needs to test the theory that there is a magic number of the ‘right kind of immigrants’ that will satisfy protest voters who are tempted by UKIP. That being the politics, we can at best hope to preserve access to talent for our UK operations and opportunities for jobs around the world for our British talent.

For us, it’s a mixed picture. Around 96 per cent of our UK staff are British. But we’re not so sure about contractors, which then worries me about this two-tier idea of high-skilled and low-skilled. If we look at our manufacturing plants, quite a lot of our workers on things like picking and packing are from Eastern Europe. We’ve looked into whether or not we can easily replace those in the local job market and the answer at the moment is no.

What the recruiters are saying to us is that there is not the demand in places like Brighton and Littlehampton, where we have a plant, for people to do those types of jobs. If we keep the people we’ve already got, then great, but these jobs are cyclical so how are we going to get the new talent in? Or are we going to struggle to fulfil roles? Because if we do, what that means is that the cost of that operation will increase, to the point where it may become uncompetitive and that’s a worry.

In respect to British talent abroad, we currently have 200 British people working in BASF roles across the globe and over half of those are in Germany. I’ll use our UK managing director as a case study. He’s British. He had his first job in Germany as a result of free movement. He then went on a global portfolio career, going all over the world gaining valuable experience, and then he came back to run the UK operations with that experience. I imagine the future him may not have that opportunity and that’s a problem.

Let’s put the bureaucracy in context.  We can currently hire EU people in about four to six weeks and non-EU people in three to six months. If you’re a recruiter in Germany looking at two CVs, one from Belgium, one from London, who are you going to hire if they’re similar? Probably the one you can get quickly. Our great hope there is that the Government is going to show a greater regard for the economy when it comes to the crunch, not just the political expediency of the immigration issue.

Free movement of scientists is going to be affected by the same issue and you’re going to need free movement of scientists if you’re going to fill the Government’s goal of building world-class innovation centres. On the rest of it though, the Government’s been pretty good. They’ve offered to match EU funding and they also want to do a better job than the EU on getting new products to market. The EU’s attitude towards product regulation is to assume hazard and ban stuff, rather than to manage risks and allow experimentation. The UK’s attitude has always been the opposite. There’s a genuine prospect after Brexit then that we could be inventing more things here and exporting them around the world. And that in turn could persuade the EU to change their approach, so there’s a genuine upside to this.

Competitive secure energy supplies are really important. We’re going to need to do some things, like change the Paris Climate Agreement, when we come out of the EU: 14 per cent of emissions in the EU are the UK.

The REACH Regulation, which is the chemical registration system, is the most complicated piece of regulation ever written. In fact, we’ve had to spend half a billion euros implementing it. We opposed it and now we support it because of that cost. We’ll be quite irritable if we then have to invest even more money in a new UK system that adds complexity. The Government’s doing the right thing here talking about regulatory continuity, but in that, there is detail. You can’t just transpose regulation that has European institutions managing it. You’re going to either have to defer to those institutions, which will upset eurosceptics, or create new institutions which will upset free marketeers.

 

VICTORIA DEAN, PARTNER, PORTLAND COMMUNICATIONS 


I think it is right that the British Government is aspirational, and goes into this negotiation setting the bar very high. But I’m afraid that the mood music is not good, and this will probably be the toughest negotiation we’ve ever had to do, with enormous expectations in all sorts of quarters. Article 50 is a declaration of intent, and it’s right to think of it that way, but it’s a starting position.

This will be a long negotiation and I think we’ve been lulled at the moment into a false sense of slowness because not very much has happened since the Referendum. When it does move, it will move quite quickly. Two years is very short and it will be tough to get everything that we need done in that period.

We are still in the European Union, whether we like it or not. We will be for some time to come. Carrying that out is quite difficult, and yet matters, partly because we’re negotiating things that still matter to British companies, industries and British lives, but also because it creates the mood music for the negotiation. If you a negotiator or an influencer or having any impact on the policy or the decisions made at the moment, you’re carrying an additional burden of setting this backdrop and context for how the negotiation will go when it happens. It’s important that all of us that have a say on this bear that in mind.

We need to move away from endlessly looking at the Norway Model or the Canada Free Trade Agreement. There are lessons that can be learnt from those things but nobody has done before what we are trying to do. There is no such thing as a member state who has decided to leave and have a new relationship outside, particularly not a huge, important and influential member state. This is really complicated new stuff and we do need a bespoke, off-the-shelf deal, where the best we can do is draw lessons from other models.

It’s right that we focus on the great tension – single market versus freedom of movement. It’s utterly naive to think that we can get everything we want. But we do need to move soon to focus on other issues as well, such as security or environment or justice or access to data. There’s a huge amount at stake.

I don’t believe in the end that our European colleagues and partners will want to truly punish us but they too will be playing a very difficult game to ensure they get a deal that works for them, that doesn’t encourage or trigger others to do what the UK has done. What the EU’s focus becomes after the UK leaves matters as much as our understandable, focus on what our deal will be, because the EU will continue to legislate on things that matter to all of us and have an impact on us. So we should really be giving some thought as to where the EU will go without us.

The trade deal negotiations are important and difficult. There is an enormous tension between being good Europeans and not launching trade negotiations before we should and until we’ve left. Ministers who stand up and say that’s ludicrous are right. Of course we should get on with having these conversations. These things take an enormous amount of time to put together. You can be reassured that a lot of that work is going on but the Government needs help and your help to do it.

One of the reasons I wanted to get outside of Government was to help talk to businesses and trade associations and others about how Brexit affects them, but also about how they can influence Brexit. Because this is the biggest and most important negotiation our country will face, we shouldn’t sit around saying Come on, Government, can’t you hurry up and get this right, please? It matters to all of us and I think we should participate in the debate, and ensure that Government listens to us and hears us, and make sure that it’s a collaborative effort.

I do think the financial services sector is the most organised of the industries or sectors in lobbying the Government and talking about what their needs are so they are ahead of the game in that sense and have great relationships in place with the Treasury and so on. I think what Government needs to hear from industry is what their ask is, what their needs are. They are the experts. I think that applies to all industries.

The financial services sector has a series of quite specific asks and there’s a big discussion about whether or not, because of the role of the City of London, the Government should ask for some kind of specialist carve out in the deal. It’s time to move that discussion to a more detailed level now. It’s really, in my view, for the industry to come up with its asks of Government and not the other way around.