UK Releases its White Paper Proposal on Future UK-EU Economic Ties

Tuesday, July 24, 2018 - 12:15pm

The UK government recently released its much anticipated White Paper outlining British priorities for its future economic and security partnership with the EU. Despite the initial agreement by the Cabinet around the deal, the White Paper faces major criticism from across the Tory party, and already sparked a series of high profile resignations. PM Theresa May’s team already has effectively signaled that some of it will need to change in order to find a way through the Parliament.

 

Despite recent Parliamentary maneuvers, the White Paper remains the starting point for the UK’s talks with Brussels on the future relationship. Across the Channel, the EU leaders recognize that simply rejecting the proposal out of hand would only amp up the possibility of May being forced out—adding even more uncertainty to the process.  Hence the lukewarm “willingness to consider” language from key capitals: Chancellor Merkel noted there has been “progress” in the negotiations and Irish Taoiseach Leo Varadkar welcomed the UK’s new “flexibility.” While at the Chamber last week, lead negotiator Michel Barnier said he looked forward to “carefully reviewing” the UK proposal to find realistic solutions.

 

That said, Brussels’ skepticism about several key elements of the White Paper is well documented. Among other things, the EU still views the “Facilitated Customs Model” as unworkable and technologically impossible. Brussels will also struggle to comprehend why it should agree to a governance structure or a regulatory cooperation scheme in which the UK sees itself as co-equal party to the EU27.

 

Though the exact contours of the White Paper will change through the course of the negotiations, it is worth a quick review, as it gives a clear sense of the UK’s thinking about a possible way forward.



State of Play & Recent Developments

Last week, the UK Parliament resumed consideration of its Customs and Trade bills, essential pieces of legislation needed to ensure the UK has the institutional and legal authority to conclude new trade deals and to implement its own customs and tariff regime after Brexit. It did not take long for May’s fragile agreement to disintegrate.

 

Eventually, the UK government agreed to support four Tory rebel amendments to the Trade Bill, and all passed by a small handful of votes. May’s government agreed to accept these measures, which in some instances contradict either the word or the spirit of the White Paper, in order to maintain a (very) slim majority of support.

 

These amendments:

1.  Require the UK to have a separate VAT regime from the EU.

  • This may require a hard border to ensure tax payments on imports are properly enforced.

2. ​​​​​​​ Require new, separate primary legislation to negotiate a customs union with the EU.

  • This was designed to limit the government’s future negotiating maneuverability and to ensure the UK would be able to sign new FTAs including goods.
  • The White Paper already explicitly rejected a customs union arrangement.

3.  Prevent a customs border from being implemented within the UK between Northern Ireland and Great Britain.

  • Again, the White Paper already rejected this outcome.

4.  Dictate that the UK cannot collect EU tariffs for goods destined for the EU single market at UK borders unless the EU agreed to do so for goods destined for Britain on a reciprocal basis.

  • This is by far the most controversial amendment, as this plan is almost certain to be rejected by Brussels.
  • Essentially, the Parliament says the Prime Minister’s Facilitated Customs Arrangement is dead unless all 27 other EU countries replicate it for goods destined for the UK.

Meanwhile, the wave of high-profile UK government resignations continues. Earlier this week, two more parliamentary aides resigned—bringing the total of government ministers to quit in the past week to 10.

 

All of these resignations are evidence of the reality that there is not a majority in Parliament in favor of any kind of Brexit – whether “no deal;” “negotiated” à la the Chequers White Paper proposal; a “soft” Brexit where the UK remains, like Norway, in the European Economic Area; or a decision to remain in the EU after all.

 

Given the continued political uncertainty, the chances of a no deal Brexit are rising rapidly. It’s important to remember that the UK insists that the Withdrawal Agreement and the framework for the Future Partnership must be agreed at the same time. Without an agreement on at least the contours of the future relationship, it would be impossible for PM May to sell the Withdrawal Agreement (and the financial settlement) to her own Party, much less the entire UK Parliament.

 

So, if the two sides don’t agree on the outlines of the Future Partnership, there will be no Withdrawal Agreement and therefore no transition period. The stakes are high, as is the level of uncertainty.

 


What’s Next?

  • The two sides are meeting for another round of negotiations this week in Brussels.
  • The next European Council, the first opportunity for real political progress at the national leader level, is in October.