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Brexit Update - June 6 2019

by Jeffries Briginshaw, CEO - Transatlantic Business Britain

No foreseeable end to Brexit, beyond Trump’s ‘Big’ Trade deals, and what do European Parliamentary Elections really mean?

We are going to be ‘spinning wheels’ on Brexit until at least mid-autumn. There is no end in sight to the UK’s increasingly tortured efforts to leave the European Union. Lucky then that the UK economy is showing resilience. Growth is subdued but no more so than across the Eurozone.

A leadership election inside the Conservative Party to replace Prime Minister May, which kicks off formally today will likely encourage electioneering ‘no deal’ rhetoric by candidates as a badge of their ‘true believer’ Brexit status. On the face of it risks of a no-deal exit will correspondingly go up, with another managed delay more likely than agreement on the current withdrawal deal.

Time pressure won’t help. The leadership election outcome is way off in July (on the 22nd). Then, European and UK ‘summer break’ institutional inactivity will last until the end of August. The UK annual political party conference season then follows ramping up the same unkeepable promises until October 2nd. So, substantive re-engagement by a new Prime Minister in Parliament and in Brussels about Brexit won’t even get going until three weeks before the 31st October deadline!

Canadian businesses with an interest in the UK, as investors or exporters, should check that their contingency plans cover ‘day after’ conditions. These will be the changes that would immediately need to be navigated in the event that there is no further extension past 31st October, to Article 50. In theory, with hardening stated positions as between Europe (no renegotiation) and the UK (‘no deal’ back on the table as a so called negotiating strategy), the chances of rupture have gone up. But I continue to expect that in the final analysis both Europe and the British Government will delay, and delay indefinitely.

Beyond the posturing of leadership speeches and conference closings watch closely for the language used and the space left for what we call ‘wiggle room’ by any of the leading candidates such as former Foreign Secretary Boris Johnson, Michael Gove and Jeremy Hunt.

Trump and the ‘bigly greatness’ of trade deals with the US

President Trump has just left the UK after his state visit. He repeated his strong encouragement for a ‘GREAT’ and ‘BIG’ UK-US trade deal. And there is no doubting the sincerity of his top line, but of course it’s just that the reality of trade deals works very differently. NAFTA ratification anyone?

While the Brexit outcome is unclear, the reality underpinning the clubby rhetoric about a future UK-US trade deal remains untested, despite substantive on-going discussion between trade officials. An implemented Brexit withdrawal agreement would specifically enable the UK to negotiate trade deals during transition it is true, but not to sign them, and it is far from clear that there is either the political or industrial feasibility to match the ambition anywhere in the UK, beyond the cheer-leading communities. And absent clarity on the UK’s future trade relationship with the EU, in true chicken and egg fashion, no foreign trade partner will be able to define the true scope of their own interests with the kind of clarity needed to make genuine the offers that structure trade negotiations.

Ultimately, this was a visit designed to provide President Trump with personal satisfaction and images of pomp and ceremony to beam back home, including a dinner at Buckingham Palace with the Queen and guests. But with a lame duck Prime Minister and a strategic impasse with UK’s European identity, that’s about all there is really to it. Outside the EU the US is the UK’s single largest export market at around 15% total exports, and as well as being a key economic partner, UK-US security relations are strong, although the US’s uncompromising approach to China’s geopolitical expansion is being keenly felt – just as in Canada - in US threats to downgrade the UK as a strategic partner if it fails to exclude Huawei from telecoms infrastructure development. Just carrying on works well I these circumstances.

European Parliamentary Elections matter – it’s just that no one cares

The vast majority of rules affecting commerce in the European Single Market pass through, or are generated in the European Parliament, so business always keeps a close watch. But pretty much no one else does. At the last minute, thanks to the April Brexit delay, the UK in common with other members of the European Union held elections for the European Parliament and predictably elected a large number of members for the newly formed Brexit party. Gains by the party mainly came from the Conservatives and Labour Party, both punished, the first for not delivering Brexit, the second for prevaricating on what they actually believe should be the course of Brexit. The UK results serve as a further gauge of opinion in the UK rather than as an element of any actual political change of axis in the European Parliament, where national and ideological interests are finely calibrated.

The outcome of the elections as a whole was to generally weaken the influence in Parliament of two historically strongest groupings; the EPP drawn from centre right parties across Europe, since 2009 not including the British Conservatives, and the Socialists and Democrats – drawn from left of centre parties including the British Labour Party. While extremist parties particularly of the right have done well in some countries (France for example) that was not uniformly true, and equally the ALDI grouping of European Liberal parties and the Greens have done well enough to constitute a continuing non populist/non extremist centre ground which will continue to define real power. In the short term the importance of such shifts in the balance of power as there have been in Parliament will be to complicate the horse trading which produces the new Commission, which takes office later in the year. Ultimately this will go more to the choice of key Commissioners and the President of the Parliament more than it will dictate the ideological path, which in my view will remain rather consistently centrist, non populist and orthodox in its Europeanness.


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