Brexit progress – lack of clarity on new systems, industry impact and future trade deal

SUMMARY:

The Exiting the European Union Committee has released its second report on progress made towards a successful Brexit – plenty remains to be done.

How Brexit negotiations are going is anybody’s guess. The British government has finally admitted (rather embarrassingly) that it will likely be paying double what it had originally estimated for its ‘divorce bill’ from the European Union, in the hope that it will convince the 27 other member states to move on to trade talks at the European December Council meeting later this month.

However, the financial settlement isn’t the only sticking point. The Irish border and the issue of rights for EU citizens residing in the UK is also a top priority for the European Commission. Whether the UK can convince the EU that it has done enough on those two points too – in order to move on to the all important future trade agreements, which will avoid a disastrous no deal scenario – remains to be seen.

This is important to the digital sector, of course, for a number of reasons. There is the issue of data sharing deal, which is of utmost importance to businesses in the UK and the EU, as well as the talent the technology industry has relied on from the EU. Not to mention the new technology that’s required to make this work at the borders, in departments and for EU citizens applying for residency.

The progress thus far hasn’t been great and plenty of warnings have been issued.

However, today, the House of Commons Exiting the European Committee has released its second report on the progress of the UK’s negotiations on EU withdrawal. And whilst none of it is specific to the digital sector – it’s all relevant in the grand scheme of things and worth noting for contingency plans.

Ultimately, whilst small amounts of progress has been made, there are still huge blockers from securing those all important trade deals and not much time left in order to take the necessary steps forward.

Committee Chair, Hilary Benn, said:

Hilary Benn said:

We hope that the December Council will conclude that sufficient progress has been made so that the talks can move on to our future relationship. Businesses need certainty and reassurance to stop firms triggering contingency plans which could see activities and jobs move abroad. Ministers assured us that detailed arrangements for the implementation period could be published by March 2018. This deadline must be achieved.

The Government should also set out its vision for the UK’s future trade relationship with the EU. If phase two of the talks do start next month, then ministers need to move beyond words like ‘bespoke’ and ‘special’ and actually explain what it is they are seeking.

EU citizens

The rights of EU citizens residing in the UK after Brexit is an important issue for two main reasons – first and foremost for the people and families that need certainty over their future, but also for businesses that have large numbers of EU citizens employed. The technology sector in the UK relies heavily on talent from the EU.

The government plans to put in place a new system that it hopes will be “digital, flexible and frictionless” – allowing EU residents to register with the UK. However, as the Committee highlights, the timescales for the new system are incredibly tight and it is imperative that the government is clear on how the applications will be processed in the given timeframes. The report states:

We welcome the Government’s acceptance that the current system for applying for permanent residence certificates is “not fit to deal with the situation after we leave the EU”, and the Secretary of State’s acknowledgement that a new system will not ask applicants to complete an 85-page form. Any new online system for enabling EU residents to register with the UK Government must be simple and straightforward and must enable both adults and children to be easily registered.

The Government is designing a new system for EU citizens in the UK to make an application online to gain the proposed “settled status”. We note that this system is being developed “from scratch” and it is not anticipated to be operational until the end of 2018, only three months before the UK leaves the EU in March 2019.

The new system has to be able to cope with potentially three million applications. Therefore, a period after March 2019 is vital to enable EU citizens in the UK to apply for settled status and we welcome the Government’s commitment that EU citizens will still be able to apply for settled status for two years after the UK leaves the EU.

If however the processing of applications continues after the two year implementation period then there will be a proportion of EU citizens in the UK unable to demonstrate their settled status and therefore their right to live and work in the UK.

The Irish border

The government has been confident from the start that there will be a “frictionless” border between Northern Ireland and the Republic of Ireland, come March 2019 when Britain leaves the European Union. Except, little detail has been revealed about how this will actually be possible.

Even with advanced border technology, leaving the customs union and the single market logically implies a border of some sort will be in place. This has been highlighted by the Committee today, which states:

We welcome the Government’s commitment to “no physical infrastructure” at the land border between Northern Ireland and the Republic of Ireland. We also welcome its rejection of a customs border between Northern Ireland and Great Britain.

We do not currently see how it will be possible to reconcile there being no border with the Government’s policy of leaving the Single Market and the Customs Union, which will inevitably make the border between Northern Ireland and the Republic of Ireland the EU’s customs border with the UK.

It will be made harder by the fact that the Government’s proposals, by its own admission, are untested and to some extent speculative. We call upon the Government to set out in more detail how a “frictionless” border can in practice be maintained with the UK outside the Single Market and the Customs Union.

A lack of certainty

Business and industry – including the technology industry – is facing a huge amount of uncertainty as a result of Brexit. Some have revealed contingency plans to begin moving operations over to mainland Europe, whilst others have already begun shifting staff and certain business areas.

Key to ensuring certainty over the coming years, is an early transitional agreement, which gives business and government more time to deal with the impact of leaving the European Union. However, as has been the case for months, the European Commission and British Brexit negotiators appear to be stuck in a deadlock. The Committee states in its report:

The EU has decided that it will not allow negotiations to move to phase two until sufficient progress on the financial settlement has been made. We continue to take the view of our predecessor Committee that this approach is unnecessary and unhelpful but the Government has reluctantly accepted it. However, the Government will need to balance its negotiating position against the significant economic risk that arises from the continuing uncertainty over the negotiations. It is essential that talks now move on to phase two.

We urge the EU to acknowledge at its December Council that sufficient progress has been made on the withdrawal issues. Then the Government and the EU must prioritise providing certainty to business and other stakeholders that there will be an implementation period that can be relied upon. Failure to reach an early outline agreement will undermine the very purpose of having an implementation period and will do nothing to reassure importers and exporters in the UK and the EU, or the UK’s larger and more mobile businesses, some of which are already considering when to trigger contingency plans to relocate some operations from the UK.

The report also notes that the government should share information on the research carried out into the impact on certain sectors – something that has been disputed this week, as a lot of the detail handed over has been redacted – with the Committee stating that “there is an important difference between information which would genuinely harm our negotiating position and information that is simply embarrassing for the Government”.

Subject to a positive outcome at the December Council meeting, the government has said it will publish detailed arrangements for the implementation period by the end of March 2018. The Committee argues that to mitigate uncertainty in 2018, these guidelines should provide sufficient scope and detail for business to make investment and trade decisions.

Trade

Finally, and most importantly, the trade deal the British government hopes to secure with the EU post-Brexit is critical to business continuity and the economic welfare of the country. However, with negotiations in deadlock, these all-important deals are in jeopardy.

We at diginomica have outlined the difficulties that a no deal scenario will create for technology and digital business in the UK, with the government having to fall back on less than satisfactory WTO rules. Read here for more details.

The Committee warned that time is running out. It said:

The UK is party to over 30 trade agreements with over 60 countries, and hundreds more non-trade agreements, through the EU….Given the short time left, it is very hard to see how it will be possible to negotiate a full, bespoke trade and market access deal between now and October 2018. The Government’s stated policy aim is to agree, by October 2018, the Article 50 withdrawal agreement, a transition/implementation period and “a comprehensive free trade agreement and a comprehensive customs agreement that will deliver the exact same benefits as we have”. Such a deal must deliver the Government’s aim in both goods and services.

Whether or not a deal is reached, we believe that the Government should be investing now in improvements in technology and infrastructure to ease the passage of goods through gateways like the Port of Dover; for example, by introducing electronic customs checks and building the proposed lorry park outside the Port of Dover. However, such measures would not deal with all the risks of serious delays in Dover and would have to be reciprocated across the Channel in order to be effective.

And finally, even though the Prime Minister herself has continued to say that “no deal is better than a bad deal”, the Committee has warned that this would be disastrous for the economy. It said:

There has been continued debate about no deal being reached at the end of the negotiations. It would be chaotic and damaging for the UK economy and would leave many businesses and whole sectors in limbo facing huge uncertainty. The Government must do everything it can to avoid such an outcome.

It is difficult to imagine any possible deal, consistent with WTO and other international treaties, that would be more damaging to the UK’s interests than leaving the EU with no deal whatsoever in place.

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