4 June 2018

New Open Europe Report: Striking a Balance – A blueprint for the future UK-EU economic partnership

Open Europe has today published a new report, Striking a Balance. This report outlines a proposal for the future UK-EU economic partnership, where the UK seeks to remain close to the EU for trade in goods, but secures a less integrated arrangement for services. Our research finds there are limited gains to diverging from EU goods regulations after Brexit: the EU represents the most important export destination for British goods, and UK manufacturers have become integrated in complex European supply chains, which they would be unable easily to replicate elsewhere. However, the UK has a strong competitive advantage in services. The British economy is dominated by services, accounting for around 80% of GDP, and the UK is a strong and more globally diversified exporter of services. The UK cannot afford to be a rule-taker over such an important area of the economy.

Under Open Europe’s model, the UK would agree to maintain existing EU rules on goods in domestic law and agree broadly to follow future rules. This should provide a basis to conclude a mutual recognition agreement substantially to reduce regulatory barriers to goods trade with the European market. In services, the UK should seek mutual recognition of professional services, an enhanced equivalence regime for financial services and an adequacy decision for data. However, there would be diminishing returns to seeking greater access, with the EU likely to place greater regulatory demands on the wider UK economy.

Open Europe’s report featured in The Times, The Guardian, The Daily Telegraph, City AM, The Independent, The Sun, The Daily Express, Sky News, Bloomberg’s Brexit Bulletin and Politico’s London Playbook. Open Europe’s chairman and CEO of Next, Lord Wolfson of Aspley Guise, wrote an opinion piece for the Financial Times arguing it makes sense for the UK to accept EU rules on goods, but not services. Our Director Henry Newman wrote for The Times Red Box and appeared on talkRadio to discuss the report’s findings. Policy Director Stephen Booth outlined the proposal in a piece for Conservative Home, and Policy Analyst Aarti Shankar appeared on BBC Radio Scotland.

Source: Open Europe intelligence: Striking a Balance – A blueprint for the future UK-EU economic partnership Financial Times The Times Red Box Conservative Home

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The Sunday Times: Official plans suggest no-deal Brexit could lead to food and medicine shortages

The Sunday Times reports that plans by senior civil servants in the Department for Exiting the EU suggest that the UK could face shortages of food, fuel and medicines if no Brexit deal is concluded. Officials have reportedly drawn up three no-deal plans, for mild, severe and “armageddon” scenarios. A source told the paper, “In the second scenario, not even the worst, the port of Dover will collapse on day one. The supermarkets in Cornwall and Scotland will run out of food within a couple of days, and hospitals will run out of medicines within two weeks.” A senior official said, “We are entirely dependent on Europe reciprocating our posture that we will do nothing to impede the flow of goods into the UK [under a no-deal exit]. If, for whatever reason, Europe decides to slow that supply down, then we’re screwed.” A spokesperson for the Brexit department said, “These claims are completely false. A significant amount of work and decision-making has gone into our no-deal plans, especially where it relates to ports, and we know that none of this would come to pass.”


EU will not extend UK trade deals during transition until withdrawal deal is finalised

The EU will not ask third country partners to extend existing trade deals to the UK during the Brexit transition until the Withdrawal Agreement is formally concluded. An EU official told The Times, “We will inform third countries once there is sufficient certainty about the outcome of the ongoing negotiations on the UK’s withdrawal, which also cover any transitional arrangements.” This comes as Germany’s Brexit coordinator, Peter Ptassek, said that “not many are expecting very much [progress in negotiations by the June summit of EU leaders]…Odds still unclear.”

Elsewhere, the Financial Times reports that the UK could remain in the EU VAT area after Brexit. It cites a letter written by the financial secretary to the Treasury which said, “The government aims to keep VAT processes after EU exit as close as possible to what they are now,” adding, “The EU Commission is currently working on the detailed implementation rules, and the UK continues to play an active part in that process.”


DUP threatens to withdraw support for government if Brexit deal sees Northern Ireland treated differently

The leader of Northern Ireland’s Democratic Unionist Party (DUP), Arlene Foster, has warned her party would withdraw it support for the government if the Prime Minister proposes a Brexit deal that would place Northern Ireland under a different arrangement to the rest of the UK. She told Sky News, “Our only red line is that we are not treated any different from the rest of the United Kingdom, that there are no trade barriers put up between Northern Ireland and our biggest market which, of course, is Great Britain.”

Separately, Number 10 rejected the idea that Northern Ireland could have joint UK and EU status after Brexit and the suggestion of a ten-mile “buffer zone” on the Irish border to exempt businesses in the border region from new customs checks. The leaked proposal was reportedly devised by Brexit Secretary David Davis. In a statement on Friday, Downing Street said, “The prime minister has been absolutely clear that we cannot and will not accept a customs border down the Irish sea, and that we will preserve the constitutional integrity of the UK’s common market.” DUP MP Sammy Wilson called the plan “contradictory and half-cooked.”

Elsewhere, Irish Foreign Minister Simon Coveney has said the UK government must produce “written proposals” on their backstop solution to the Irish border “in the next two weeks,” adding, “If there is no progress on the backstop, we are in for an uncertain summer.” This comes as International Trade Secretary Liam Fox admitted this weekend that the cabinet working group assessing the government’s Customs Partnership plan has only just received an official impact analysis of this proposal.


German Chancellor Merkel sets out proposals for Eurozone reforms

In an interview with German newspaper Frankfurter Allgemeine Sonntagszeitun yesterday, German Chancellor Angela Merkel outlined proposals for a European Monetary Fund which would monitor EU member states’ economies and have “appropriate instruments that could be used when necessary to restore [a Eurozone member’s debt sustainability],”explaining, “In this way we could come to the aid of countries that get into difficulty due to external circumstances.” Merkel also proposed an “investment budget” for the Eurozone which would be in the “low double digits of billions” and be introduced gradually with the goal of addressing “structural weaknesses in countries who are not in serious trouble.” The Chancellor also urged the EU to decide on the multi-financial framework soon, adding, “We need the budget for the period after 2021 before the [2019] European election.” On the idea of a European defence intervention force, Merkel said, “I am in favor of President Macron’s proposal for an intervention initiative,” explaining that the initiative “needs to fit into the structure of defence cooperation,” and adding, “We can additionally open that initiative to a country like Great Britain.”


EU launches WTO case against "pure protectionist" US tariffs

The EU has launched a legal case against the US at the World Trade Organisation (WTO) after President Donald Trump imposed “pure protectionist” tariffs on aluminium and steel imports from the EU, Canada and Mexico for national security reasons. The EU’s trade commissioner, Cecilia Malmstrom, has said “If players in the world do not stick to the rule book the system might collapse.” She also said, “We are in a very difficult situation caused by the United States…I would not use the term trade war because it has a psychological effect. The US is playing a dangerous game.” The EU is preparing to enforce retaliatory tariffs on US imports including Levi jeans and bourbon whisky.

Elsewhere, Prime Minister Theresa May called the US decision “unjustified” while International Trade Secretary Liam Fox said the UK will used the upcoming G7 meeting to raise the issue with President Trump.


Home Secretary: I see the problem with the immigration cap

Speaking on The Andrew Marr Show, Home Secretary Sajid Javid said he could “see the problem” with the current cap on skilled immigration to the UK, adding he would “think more carefully” about it and “see what can be done.” He also admitted there was a “perception problem” around the question of including international students in the immigration reduction targets, and said, “I would like to look at it again.” This comes amid reports that Downing Street is set to announce it will lift the caps on skilled foreign workers, particularly those coming to work in the NHS.


Juncker: We must treat Italy with respect

In an interview with German media, the European Commission President Jean-Claude Juncker has said of the recent Italian elections, “The Italians cannot really complain about austerity measures from Brussels. However, I do not now want to lecture Rome. We must treat Italy with respect. Too many lectures were given to Greece in the past, in particular from German-speaking countries. This dealt a blow to the dignity of the Greek people. The same thing must not be allowed to happen to Italy.” He added, “I do not want to feed the accusations spread by the populists that we are sitting in Brussels meddling in Italy’s affairs. I am certain the Italians have a keen sense of what is good for their country. They will sort it out.”


Slovenian elections: Anti-immigration SDS largest party

Following early parliamentary elections in Slovenia yesterday, the anti-immigration Slovenian Democratic Party (SDS) has emerged as the largest party. With 99.9% of the votes counted and an estimated turnout of 52%, the SDS topped the poll on 25%, which is likely to give them 25 seats out of 90 in the parliament. The populist and centre-left LMS, led by former comedian Marjan Sarec, came second with 12.7% and 13 seats; the Social Democrats and the formerly ruling Modern Centre Party (SMC) came third and fourth respectively, both with just under 10% of the vote and 10 seats each. SDS leader Janez Janša acknowledged his party will face an uphill battle to form a governing coalition, telling reporters yesterday, “We will probably have to wait for some time … before serious talks on a new government will be possible.” Jansa, a former liberal dissident under communism and a two-time former prime minister, modelled his campaign on that of Hungarian Prime Minister Victor Orban, with the slogan “Slovenians first.”

Meanwhile, the Christian Democratic Appeal (CDA), the main centre-right party in the Netherlands, on Saturday called for Victor Orban’s Fidesz party to be excluded from the European People’s Party (EPP) should Orbán not “return to the way in which Fidesz was previously a valued member of the EPP family.” The CDA wants the EPP to develop “red lines” and, if they continue to be crossed, to provide “the ultimate remedy by requesting the (temporary) suspension of membership.” This intervention comes as the EU’s chief Brexit negotiator, Michel Barnier, visits Hungary today for talks with Prime Minister Orban.