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In this issue:

Britain’s position:

an ever closer

divorce?

A closer look at the

UK’s papers on

Northern Ireland

and the role of the

CJEU

Dock Watch: BofA

news demonstrates

that Ireland should

avoid premature

speculation

Issue 9, 24th August 2017

Brexit Watch

Fortnightly briefing on Brexit developments

DKM Commentary: In the UK, the Department for Exiting the EU (DExEU) has been working the printing presses

hard this week: six policy papers have been published over eight days. These have heralded a

variety of responses: the paper on future customs arrangements was met with scepticism in

Ireland and abroad, in addition to provoking a reminder from the EU that the withdrawal

arrangements must be settled first. More provocative, however, was the partnership paper

on future enforcement and dispute resolution with its acknowledgement of a role for the

European Court in the UK’s future relationship with the EU27. This has been seen as a

dramatic U-turn for the government.

Across the sea, strong language from Irish ministers on the UK’s approach to Brexit

continues, with Minister Simon Coveney accusing the UK Government of using the border

issue “as a pawn to try to pressurise for broader trade agreements”. The Taoiseach has called

for more clarity on how the UK’s suggestions differ in substance from the single market and

the customs union. It is a fair question and one many more will be asking, particularly given

the contents of the paper on new dispute mechanisms. A Politico headline sums it up nicely:

“UK’s Brexit plan? More of the same, please”.

The UK’s acknowledgment of a role for of the Court of Justice of the EU (CJEU) in the future

partnership is positive for countries like Ireland who want good trade links with the UK after

Brexit. It is a big step – one should ignore claims from UK ministers that nothing has changed.

Keep more than “half an eye” out for the EU’s response.

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United Kingdom Position papers released

The Department for Exiting the EU (DExEU) has released a

number of policy papers in recent days. It began by publishing

policy papers on future customs arrangements and on Northern

Ireland and Ireland on 15 and 16 August. It has since published

papers on the continuity in the availability of goods for the EU

and the UK and confidentiality and access to documents. These

were followed by the most domestically controversial papers

thus far on cross-border judicial cooperation and enforcement

and dispute resolution. It is expected that DExEU will publish six

more papers in the near future.

An ECJ climb-down?

The sixth paper published has caused the most controversy in

British politics. The future partnership paper on enforcement

and dispute resolution affirms that the UK will become a non-

member state outside the direct jurisdiction of the Court of

Justice of the EU (CJEU). Legal and political commentators have

focused on the word ‘direct’, questioning whether it represents

a U-turn by Prime Minister Theresa May, who previously

claimed that Brexit would mean an end to the jurisdiction of the

European Court in the UK.

The periphery unites

Wales and Scotland have agreed to work together on

ammendments to the European Union (Withdrawal) Bill as it

returns to Westminster for debate, the FT reports. Scotland’s

First Minister Nicola Sturgeon and First Minister of Wales

Carwyn Jones agreed in a meeting on 22 August to co-operate,

given that the Bill would imply a breach of the Sewel convention.

Under this convention, Westminster does not usually legislate

for devolved areas. However, as it stands the Withdrawal Bill

would transfer powers (currently held by the EU) to Westminster

in devolved policy areas. In the landmark case regarding the

triggering of Article 50, the Supreme Court ruled that the Sewel

convention is not legally enforceable.

Cross party group prepares for end of summer

The cross-party group of MPs that was established in the days

before the publication of the Withdrawal Bill in early July is

preparing to defeat plans for a hard Brexit in key areas. The FT

reports that the group intends to push to keep Britain a member

of the EU’s Open Skies agreement, the customs union and

Euratom.

Poll shows majority favour transition agreement

An Observer/Opinium poll shows that a sizeable majority of

those surveyed support a transition agreement for when the UK

leaves the EU. The poll also showed that nearly half of those

polled (49%) supported the idea of a second referendum once

the terms of departure are made clear

The ‘Democrats’ to be launched in September

According to Politico newspaper, James Chapman, former chief

of staff for David Davis, has confirmed his intention to lead a pro-

EU political party. The official launch of “the Democrats” is due

to be announced on 9 September at the ‘People’s March for

Europe’, a pro-EU rally that will take place in London.

Ireland Irish Government dismiss plans for border

The Irish Government has officially dismissed the UK’s proposals

to avoid a customs border on the island, just under a week after

the UK tabled its first position papers on the issue. The Irish

Times reported comments by Minister for Foreign Affairs Simon

Coveney who said that the British government should not use

the border issue, “as a pawn to try to pressurise for broader

trade agreements” in its negotiations with the EU. Taoiseach Leo

Varadkar has said he wished to see more detail on how any

future arrangement would differ from the single market and the

customs union arrangements already in place and reiterated his

call for some sort of customs deal between the UK and the EU, as

this would solve “almost all” of the issues relating to borders

between Ireland and Northern Ireland.

Brokenshire optimistic during Dublin visit

During his visit to Dublin on 22 August, Northern Ireland

Secretary James Brokenshire confirmed to the Irish Times that

the UK would leave the customs union. However, Mr

Brokenshire argued that, with EU agreement, most businesses

could be exempted from customs duties introduced after the UK

leaves the EU’s customs union. The Northern Ireland Secretary

and Minister Coveney are expected to meet Northern parties the

week of 28 August in a bid to restore power sharing.

European Union The EU rejects the UK’s bid to discuss trade early

Politico remarked that the position paper released on 15 August

on future customs arrangements was seen by some in the EU as

a bid to discuss Britain and the EU’s future trade agreement prior

to deciding the questions of the border, the financial settlement

and EU citizens. However, in a statement the EU reiterated its

position that the UK’s request for an implementing period and its

preferences as regards the future relationship will only be

addressed once sufficient progress has been made on the

withdrawal arrangements. Both Guy Verhofstadt and Michel

Barnier, the EU’s Brexit negotiators for the Parliament and the

Commission, took to twitter on the day the position paper was

released to emphasise this point (see Guardian article).

Little hope of trade deal in the autumn

EU leaders generally seem reluctant to comment on current

progress. However, in an interview with the Guardian, Slovenian

PM Miro Cerar said it was clear that there had not been

significant progress in key areas to allow talks on a future trade

deal to commence in autumn 2017. Mr Cerar remarked that he

was awaiting a briefing from EU Chief Negotiator Michel Barnier

on the issue. He also suggested that the UK’s recent proposals on

future customs arrangements were not realistic.

Political Developments

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Key Points from position paper:

Northern Irish citizens should retain their right to both Irish and UK citizenship.

CTA movement should be left intact notwithstanding changes to UK’s immigration system.

EU PEACE funding should continue.

EU/UK should negotiate a continued waiver from the requirement to submit entry and exit summary declarations for goods between EU and UK.

UK should continue its membership of the Common Transit Convention (CTC) to simplify border crossings.

Regulatory equivalence in key areas of importance to NI should be prioritised.

Maintaining the Single Electricity Market is the best option for NI, at least in the medium term.

Key Points from future partnership paper:

Leaving the EU will bring about the end

of the direct jurisdiction of the CJEU.

Agreements covering the UK’s

withdrawal and future partnership

should set out terms on which the

agreements can be enforced and

establish a dispute resolution

mechanism.

There is no precedent or imperative

that enforcement and dispute

resolution of new EU-UK agreement

must fall under the direct jurisdiction of

the CJEU.

Precedents point to option of effective

enforcement, dispute resolution and

avoidance of divergence without

necessitating the direct jurisdiction of

the CJEU over a third country.

This week we take a look in detail at some of the UK’s policy papers published in late August and identify the key points and

explain the implications for Ireland should the UK’s position materialise.

Northern Ireland and Ireland: position paper

Enforcement and dispute resolution: a future partnership paper

UK Policy Papers: the border and future regulations

Potential implications This paper asserts that new UK immigration rules will not affect the Common Travel Area (CTA), nor will any provisions change relating to Irish rights in the UK. This confirms David Davis’s statements on the CTA back in December 2016. Given Ireland and the UK’s absence from the EU Schengen Agreement there is little reason why free travel cannot be maintained. Yet the key question has always been how to manage a customs border.

On customs, the UK continues to assert its wish for “as frictionless and seamless a border as possible” and includes a section on avoiding a hard border for the movement of goods on the island. It goes as far as suggesting regulatory equivalence on Sanitary and Phytosanitary (SPS) measures for agri-food. This would remove the need for physical veterinary checks on live animals and animal products, which are routinely carried out at border points for agri-food imports from third countries.

What they’re saying The UK’s proposals on frictionless trade have been met with scepticism as to their feasibility. Taoiseach Leo Varadkar remarked that the papers on customs and Northern Ireland indicated that the UK appeared to want to maintain the benefits of both the single market and the customs union, despite expressing its desire to leave both.

The business community has also questioned the viability of the proposals. Chambers Ireland Chief Executive Ian Talbot noted that “the EU and the UK appear to have very different ideas of what is workable and Ireland must not be caught in the middle”. Similarly, John McGrane of the British Irish Chamber of Commerce acknowledged “definite challenges about the feasibility of what is being put

forward.”

Potential implications

The paper rejects the continuation of the ‘direct effect principle’, removing the right of UK residents to invoke European law before a UK or European court. The UK aims to replace many of the current functions of the CJEU with a new body, whose role will be to look at the UK’s compliance with, and enforce individual rights under, the new agreement - i.e. what the Court of Justice of the EU (CJEU) currently does with regard to EU members and EU law.

Yet, the UK has acknowledged a role for the CJEU in the future partnership agreement: where the agreement uses language identical to current EU law, it “may be agreed” that rulings of the CJEU are taken into account when interpreting these concepts. The paper also leaves open the option of referring questions to the CJEU on the meaning of EU law, whose ruling would then be binding. Such proposals could pave the way for a softer Brexit since many areas of EU cooperation require some level of CJEU jurisdiction.

What they’re saying Opposition parties have accused the Prime Minister of a U-turn on her previous hard-line position on the ECJ (CJEU) but welcome the softening of her stance. Charles Grant, director of the Centre for European Reform think-tank, told the FT that the UK is “moving towards asking for a transitional deal that would resemble membership in many respects and would include acceptance of ECJ rulings.”

However, UK Justice Minister Dominic Raab rejected any change of position, claiming that the jurisdiction of the CJEU will end but that the UK will keep “half an eye” on EU law. Yet, he did not explain why the Government had refrained from using the word ‘direct’ in previous documents on leaving the jurisdiction of the European Court.

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City Relocations Destination: Dublin Docklands

Toronto Dominium bank confirmed on 22 August that it

would expand its Irish operations. The announcement, which

came during the Taoiseach’s visit to Canada, confirmed that

the Canadian bank would choose Dublin as its EU hub post-

Brexit and would establish a bond-trading unit in the Irish

capital.

Bank of America, whose chief executive had suggested in July

that Dublin was the ‘preferred location’ for its main legal

entities, now seems to be considering Paris or Frankfurt for

new EU bases. Bloomberg reports differences of opinion

regarding the location from the bank’s executives – the head

of equities, Fabrizio Gallo is thought to favour Frankfurt as a

base for traders while his colleagues in fixed-income, Sanaz

Zaimi and Bernard Mensah, are said to favour Paris. The

report notes that some executives have suggested the bank is

considering multiple headquarters for various operations.

Although the firm plans to move some investment bank

executives to Dublin, Bloomberg’s sources believe the Irish

capital is unlikely to be the trading hub.

A Bundesbank board member, Andreas Dombret, has said

that Frankfurt and Dublin in particular were profiting from

Brexit relocations. Mr Dombret, who is responsible for

banking regulation, told Der Spiegel that the decisive phase of

relocation decisions is under way and that UK-based banks

were looking to move brokerage, banking and trading

operations to EU locations. Mr Dombret underlined that

banks seeking to relocate to Germany would be required to

have a serious, sustainable presence in Frankfurt, rather than

“letter-box” entities.

The uncertain future of Silicon Roundabout

Tech start-ups in London are beginning to feel the effects of

Brexit, as venture capital funds report the European

Investment Fund’s refusal to take on new UK commitments.

The Observer notes that the EIF is the single biggest source of

funding for British start ups and the news has led a number of

tech entrepreneurs to question the benefits of remaining in

the city. The Observer highlights that uncertainty about the

flow of developers and engineers is the foremost concern of

leading investment firms, which is deemed a more pressing

concern than how to replace the EIF’s role as an investor.

Business & Finance

Euro at eight-year high against sterling

The euro has hit an eight-year high against sterling, rising

above 92p on 23 August. The euro has also risen against the

dollar, rising to $1.180. The FT attributed this rise to the

release of positive economic data from IHS Markit: its

Purchasing Managers Index (PMI) signalled one of the best

rates of expansion of the euro area private sector over the

past six years.

The FT also reported predictions by Hans Redeker, global

head of forex strategy at Morgan Stanley, who believes that

the parity between sterling and euro is set to increase

further. He expects pound to weaken and to reach £1.02 per

euro in early 2018. Mr Redeker attributes current investor

fears to speculation of a leadership challenge to Theresa May

in October. However, analysts at UBS Wealth Management

believe the sterling to be undervalued by many measures.

NOTE: This publication is for information purposes only. Any expression of opinion is subject to change without notice. DKM accepts no liability whatsoever for the outcome of any actions taken arising from the use of information contained in this report. © DKM Economic Consultants Ltd., Office 6 Grand Canal Wharf, South Dock Road, Ringsend, Dublin 4, Ireland. Telephone: +353 1 6670372; Fax: +353 1 6144499; Email: info@dkm.ie; Website: www.dkm.ie

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