At Chequers, another gambit in the Brexit chess game

At Chequers, another gambit in the Brexit chess game

British Prime Minister Theresa May managed on Friday to establish unity in her Cabinet over Brexit — for now at least. The two warring factions, Brexiteers and Remainers, had been at each other’s throats for months about Britain’s post-Brexit relationship with the European Union. 
The EU and the UK have so far agreed only on the divorce and its settlement, and have not held substantive talks about what their future relationship should look like. Michel Barnier, the EU’s chief negotiator, had become increasingly anxious, because time is running out. Ideally the two parties need to have something agreed by October to give the European parliament and the various national parliaments — including London — time to vote and ratify by March 29, 2019, the second anniversary of Britain formally announcing its intention to leave the union.
True, we had an agreement of sorts on an exit payment, reciprocal arrangements for nationals in each other’s territories and the Northern Ireland question when the Prime Minister visited Brussels last December. Everyone was relieved, but some of the agreement was fudged, especially in relation to the Irish border.
True, also, that May made a conciliatory speech at the Mansion House in March, in which she laid out her vision of what the future relationship should look like. 
It is equally true that the UK was procrastinating over that issue. Brexiteers insisted on taking back control over money, borders and laws, while Remainers fretted over the economic impact a hard Brexit would have. Labour, the main opposition party in Parliament, was all over the place. In the meantime, Barnier kept reminding the UK that time was pressing and he needed clarity.
Business weighed in too. Airbus warned that it could no longer manufacture the wings of its A380 plane in Wales if there were no customs agreement. BMW said it would have to close its UK manufacturing plants if long queues at the border disrupted the supply chain. The company has invested £2 billion ($2.65 billion) since 2000 and employs about 7,000 UK staff. The last straw came on Thursday, when Jaguar Land Rover threatened to pull its investment program for the next five years, which is worth £80 billion, and perhaps close manufacturing sites depending on the outcome of the Brexit negotiations. The car maker employs 40,000 people in the UK and its supply chain provides jobs for a further 300,000. In April, Rolls-Royce toyed with the idea of moving its aircraft engine design center to Germany, if the UK were to leave the European Aviation Safety Agency.
All this hit politicians where it hurts: It showed that UK jobs might be lost in case of a messy split from the EU. No politician wants to face irate voters who have just lost their jobs.

While May has averted a government crisis and was able to assert her leadership for now, we can expect the bickering to continue once the white paper is released.

Cornelia Meyer

May gathered the whole Cabinet on Friday at the prime minister’s country estate, Chequers, and she seems to have come up with a compromise: The official statement affirms the UK would leave the EU on March 29, 2019, and that there would be a “time-limited implementation period that will conclude at the end of 2020.” The UK proposes “the establishment of a free trade area for goods.” There is supposed to be close regulatory alignment and the “UK and the EU will maintain a common rulebook for all goods including agri-food.” The UK would “strike different arrangements for services” where it was in its “interest to have regulatory flexibility.” The wording is vague and everybody is waiting for the white paper, which should divulge the specifics. It will be published this week.
The compromise seems to have done the trick so far. All the Cabinet are on board. May issued a stark warning that the time for disagreements was over and that the Cabinet was expected to toe the line going forward. Ministers were even told that their cars would not be available to transport them home if they decided to resign during the meeting.
So what to make of the compromise? It looks like a “soft Brexit” of sorts, but we lack the detail until we see the white paper. It also looks like a bit of fudge on several levels. Here is just one: May had assured her International Trade Secretary, Liam Fox, that the proposal would still give him the space to conclude trade deals with third countries. How would that work, for instance, in terms of agri-food and the US, where the EU and the US have markedly different “rule books”? 
It is all well and good to come to an agreement on manufacturing and agriculture, but the UK’s economy relies heavily on services. The City of London is Europe’s premier financial center and if it loses its passporting rights — which it currently stands to do — it will lose its ability to settle euro-denominated transactions.
Most importantly, this looks like a Norway-minus agreement. In other words, the UK will become a rule taker, which is a red flag to May’s Brexiteer backbenchers.
Business is cautiously optimistic about the compromise. What will the EU make of it? Remember: The real negotiation is between Brussels and London, not among warring factions of the Tory party. 
So far, Barnier has been conciliatory and unusually flexible, claiming he was open to a customs union, customs union-plus, Norway or Norway-plus. On Friday afternoon he tweeted: “Chequers discussion on future to be welcomed. I look forward to White Paper. We will assess proposals to see if they are workable & realistic in view of #EUCO guidelines.”
At the same time, the EU has been quite clear that the UK could not cherry-pick. It was either in or out of the EU, the common market and the customs union. Even without having read the white paper, the Cabinet compromise looks like an attempt to cherry-pick and is therefore unlikely to fly with the EU.
While May has averted a government crisis and was able to assert her leadership for now, we can expect the bickering to continue once the white paper is released. Meanwhile, Barnier is waiting to see if he will finally receive a proposal from the UK government on which he can base his negotiations. Don’t expect him to stay as conciliatory as he sounds now.
May has seemingly averted a government crisis and was able to assert her leadership for now, even though Foreign Secretary Boris Johnson was reported to have made hostile comments at the Chequers meeting, which he claims were made in jest. We can expect the bickering to continue once the white paper is released, with some backbenchers already asking for a new prime minister.
On the Sunday talk shows, Remainers and Brexiteers were at it again, with Sir Keir Starmer, Labour's Shadow Secretary of State for Exiting the EU, calling the Chequers compromise "unworkable" and a "fudge." Expect fireworks on Thursday, when the white paper is published.

– Cornelia Meyer is a business consultant, macro-economist and energy expert.
Twitter: @MeyerResources

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