On Monday (August 28) EU’s chief Brexit negotiator Michel Barnier will meet U.K. Brexit Secretary David Davis and his team for a third time in an attempt to move the EU divorce forward.
Here are three points you should know ahead of the meeting in Brussels:
1. May’s government open to a “softer” Brexit?
Back in July 2016 Theresa May infamously said that “Brexit means Brexit” when asked what the term meant, which led everyone to believe that the U.K. Prime Minister is taking a hard stance and drawing firm lines.
But in a series of position papers published between August 15-24, May’s government has hinted that it can blur the lines a little and even wait a bit longer to get a cleaner divorce.
Here are a couple of issues that stood out:
Data sharing and protection
The threat to the free flow of data between the EU and the U.K. has been cited as one of the biggest risks to the UK’s digital scene. After all, it’s essential to governments, law enforcement, education, and trading activities and is estimated to contribute £1.18B to the economy.
So in its position paper, the Brexit team proposed that both parties recognize each of their data protection frameworks as basis for the continued flow of data until “new and more permanent arrangements come into force.”
It also proposed that EU continue recognizing its Data Protection Regulator, the Information Commissioner’s Office (ICO), to make it easy for the EU to recognise the UK’s rules when it implements its own Data Protection Bill AND when it remains involved with developing governing data rules in the EU.
You read that right! One of the papers mentioned that:
“An ongoing role for the ICO would allow the ICO to continue to share its resources and expertise with the network of EU Data Protection Authorities, and provide a practical contribution at EU level which will benefit citizens and organisations in both the UK and the EU,”
In its position papers published much earlier, the EU called for a withdrawal agreement that would ensure that products placed on the market before the U.K. leaves the EU can legally be sold in both territories. Take note that it doesn’t say what would happen to the products’ clearances AFTER the exit.
But in its own position papers, the U.K. wants approvals, registrations, certificates and authorizations to remain valid after Brexit. Again, this will require both sides to have confidence in the competence of each other’s regulatory bodies.
The Brexit team argued that using status quo on compliance activities will “avoid unnecessary disruptive transfer of activities between the EU and the U.K.,” adding that it will avoid duplication of activities.
Remember that the European Court of Justice (ECJ) decides whether the institutions of the EU are acting legally; ensures that the EU member states are complying with treaties, and interprets EU law at the request of national courts.
Well, earlier this week, PM May declared that “What will we be able to do is to make our own laws, Parliament will make our laws, British judges will interpret those laws and it will be the British Supreme Court will be the ultimate arbiter of those laws.”
Yet in its position papers the Brexit team proposed to “seek to agree new close and comprehensive arrangements for civil judicial cooperation with the EU” as a “non-member state outside the direct jurisdiction” of the ECJ.
Take note that while the papers don’t want “direct” jurisdiction from non-U.K. authorities, it also leaves the door open for involvement of EU courts after Brexit. Specifically, the government wants to use a “variety of precedents” to resolve disputes between the EU and the U.K. That’s a long way from May sharing that “We will not have truly left the EU if we are not in control of our own laws” a few months ago!
Last but not the least, the papers promise to guarantee the rights of EU citizens and businesses in the U.K. This contrasts with the EU’s position that the ECJ would have a hand in protecting the citizens’ rights.
2. EU leaders weren’t impressed.
The European Commission welcomed the “positive step” of publishing its position papers, but, like EC’s Chief Brexit negotiator Michel Barnier, they’re also not willing to stray from their schedule.
Barnier tweeted “The quicker #UK & EU27 agree on citizens, settling accounts and #Ireland, the quicker we can discuss customs & future relationship.”
— Michel Barnier (@MichelBarnier) August 15, 2017
He also followed it up with “3rd round of #Brexit negotiations with #UK begins next week. Focus on orderly withdrawal. #EU positions clear and transparent since day one” before he proceeded to tweet the nine position papers published by the EU.
— Michel Barnier (@MichelBarnier) August 21, 2017
Guy Verhofstadt, the European Parliament’s Brexit point-man, also wasn’t impressed. He shared that the U.K.’s plans for an “invisible borders” for customs is a “fantasy” and that they “[f]irst need to secure citizens rights and a financial settlement.”
3. Market players haven’t reacted much…yet
The main takeaway from the U.K.’s latest position papers is that May and her team are now more flexible than their earlier stance suggested. The issues that they’ve discussed also point to the priorities they want to resolve.
But will the EU bend a little, too? Remember that the EU wants to prioritize three issues: (a) citizens’ rights, (b) Irish border with Northern Ireland, and (c) the U.K.’s financial settlement to cover commitments to the EU that have yet to be paid.
On Monday we’ll see if both parties can find a common ground to discuss their priorities. See, some analysts argue that the U.K.’s position papers are just means to move the process forward and counter criticisms that the Brexit team isn’t prepared for talks.
Barnier and his staff sit down with a huge stack of notes. Davis and his crew have nothing. It's all in their heads? Sort of says it all. pic.twitter.com/wEwtXOYYXx
— John Wheeler (@barleyscotch) July 17, 2017
So far the pound has remained in relatively tight ranges and is still reacting to top-tier reports from the U.K.
But if the talks end without solid results, or if it ends with a volley of inflammatory updates from either side, then traders could remember the BOE’s concerns over Brexit uncertainties and price in accordingly.