Today the UK Government published a 104-page white paper on its proposals for the future relationship between the EU and UK.
This is the outcome of the UK government negotiating with itself to agree a common view. It is not the outcome of the UK-EU negotiations. What the EU says about it will be critical; we will wait and see but initial indications are that it crosses some of the EU’s negotiating red lines by seeking some of the full benefits of single market membership without the full rights and obligations of single market membership (“cherry picking”).
It therefore does not give business any more certainty to plan; but it does provide some assurance that the UK now has a negotiating position that should provide a basis for talks to progress with the EU. And in terms of the prospects for a EU-UK deal, it does give some indications:
Some things are now off the menu
Where it starts to give some more clarity is in the things it rules out – if the UK is not asking for these in the opening negotiations then it is hardly likely to ask for them later (unless there is a change of government or Parliament insists). Things the White Paper rules out include:
- passporting for financial services
- seeking the full benefits of the single market for services. To quote the White paper, “The Government… acknowledges that [for services ] there will be more barriers to the UK’s access to the EU market than is the case today”.
- free movement of people (except with Ireland). Although some reports have indicated it calls free movement of ‘talented’ people, this is not strictly true: it calls for mobility of people. Free movement would enable employers in the UK to offer permanent jobs to any citizen of any EU country; ‘mobility’ allows employers to temporarily post workers to assignments in an EU country or to travel to an EU country to complete a specific project or see a client.
- full membership of the single market and customs union.
- guaranteed mutual recognition of regulatory regimes for professional business services and financial services (“The decision on whether and on what terms the UK should have access to the EU’s markets [in services] will be a matter for the EU, and vice versa”).
Some things sound good and should be achievable
There are some proposals that will be welcomed by business and look achievable. Many businesses will welcome in particular the confirmation that the UK is seeking continued participation in those EU agencies that provide authorisations for goods in highly regulated sectors – namely the European Chemicals Agency, the European Aviation Safety Agency, and the European Medicines Agency – accepting the rules of these agencies and contributing to their costs.
Universities and technology-based businesses will welcome the proposals for UK participation in EU research funding programmes, including Horizon Europe, the Euratom Research and Training Programme, the Joint European Torus (JET) project and ITER.
For service sectors, the commitment to seek mutual recognition of qualifications is welcome. If agreed the UK and EU would recognise each other’s qualifications for doctors, lawyers, teachers, accountants etc. – enabling people to practice in different countries (aided by proposals on mobility but subject to any free movement of people restrictions).
In terms of trade with other countries, the White Paper confirms that the UK would maintain current access for the Least Developed Countries (LDCs), such as Bangladesh, to the UK market and aim to maintain the preferential access of the remaining (non-LDC) developing countries, including those countries with which it has Economic Partnership Agreements (e.g. Madagascar).
Some things sound good but may not be achievable
There are some areas where the white paper sets out more detail on new, ambitious proposals – particularly in relation to goods where the UK proposes all the benefits of the single market in order to avoid barriers to EU-Uk supply chains and manufacturing, including common regulations and a common customs administration. This promises friction free trade in goods but depends upon EU agreement to ‘cherry pick’ the single market. In terms of customs, the proposals seem to combine previous plans for ‘Max Fac’ and a ‘Customs Partnership’ including technological solutions that many have suggested will take a long time to implement.
It also remains to be seen if the EU will agree a rather ambitious proposals on rules of origin for goods: the UK is proposing to allow EU content in products to count as local content in UK exports (to any countries the with which the UK has Free Trade Agreements - FTAs) for rules of origin purposes, and UK content to count as local content in EU exports to its FTA partners.
Some proposals are too vague to assess
The White Paper remains thin or unclear in some areas.
This is all it says on VAT: “To ensure that new declarations and border checks between the UK and the EU do not need to be introduced for VAT and Excise purposes, the UK proposes the application of common cross-border processes and procedures for VAT and Excise, as well as some administrative cooperation and information exchange to underpin risk-based enforcement. These common processes and procedures should apply to the trade in goods, small parcels and to individuals.”
For professional business services (accountants, lawyers, architects, advertising), the White Paper is rather vague. It proposes “supplementary provisions for professional and business services, for example, permitting joint practice between UK and EU lawyers, and continued joint UK-EU ownership of accounting firms” but then says “the supplementary provisions would not replicate Single Market membership, and professional and business service providers would have rights in the UK and the EU which differ from current arrangements.” It does not go into any further detail – leaving us none the wiser about how the EU and UK may differ for these important UK sectors.
An uncertain outlook for financial services and professional business services
Yesterday a Downing Street aide assured me that the White Paper would recognise and support the UK services sector and the importance of UK services exports to the EU. Today’s White Paper expressly states that “The UK is proposing new arrangements for services and digital” that would enable the UK to create different regulatory regimes to the EU and... “This means that the UK and the EU will not have current levels of access to each other’s markets.”
The White Paper rules out mutual recognition of regulatory regimes for financial services and other services and proposes ‘equivalence’ procedures instead. These do not provide the same guarantee and certainty of being able to continue to provide services across borders. The financial services trade association, City UK, was not impressed.
The White Paper does propose refinements and improvements to the EU’s ‘third country equivalence’ regimes, to provide some greater stability and certainty. The issue with equivalence is that it is a political decision that can be withdrawn by the EU at any time. Arguably, this is only a problem if the EU (or UK) decided to be difficult; and there are work-arounds for businesses, notably setting up a registered and regulated subsidiary in the EU (which is of course what most banks are in the process of doing).
Feast, famine or indigestion?
It took me an afternoon to digest the White Paper. It is a full menu for UK manufacturers and seemingly less appetising for the UK services sector. What we must wait and see is how much of this is palatable to the EU and whether some of the more ambitious dishes can be prepared and served in time. The EU may simple offer in return a fixed menu:EEA membership (Norway) or a standard trade agreement (Canada trade deal); if neither is acceptable then we may go without (No Deal).
Today the UK Government published a 104-page white paper on its proposals for the future relationship between the EU and UK. This is the outcome of the UK government negotiating with itself to agree a common view. It is not the outcome of the UK-EU negotiations. What the EU says about it will be critical.