Post Chequers

The British Government has agreed part of its negotiation position with the EU. The “Chequers Agreement” should be taken to be the Government’s position until further notice, notwithstanding the Cabinet changes that followed it.

The UK will seek to remain closely aligned with EU rules on goods and customs, but not on services. The EU has not yet reacted in detail, but culinary clichés about cherry picking, Eton mess, having your cake and eating it and various recipes for fudge are already dominating media reports.

Until the precise scope of an agreement or agreements is clear, an important jurisdictional question will remain unanswered. Is ratification on the EU side the responsibility of the EU institutions alone or would each member state have to ratify as well? In the latter case, all 27 national parliaments and several regional parliaments would have to vote approval. Should that be the case, ratification promises to be a messy, complex process.

If an agreement on goods alone were possible, what would this mean for services and combined goods/services packages? Some details are likely to emerge in the forthcoming British White Paper and in subsequent reactions from Brussels and other EU capitals.

It seems probable that the UK will want ad hoc agreements with the EU in certain regulated service sectors where there are numerous cross border activities and EU agencies and rules are well developed, e.g. air transport and data transfers.

What about financial and business services? If the UK wants its own rules and they differ from the EU’s, market access and investment issues will depend on the crucial question still to be negotiated: Will reciprocal recognition and ease of market access be based on strict equivalence of rules and enforcement mechanisms or will a looser acknowledgement of similar outcomes be enough? So far, the EU has insisted on its notion of equivalence, the setting of criteria and grant, duration and withdrawal resting firmly in its (mainly the Commission’s) hands.

It seems likely that British and European financial regulation will diverge, as the former promotes the City of London as one of the world’s pre-eminent financial centres, while the latter concentrates on the needs of the euro area. Unless cooperation and coordination are remarkably successful, friction will be hard to avoid.

Service sector companies trading between the UK and the rest of the EU in either direction have a strong interest in the outcome of these debates and should make their views known to Governments and the European institutions.

A checklist of questions to be answered might be as follows:

  • How much of my business involves the provision or use of services between the UK and other EU countries?
  • What would happen if it became more difficult to provide or use those services?
  • Could I turn to other countries to provide or source them at similar prices and convenience?
  • Do I provide, use or need financial services which “cross borders”?
  • What would I do if they became more expensive or unavailable?

Goods are physical: one can see them and, if necessary, charge duties on them when they cross a border and check that that they meet requisite standards. Services are not stopped at frontiers, but there are rules prescribing who can supply them and what standards they must meet. They often come in a package. Hardware with software. An aeroplane with a service contract. A machine with a financing arrangement. Pure services, such as an insurance policy, a bank transfer, a flight between two airports or a mandate to provide professional advice, are regulated pursuant to concerns about safety, consumer protection, financial stability etc. Reasonable Parliaments, Governments and authorities differ about details at different times. Despite their imperfections, particularly in the service sector, EU rules and mechanisms held the single market together.

This is not romance. EU countries do not trust each other innately. The EU works most of the time because it has rules and a common enforcement and adjudication system. It is still far from clear what will replace this system, six months before Brexit day.

Brunswick’s advice to its clients is that goods and service industries of all sorts and sizes need to undergo a clearheaded analysis of short and medium-term trends in trade and regulation in Europe and beyond. Trade wars and Brexit fallout are a massive challenge for all and an opportunity for those who understand what is likely to happen and plan accordingly.