Concerns of business is next for Brexit talks

There are so many moving parts to the Brexit process that inevitably some sectors are going to be overlooked at different stages of the negotiation processes.

Business would have felt with some justification that its concerns did not feature sufficiently strongly in the Phase 1 discussions. Phase 1 talks focused on the cash settlement, the rights of citizens and the border.

As the process now moves to Phase 2, it is useful that the first priority set out by European Council president Donald Tusk is to provide “clarity to business”.

This will be done by establishing a transition period for the UK’s departure from the EU. This is useful in so far as that if there are any winners and losers in this whole sorry Brexit business — and there will only be losers — it is the EU which has been winning by setting the agenda and tone.

Earlier this year, the UK vehemently objected to the sequencing in the Phase 1 discussions’. It was to be the “row of the summer” according to UK negotiator David Davis. However, when the dust finally settled last week, not only had the UK accepted the sequencing but the EU negotiating team had by and large secured everything it was looking for; undertakings on citizens’ rights and the future of the border, along with a commitment in the order of €40bn by way of divorce settlement. These outcomes give considerable credibility to the outline of how Phase 2 will work as presented by Mr Tusk last week.

Of the Phase 1 outcomes, the divorce settlement of €40bn is in practical terms the easiest for the UK to meet. The second largest economy in Europe will have little difficulty paying €40bn spread out over a number of years. Politically, however, Brexit was supposed to be about eliminating UK contributions to the EU, not paying out big chunks of money to Brussels for permission to leave.

If that clash of practicality and politics over just one outcome in Phase 1 is tricky, Phase 2 is going to be even trickier. A transition period is often understood to

involve a gradual move from one regime to the next. That is not how the EU understands Brexit transition.

According to the EU Phase 2 negotiating guidelines, Brexit transition will involve the UK continuing to follow the whole of existing and new EU law, while respecting EU budgetary commitments, related obligations and judicial oversight but without any say in EU decision making.

From a UK perspective, such a transition period would be the worst of all worlds. Far from Brexit being about “taking back control”, the UK could be surrendering all control over its international commitments over a transition period to Brussels. The only credible reasons for even considering such a drastic scenario are commercial. This is why Phase 2 is putting the concerns of business front and centre.

Put bluntly, the UK is not ready to leave the Customs Union and the Single Market in March 2019. Two of its largest business groups, the Confederation of British Industry and the British Chambers of Commerce, are insisting on the need for a transition to allow businesses prepare for the additional costs associated with importing and exporting.

There are also problems on the government side. HM Revenue and Customs have advised that 130,000 UK businesses which currently trade solely with EU member countries will have to deal with customs obligations for the first time.

The UK comptroller and auditor general cast doubt earlier in the year on the capacity of the UK’s customs computer systems to cope post-Brexit.

This is before any resolution of other regulatory issues. Transition would defer the evil day when all these issues crystallise.

We can now expect business concerns to be at the heart of the Phase 2 Brexit negotiations in 2018. Whatever these practical concerns, the politics of meeting them will be even harder for the UK negotiators.

Brian Keegan is director of Public Policy and Taxation at Chartered Accountants Ireland

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