May's Brexit Plan: The Details, The Overtures and The Meaning

(Bloomberg) -- U.K. Prime Minister Theresa May set out her Brexit plan, which keeps such close ties to the European Union that it prompted her chief negotiator to quit.

Brexit Secretary David Davis, and his deputy Steve Baker, resigned two days after the Cabinet signed off on the plan, which had the U.K. maintaining tight links to the bloc for trade in goods, but breaking free on services, including financial services.

May's Brexit Plan: The Details, The Overtures and The Meaning

Here are the highlights from the three-page summary released by the government. The full 100-page document is due to be published this week.

The Irish Border

  • The Cabinet reckons it’s found a way out of the Irish border stalemate -- the main sticking point in talks -- and this will make it easier to get the divorce deal that’s due to be signed in October.
  • The new plan would remove the need for a policed frontier between Northern Ireland and the Republic of Ireland. While both sides want to avoid a hard border, each side rejects the other’s idea -- known as backstop proposals -- to guarantee that. The Cabinet says the new plan means a backstop won’t be needed, and this will make it easier to reach a deal. Check out the exact wording here: It’s point 5.

Frictionless Trade for Goods and Food

  • A U.K.-EU free trade area that establishes a common rule book for industrial goods and agricultural products.
  • The U.K. would "commit by treaty to ongoing harmonization with EU rules on goods."
  • Businesses are pleased with this, and the Confederation of British Industry says it takes on board some of the evidence companies have been presenting.
  • This is one of the key bits that helps solve the Irish border issue as checks on food and goods standards won’t be needed at that frontier.

Financial Services

  • On services, the U.K. “would strike different arrangements for services, where it is in our interests to have regulatory flexibility.”
  • The U.K. recognizes that means the U.K. and the EU will not have current levels of access to each other’s markets. For financial services, it will seek arrangements “that preserve the mutual benefits of integrated markets and protect financial stability, noting that these could not replicate the EU’s passporting regimes.”
  • There’s no mention (in the three-page summary) of "mutual recognition,” an idea the U.K. had been proposing whereby finance regulators on each side would recognize each other’s rules as compatible. The EU had rejected this.
  • The CityUK financial-services lobby group says it awaits further details when the full document is published next week.

Listening to Barnier

  • There will be no race to the bottom on regulations. This is one of the favorite themes of EU chief negotiator Michel Barnier: The EU can’t have on its doorstep a country that’s trying to undercut the EU by slashing regulation. The U.K. commits to keeping "high regulatory standards for the environment, climate change, social and employment and consumer protection, meaning we would not let standards fall below their current levels."
  • The Cabinet has listened to the EU’s demands for a “workable, realistic” proposal and has come up with a “precise, responsible and credible” plan to move talks on.
  • Barnier has welcomed the document, but still needs to give it a careful read before commenting. There’s lots in it he won’t like -- such as the attempt to split the single market into goods and services.

European Court of Justice

  • The court is a symbol of lost sovereignty for the Brexiteers, and May has promised it won’t have direct jurisdiction in the U.K. after Brexit.
  • The proposal sees a role for the ECJ as an interpreter of EU rules as part of a plan to have a joint committee interpret and enforce agreements between the two sides.
  • Pro-Brexit Transport Secretary Chris Grayling said on Saturday the important thing was that the ECJ loses its role as the supreme court for all citizens in the U.K. after Brexit.


Immigration

  • Controlling immigration from the EU was one of the main reasons that Leave won the 2016 referendum and it’s one of the few Brexit issues voters still care about. The government has promised free movement will stop.
  • The plan suggests a “mobility framework’ so that U.K. and EU citizens can “continue to travel to each other’s territories, and apply for study and work.”
  • The main Brexit-backers in the Cabinet are all liberal on immigration, though May herself is clear that free movement must come to an end.
  • The EU says allowing free movement is a non-negotiable element of single-market access.

Customs Plan

  • First there were two plans and the Cabinet couldn’t agree on either (remember Maximum Facilitation and the New Customs Partnership?)
  • Now the Cabinet has agreed to a third way: it’s called a Facilitated Customs Agreement. The U.K. will collect tariffs on behalf of the EU and refunds will be offered if the U.K.’s tariffs are different.
  • It will be introduced “in stages as both sides complete the necessary preparations."
  • The EU has been very frosty about any plan that delegates its tax collection to the U.K. and there are also concerns about smuggling. Germany doesn’t like it.

And Some Gifts for the Brexiteers

  • Planning for no-deal Brexit will be stepped up.
  • The U.K. will leave the Common Agricultural and Common Fisheries policies. Fishing is a big deal for Brexit-backers and lots of fishermen voted to quit the bloc.
  • The U.K. could potentially seek access to the trade pact known as the Trans-Pacific Partnership (the deal from which the U.S. withdrew).

©2018 Bloomberg L.P.