U.K. Parliament, Not Theresa May, Emerges as Boss of Brexit

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(Bloomberg) -- When it comes to Brexit, Parliament -- not Theresa May’s government -- is the ultimate boss. And in the end, lawmakers could decide to keep the U.K. in the European customs union against the prime minister’s will.

That was the logic of David Davis, the U.K.’s chief Brexit negotiator, in evidence to a parliamentary committee in London on Wednesday. And it has major implications for the divorce deal with the EU that might follow.

Whether the U.K. stays in the customs union goes to the heart of what type of Brexit the country will get. May and her Brexit-supporting Conservative colleagues want to leave the EU’s tariff regime to allow the U.K. to break free of the bloc’s trade policy and strike new deals with countries including the U.S.

EU Said to Be Ready to Give U.K. a Say on Trade in Customs Union

But pro-Europeans and business groups want to keep the U.K. in the customs union to ease the flow of goods across the border. They say leaving it would create major problems for trade and hurt the British economy.

The issue could come to a head next month, when the House of Commons is expected to vote on whether to stay in the bloc’s tariff regime. Rebels in May’s Conservative Party are preparing to vote against her plan to leave it.

Davis said he wouldn’t speculate on “hypotheticals,” including what will happen if Parliament defeats the government. In any case, Davis said he expected the government’s policy to be approved by legislators.

‘Respect’

That wasn’t enough for Parliament’s Brexit committee chairman Hilary Benn. “But if it isn’t, you’re going to have to respect it, aren’t you?” he asked Davis of a potential parliamentary defeat.

“The government always respects Parliament, but I expect the government’s policy to be upheld,” Davis replied.

In politics, expectations matter but they are not the same as guarantees.

Davis was later asked if there’s a danger that the U.K. would have to stay in the EU’s customs union beyond the 21-month transition period if new border arrangements were not ready in time.

Davis said there was a “risk” that French or Dutch border checks would make life difficult if no new system for smooth operations is ready to introduce -- but he insisted he is talking to EU governments about this issue.

“I do not expect the solution to that to be extension of membership of the customs union,” he said. “I would view that on my part as a failure.”

Davis’s comments are the latest in a series of hints that there’s some flexibility and movement in the government’s position on the customs union. Connect some of these dots and a picture begins to emerge that a blurring of this red line is perhaps possible.

1. Free-trade deals may not be all they’re cracked up to be

Some of May’s officials think that quitting the customs union in order to win the power to strike free trade agreements with countries such as the U.S. or Australia is not as desirable as passionate Brexit supporters believe, Bloomberg reported on April 12. Such trade deals with third countries can take a long time to negotiate and end up mired in litigation, while measures short of formal FTAs can still deliver significant benefits, one person said.

2. The government has suffered a series of defeats

The House of Lords has voted in favor of staying in the customs union and while the vote isn’t binding it will probably embolden Tory rebels in the House of Commons to vote the same way. A vote in the chamber could come as soon as next month when an amendment on the Trade Bill is debated and enough Tories have signed up to it to defeat May. Rebels forced May’s hand at the end of last year by outvoting her on Brexit and have little to lose by doing so again. Labour also wants to stay in the customs union so Brexit-watchers estimate there is probably a majority for it overall in Parliament.

3. Are the Big Brexit guns willing to resign over it?

With murmurings of a change of mood -- Sunday Times wrote on April 22 of a possible “surrender over customs union” and how May’s aides had done a war-game exercise to see if any Brexit-backing top ministers would resign in protest over the issue.

When asked directly about this at the Group of Seven, Foreign Secretary Boris Johnson declined to stake his political future on it. Liam Fox, who was put in charge of international trade, built a whole case this week on how the customs union only deals with goods, while the U.K. economy is overwhelmingly reliant on services. It was an interesting distinction from a euroskeptic who back in February said a reversal on customs union would be a “complete sell-out.”

©2018 Bloomberg L.P.

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