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News & Insights on Europe

News and Views on Europe – 5 May 2017

posted by eucentresg

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Tough talks ahead of Brexit negotiations
On Saturday (29 April) the leaders of the EU27 came together in Brussels to approve the guidelines for the Brexit negotiations. They showed a remarkable unity during their first Brexit summit and were able to agree unanimously on the guidelines in just four minutes. However, this was considered the easy part since all EU countries agree on the three priorities for the first phase of the Brexit talks: the need to negotiate withdrawal terms before agreement on future relations, and prioritising citizens’ rights, the financial settlement, and new external borders — particularly for Ireland. Ireland is the most exposed of the EU’s member states to Brexit. The Irish government wants to avoid a “no-deal” which would lead to a hard border between Ireland and Northern Ireland. The guidelines stressed the need to avoid “a hard border on the island of Ireland, while respecting the integrity of the union legal order”. There was also talk that a united Ireland would automatically be accepted as member of the EU. Such talks had raised concerns regarding the UK’s unity with discussions around the status of Northern Ireland, Gibraltar and Scotland.

Following this summit and a dinner meeting between president of the European Commission, Jean Claude Juncker and Theresa May, the media was full of reports highlighting the difficult negotiations ahead. A devastating report in the German Newspaper Frankfurter Allgemeine Zeitung (FAZ) shed light on the wide gap between the UK and the EU. The newspaper cited anonymous EU officials who described the British PM Theresa May as “poorly briefed and ill-prepared.” According to FAZ, May said she would not agree to pay an exit bill when leaving the EU since there was no basis in the EU treaties on that type of settlement. May downplayed the report as “Brussels gossip”, but did not deny the accuracy of the account.

Once again an issue of contention was the sequencing of the talks: May insisted on negotiating the divorce settlement and the future trade deal at the same time, whereas the EU said that the negotiations will be sequential and that there will be no future agreement unless there is a settlement agreement. Juncker was highly sceptical after the talks and put the chances of a “no-deal” at over 50%. He further said that May was on another “galaxy” and that he left “Downing Street ten times more sceptical than [he] was before.” May responded to Juncker’s remarks by saying that the Commission chief would find a “bloody difficult woman” when the negotiations start. German chancellor Merkel made reference to the Juncker-May meeting in a speech she made to the Bundestag in which she stated that some in the UK government had “illusions” about the nature of the Brexit talks.

On Wednesday (3 May) the European Commission published the negotiating directive, which outline the details of the guidelines agreed on 29 April. The document is expected to be formally adopted by the European Council on 22 May. Michel Barnier, the EU’s chief Brexit negotiator, stated: “Some have created the illusion that Brexit would have no material impact on our lives or that negotiations would be concluded quickly and painlessly. This is not the case.” With regard to the Brexit bill, EU officials explained that Britain has to cover all financial commitments made for the current period (2014-2020). The directive states, that on top of that the UK has to fully cover the cost of the relocation of the European Medicines Agency and the European Banking Authority. According to an article in the Financial Times, the UK could end up with a bill of up to €100bn, much higher than the €60 billion initially floated by Juncker. However, Barnier insisted that the figure is not a “punishment” or a “Brexit bill”. “It is about settling the accounts.”

On the same day (3 May), Theresa May gave a speech after formally dissolving parliament, in which she took aim at threats and leaks from Brussels and went even as far as accusing Brussels of trying to influence the national elections. She stated that “The European commission’s negotiating stance has hardened. Threats against Britain have been issued by European politicians and officials. All of these acts have been deliberately timed to affect the result of the general election which will take place on 8 June.” She further claimed that some EU officials want Brexit talks to fail. Politico called her speech “a major escalation of her anti-Brussels rhetoric”.


Asian views on Brexit, Frexit and French election
Late last week, 27 EU member states backed the proposed EU negotiating guidelines with regard to Brexit. Leaders were reportedly nodded through the guidelines in a matter of minutes before bursting into applause. It led Fu Jing of China Daily to comment that the “uncharacteristically quick” decision-making process shows that “pragmatism equals vision when dealing with Brexit”. On the one hand, European leaders are pragmatic in the sense that they are committed to ensuring a smooth transition as reflected in the priorities spelled out in the guidelines pertaining to “divorce” settlement – citizen rights, financial settlement and Ireland border issues. On the other hand, Fu suggested that leaders are also visionary as they are determined to deliver the European integration project despite Britain leaving the EU.

While no further progress has been made on the negotiations for the EU-India FTA, Shakeel Aamer of The Market Mogul on Tuesday (2 May) speculated that Brexit would lead to the prospect for a post-Brexit Britain tightening trade ties with India through an FTA. To Aamer the economic logic is compelling – a commonwealth study predicted that complete removal of tariffs between the two countries would translate to massive trade gains (26% increase in bilateral trade) – but political will on both sides is absent. One of the major hurdles is the UK’s policy that curbs the rights of Indian students to continue living in the UK after graduation. Another hindrance relates to sheer uncertainties involved in the two-year “waiting period” for India as the UK must first negotiates the “separation agreement” with the EU; Aamer therefore stressed that it will be particularly important to see how geopolitical events pan out over the next few years to see whether ties between India and the UK remain strong.

Apart from immigration and geopolitics, a more important issue is the future (trading) relationship between London and Brussels post-Brexit. The nature (e.g. scope and depth) of that relationship will have important implications for Britain’s FTA ventures in the long run. Last week, British Prime Minister Theresa May during Japanese Prime Minister Shinzō Abe’s visit reassured Japanese investors that she would secure their position in the EU market through a trade deal with Brussels. May said she will make sure “the UK remains the best place in Europe to run and grow a business.”

The exit of Britain from the EU would make France the second largest economy in the EU. Whether there will be a Frexit will depend on the French voters this Sunday (7 May). France will make a choice between the far-right Marine Le Pen and centrist Emmanuel Macron in the run-off presidential election. India’s Statesman found it amazing that both traditional political parties – Socialist and Les Républicains – have unitedly thrown their support behind Marcon in the race for the Elysee. Given the “overwhelming support of the people and the political class generally” enjoyed by Marcon, the newspaper was convinced that Marcon would beat Le Pen.

Despite the perceived higher probability of a Marcon presidency, some analysts such as Andrew Sheng opined, in The Star, that the dangerous populist swing in Europe is yet over. He implied that the problems facing Europe – high unemployment, terrorist attacks, concerns over immigration and continued depression in southern Europe – will not automatically disappear with the election of Marcon (and will surely be worsened under Le Pen). Since French voters are deeply divided and many remain undecided or unconvinced by either choice, Frexit – France leaving the EU – risk is not zero, Sheng warned.


Indonesia, Malaysia and Thailand join forces against EU on palm oil during ASEAN Summit
The European Parliament in early April passed a resolution to phase out the use of unsustainably produced vegetable oils, including palm oil, in the production of biodiesel by 2020. According to the Philippines-based newspaper The Business Mirror, the EU then adopted the resolution recommending the imposition of a tighter importation policy on palm oil, to “more accurately reflect the real costs associated with the environmental burden”. Citing land-use conversion and numerous incidents of wildfire, palm-oil cultivation.

The adoption of this resolution unsettled several Southeast Asian countries. Speaking during the Indonesia Malaysia Thailand – Growth Triangle (IMT-GT) which ran parallel to the 30th ASEAN Summit in the Philippines last week, Indonesia’s foreign minister Retno Marsudi denounced the allegedly “discriminative” resolution as part of what she called “an international smear campaign against oil palm”. (Reflecting the importance of palm oil to their respective economies, the IMT-GT Summit saw the attendance of Indonesian President Joko “Jokowi” Widodo, Malaysian Prime Minster Najib Razak, and Thai PM Prayuth Chan-o-cha.)

Indonesia and Malaysia together produce 80 per cent of the world’s palm oil, and Thailand is the third largest producing country. While driving economic growth, the palm oil industry has long been criticised by environmentalists for causing rapid deforestation in Indonesia, Malaysia and Thailand in recent decades.

As the EU resolution would affect the livelihood of close to three million smallholders in Indonesia and Malaysia, both Indonesian President and Malaysian Prime Minister had openly voiced their concerns and supported the proposal to “address this new threat and try to influence the EU not to enforce this ruling”. Malaysian Prime Minister Najib added that “the 10-member Asean could wield more influence when it spoke with one voice”. ASEAN’s stance over the issue formed part of the Summit’s Chairman’s Statement and Malaysia’s Minister in the Prime Minister’s Department Datuk Seri Abdul Rahman Dahlan said: “If the EU places such conditions and bans our products, ASEAN can also show its strength and retaliate. From my observation, if this is not resolved, it can escalate to a stronger reaction from ASEAN that can impact EU interests in the region.”

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