Culture, Tourism, Europe and External Affairs Committee

Meeting date: Thursday, October 4, 2018

Official Report 647KB pdf

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Article 50 Negotiations

Good morning and welcome to the 25th meeting of the Culture, Tourism, Europe and External Affairs Committee in 2018. I remind members and the public to turn off their mobile phones. Any members using electronic devices to access committee papers should ensure that they are turned to silent.

We have received apologies from Jamie Greene MSP.

Our first item of business today is an evidence session on the article 50 negotiations with Professor Anand Menon, director of the Economic and Social Research Council’s UK in a changing Europe programme. Professor Menon has indicated that he would like to make a short opening statement.

I think that all that I will do is briefly summarise what I put in the written submission that I gave to you.

Some of the questions that I was asked to answer are unanswerable. What is the current state of play in the article 50 negotiations? It is very hard to say. What is obviously clear is that the big issue on the table at the moment is the Northern Ireland backstop. What is equally clear is that the issue that has got Westminster in a frenzy is Chequers, even though, actually, Chequers is not going to be part of any legally binding agreement that we come out with after the article 50 process. There is a curious disjuncture between the attention of Westminster and the focus of the talks at the moment, because the European Union are adamant that this is about the past, not the future.

There is a long way to go. One of the most remarkable things about the article 50 process is that we are so deep into it and it is impossible to know where it is going to end up. You can trace a logical and relatively convincing path from where we are now to any conceivable outcome, whether that is no deal, another referendum or some sort of patched-up vague deal. The first key milestones are the October summit and, potentially, a November summit. It is conceivable that the process at EU level will not end there. It is perfectly conceivable that we will end up with another special summit after November in the event that we do not end up with a deal. It is worth bearing in mind that there are lots of different deadlines in the article 50 process. For some people, the deadline is Christmas, because Christmas is when firms are going to trigger contingency plans if there is no certainty about the future. However, in political terms, we could sort out the deal with the EU in January and still have time for the process to wend its way through until the end of March.

Looking at the domestic level, the key milestones are the vote in Westminster on the deal that comes back and then the vote in Westminster on the bill that puts that deal into law. I would just point out that historical precedent suggests that members of Parliament will not always vote the same way in the first vote as they do in the second. If you go back to the process that enabled us to join the European communities in 1973, there was a big majority for the agreement to join and a majority of only nine for the European Communities Act 1972. When MPs see the detail of the legislation that puts in place the agreement that they have signed with the EU, they might change their minds. They effectively have two bites at the cherry and two opportunities to veto the deal. We are not entirely sure when that second vote will be held.

In terms of impacts, first, leaving the single market and the customs union will have a profound impact on our economy; there is no point in trying to deny that. Secondly, those impacts are going to vary considerably regionally. Ironically, simply in terms of trade interdependence, the two parts of the United Kingdom that are least exposed to issues with trade with the EU are Scotland and London. I say that that is ironic because, of course, they are the two parts of the country that voted most strongly to remain. We have a research team—I am happy to point you towards their website—who do a detailed tracking of what they expect regional impacts to be, and they are in a far better position than I am to talk about the detailed economics.

The final question that I tried to address was whether it is conceivable that the UK will remain in the single market or that Scotland will. I will just point you to two things that we say in the written evidence. First, while the EU is clearly willing to consider a unique deal for Northern Ireland, I think that that absolutely does not mean the EU will be willing to do the same for Scotland. The reason why it is showing flexibility over Northern Ireland—despite grave disquiet about that special deal on the part of some member states—is because the Republic of Ireland is insisting on it. That will not apply to the same extent to Scotland.

The second thing that I would say is that, whatever flexibility the current Government might show in negotiations with the EU, I cannot conceive of that extending to anything remotely like single market membership, because that brings into play the fundamental three red lines. I will leave it there, if that is okay.

Thank you, and thanks for your written evidence as well; it was very useful.

In your written evidence, you suggest that a compromise is possible on the backstop to facilitate the completion of the overall withdrawal agreement, yet key people in Europe, such as Guy Verhofstadt, in his tweets this morning, and also the convener of the European Parliament Committee on Constitutional Affairs, Danuta Hübner, have suggested that the proposed Chequers deal, even if a Northern Ireland backstop was worked out, would still not be acceptable because it violates the four principles of the single market. Even if a backstop was somehow agreed, is there any guarantee—given everything that has happened, given Salzburg—that the Chequers plan could get through, because it divides the single market, in the sense that it wants the UK to be in the single market for goods but not for services, and because, of course, it does not sign up to free movement of people?

First, on Guy Verhofstadt, it is worth bearing in mind that the European Parliament will have a vote on the terms of the deal. There is some slight confusion over this, because he also tweeted yesterday that,

“We will never accept an extension on article 50”

but the European Parliament does not get a vote on that, so that is slightly misleading.

I would separate two things: there is the backstop and there is Chequers. Chequers is an attempt to ensure that implementation of a backstop does not lead to regulatory checks within the UK. You are absolutely right to say that the EU has addressed all sorts of concerns about the backstop. My personal view is that the EU has a tendency to address interest as principle, in the sense that there are several instances where the EU has waived its principles—for example, the association agreement with Ukraine, the deal with Switzerland and the deal that is on offer to Northern Ireland—and in all those instances, the integrity of the four freedoms is somewhat mitigated. What the EU is saying, though, is that it will not do that for the UK as a whole, which is fair enough. There are good economic reasons not to do that.

I do not think Chequers as it is will fly. I still remain cautiously optimistic that, between them, the British Government and the EU will find a way of preventing a hard border in the island of Ireland while reducing, as far as possible, the visibility and the impact of checks across the Irish Sea. There will have to be some sort of differentiation, I think, between Northern Ireland and the rest of the UK, because of the EU’s insistence that either we all remain in the single market or there will have to be checks.

In your written evidence, you set up a timeline to the end of March. When do you think that the withdrawal agreement needs to be negotiated by so that it can ensure full implementation?

I would say that, to be safe, by about mid to late January it needs to be signed off in the European Council in order to go to the European Parliament and be done by 29 March. There are two ultimate deadlines. There is 29 March, which is a political deadline. I find it very hard to see how this Government under this Prime Minister politically will be able to extend that deadline, because it has made great play of stressing that date. The ultimate practical deadline beyond which Brexit gets delayed quite significantly is the end of April, because that is the last plenary sitting of the European Parliament, after which it breaks up for elections and then nothing is going happen again until the autumn.

Thank you. Kenneth Gibson will ask the next questions.

The negotiated transition period, as part of the withdrawal agreement, is scheduled to end in December 2020, but obviously it is going to be extremely challenging to negotiate and finalise the future relationship within those 21 months after the UK has left the EU. Is there a need to include provision in the withdrawal agreement for an extension to the transition period, as argued by Fabian Zuleeg and Tobias Lock?

There are two things to consider. First, it will not be a 21-month negotiation, because, if you think about it, from the end of March until probably the start of autumn there will be little in the way of negotiations, because we will be appointing a new European Commission and, therefore, a new trade commissioner, and we will have the European Parliament elections. Further, of course, it takes anything from nine to 12 months to get these things ratified, because, in the EU, trade deals have to be ratified by national Parliaments and, in cases such as Belgium—which we are now all too familiar with—by regional Parliaments as well. The time period is actually far less than 21 months.

All I can do here is report the views of my EU law colleagues, and of course each of them has a different view, but the consensus opinion seems to be that it will be necessary to have something in the withdrawal agreement that makes reference to an ability to extend the transition period. The reasoning for that is that, for some people, the transition, even as it stands, is a bit of a stretch of article 50, because article 50 is basically about the past, not the future, which means that the European Council is kind of overstepping its powers by agreeing a new third-party relationship, albeit for only those 21 months, with a third country. It looks like we are not going to have a legal challenge to that—so far, so good. There are some EU law experts who would argue that, once we start transition, even if the withdrawal agreement contains provisions for extending transition, that is not legally foolproof, because it will look to some people like an usurpation of power by the European Council, because it will involve the European Council deciding on an ability to lengthen a third-party agreement that formally should go through another process involving the European Commission and European Parliament. We do not know yet whether that will be the case, but it certainly seems to me wise to include provisions in the withdrawal agreement that will make it safer.

I understand that there has already been agreement to contribute to EU data systems up to 2026, so there have already effectively been agreements to go beyond the stated transition period of 21 months.

Absolutely. Our untangling from EU institutions and policies and processes is going to be staggered and will take place at different points and at different times. You are absolutely right to say that data is one of those areas, but that is slightly different from transition. Transition is a specific status that we will enjoy with regard to the EU, where in economic terms we continue as we are now but without representation in the institution. That is very different to the individual sectoral deals.

I would like to pick up on a couple of points. The Irish backstop issue remains unresolved at this stage and it is difficult to see how it will be resolved, given the diametrically opposed views that are emerging. What is your view on the unity or otherwise of the 27 on that issue, and, indeed, more generally? It seems in terms of the public position that the 27 member states remain unified on their negotiating stance.

There is all sorts of rumour and counter-rumour on this. There is a piece in the Financial Times today that hints at the fact that the Irish might be softening towards British proposals more than other EU member states. I do not know whether that is true or not.

The EU has certainly publicly kept its unity quite impressively. There are different shades of opinion among the member states about whether the EU should or should not be more flexible. Ultimately, all national capitals realise that it is simply not worth the hassle to engage in a damaging full-scale fight among themselves and it is far easier to leave this with the European Commission.

One other point of division is that there are some member states that are already rather twitchy about the Northern Ireland backstop as proposed in the December agreement. I have heard people who are close to the French Government say that it raises a profound danger that Northern Ireland will become a manufacturing hub and that manufacturers from the rest of the UK will relocate to Northern Ireland to benefit from the fact that Northern Ireland will be in some of the single market, but not all of it, and will therefore gain a comparative advantage. There are already divisions on that, but they are not breaking through to the political level as yet.

We do not know what will happen in the future. It seems clear to me that the British Government is still hoping that, as we reach the end point, the combination of the prospect of no deal, plus the increased involvement of political principals in the process, will lead to those divisions becoming more pronounced. The rationale is that, at the moment, Brexit in the national capitals across the EU is handled by sectoral experts who are steeped in EU law but perhaps not so steeped in geopolitics, and that the more that heads of state and Government get involved in this, the more that they will recognise that there need to be trade-offs. That is why, for instance, the new foreign secretary, when he went to Berlin soon after his appointment, was talking about the dangers to the western alliance if we do not get this right. He was appealing to the broader geopolitical issues that are at stake, rather than simply the technical issues of EU law.

I do not know what will happen. It seems to me very unlikely that EU unity is going to break publicly and to our benefit before the end of this process.

09:15  

I speak as a former lawyer practising EU law, mostly in the private sector. You speak of the process moving out of the realm of EU lawyers into the realm of those engaged in geopolitics. I wonder, would that apply to the Democratic Unionist Party? Its statements this week suggest that the geopolitical situation on a wider scale is not really something that is at the forefront of its position.

It is absolutely not. At the moment, several simultaneous games of chicken are being played by different people against different people. The British Government is playing chicken with its back benchers, the EU and the Republic of Ireland; and the DUP is playing chicken with the British Government. There are people in the British Government who, in private, will say that, ultimately, the DUP would rather compromise than face the risk of a Corbyn Government. Everyone is assuming that everyone else is talking tough but will soften towards the deadline.

What is very interesting to me is that the December agreement and the words spoken by the Prime Minister in the heat of battle immediately after Salzburg both contained the statement that there will be no new checks between Northern Ireland and the rest of the United Kingdom “unless Stormont agrees” to that. It is still conceivable that, behind the scenes, the Government is asking politicians in Northern Ireland, “What will it take for you to sign this off?”

That remains to be seen.

You suggested that the fundamental freedoms had been somewhat mitigated in other examples of trade agreements. I hear what you say, but is it not the case that, if you do not have the jurisdiction of the European Court of Justice as far as the four fundamental freedoms are concerned, that means absolutely that you have a very loose form of co-operation and you do not have anything near the status quo in terms of freedom of movement of goods, for example, because those are the rules of the club? If you are not subject to the umpire, you do not have the same set of rules. Is that not, nonetheless, still the position? Irrespective of what the EU’s motivation in terms of matter of principle might be, the fact remains, as a matter of law, that it has very little leeway to go beyond the structures of the tenets of the single market.

I would say that that is true with wrinkles, in the sense that, for instance, if you look at the European Economic Area agreement, it is a way—if you want to be cynical about it—of dressing up the direct authority of the European Court of Justice. Proponents of the EEA model will say, “Look, you are slightly freer of the ECJ with the EEA.” Actually, I do not think you are that much freer, because ultimately, if you look at the track record, EU law gets implemented and the ECJ has oversight.

I think that your point is absolutely right, but there are two different issues. There are the issues of whether you are within the whole of the single market or bits of it and there is the issue of how those bits you are in are justiciable. The negotiations over governance will be absolutely fundamental. It is something that we have not yet spoken about enough. The UK Government’s white paper put forward some very vague proposals on governance and how governance can be managed short of direct ECJ authority, but I think that you are absolutely right to say that. from the EU side, that is non-negotiable. That is one of the big cultural differences between the two sides. You hear the British Government say things like, “Obviously our laws will be equivalent to EU law, so we do not need to bother,” and, from the EU side, you hear, “That is all very well but, ultimately, there has to be a court overseeing it, and as far as we are concerned, it is our court.”

I will follow on from Annabelle Ewing’s questions. Notwithstanding your comment regarding the different players playing chicken with each other, have you seen or are you aware of any evidence at all of a semblance of common sense, from an economic perspective, in the various political players to try to get to a successful outcome, particularly regarding the Northern Ireland situation?

It is clear that both sides are committed to not having a border on the island of Ireland. They differ on how to get there and in how sacrosanct their principles are in terms of a final deal. Ultimately, at its simplest level, the Brexit decision was a decision to make trade with our biggest and nearest trading partners slightly more difficult. One way that I interpret the Brexit vote is that it is a triumph of politics over economics. Curiously, economics is no longer driving political decisions in this post-Brexit world. That is clear if you look at the Chequers agreement, which is a wonderful example of politics triumphing over economics.

If an economist wanted to write Chequers to ensure the best economic deal for the United Kingdom in its relations with the European Union, they would turn it on its head. They would say, “We don’t have to worry about agriculture, because it’s such an insignificant proportion of our gross domestic product, and manufacturing is relatively unimportant, but we need to strike a deal on services, because that ultimately is what our economy is about.” Chequers turns that logic on its head for political reasons, including the political reason of the Northern Ireland border. Chequers was written with a view to avoiding a border rather than with a view to anything else, and because of the political rather than the economic salience of sectors such as manufacturing.

I do not think that economics is driving the process on either side. You will remember that, during the referendum, several spokespeople of the leave camp expressed their confidence that the German car makers would go and see the German Chancellor and say, “This will be bad for business,” and that therefore the German Chancellor would cave. On both sides, politics is running the show, rather than economics.

On the issue of Germany and the other EU27 nations, the committee has heard on more than one occasion that Brexit is not the burning issue for the EU27. They have many other domestic issues and Brexit is just number 5, 6 or 7 down the line. Is that the case?

Yes, it probably is the case, certainly in the short term, which is one reason why the British Government is saying, “If you look beyond the actual exit date, there will be all sorts of spillover effects on security, co-operation and other things that you need to think about.” Day to day in the European capitals, they are worrying about the migration crisis; the east-west values division that is rearing its head in the European Union and causing a lot of people sleepless nights; and of course a resurgence of the eurozone crisis, particularly in Italy, because of the Italian budget situation.

Brexit is not their most pressing issue, which is one reason why I said in answer to an earlier question that I do not think that EU disunity will happen. That is for two reasons. One is that the stakes are not quite high enough for people to put their heads over the parapet. Basically, that means that if an EU member state—let us say a Scandinavian Government—is slightly concerned about the way that Britain is being treated and would like the EU to show more flexibility, it has to decide whether to burn political capital in the EU fighting that corner or to keep its powder dry to fight the wars over the eurozone that are bound to come. Everyone is making the calculation that, actually, Brexit is not their first priority at the moment.

Will the provisions of the future relationship form part of a formal withdrawal agreement or will there be another document to deal with all of that?

There will be a separate document, but they will be voted on as a package by the British Parliament.

How will that impact going forward?

In what way?

On how the process will be managed.

The crucial thing going forward is that the European Union will not bind itself. The Government has made noises about making the agreement legally binding in some way, but I find it hard to see how to do that, not least because there will be a new negotiating team in place next year, and Governments might change in Europe and so preferences might change. My sense is that what we agree on the future relationship will be political. That does not mean that it will not have weight, but it will not have the weight of a legally binding agreement. I am yet to hear anything that convinces me that there is a way of making it legally binding.

As you have indicated, the complexities of that become apparent, depending on where we end up. If that is the case, what is the next step? If there is not a legally binding process that gives us the expected opportunities and if there are changes in the views of Governments across Europe, the whole idea becomes even more problematic.

That is where the phrase “blind Brexit”—I think that it was the First Minister who coined it—comes into play. For me, a blind Brexit or a blind exit is the necessary outcome of any decision to leave the European Union because of its own rules. The EU cannot formally negotiate a trade deal with a member state. The article 50 process is backward rather than forward looking. Therefore, I do not see how you are not at least partially blind, because, by law, you cannot be anything but that. It is a real danger.

David Davis was absolutely right that, ultimately, the problem for the United Kingdom is that our moment of maximum leverage would be when we can link the withdrawal process, and in particular the European Union (Withdrawal) Act 2018, with concessions that we would like the EU to make over the future relationship, but the structure of the process means that that is not going to happen. To go back to an earlier question, the danger is that, once we leave and the withdrawal agreement is signed, we become even less of a priority than we are now, and therefore moving the trade negotiations forward and getting concessions will be even harder. However, I do not see any way around that.

I have a supplementary on that. Obviously, as you have said, the withdrawal agreement and the transition terms are legally binding, whereas the future relationship is a political statement. A number of UK politicians, such as Michael Gove, have hinted that we should simply get out and we can worry about the future later, or that we can make promises now that we could renege on in future. How do such statements affect the negotiations?

It is hard to say. I have just come here from the Conservative Party conference. You have to hope that statements like that do not affect negotiations too badly, because that was all that we heard in Birmingham. The remarkable thing about Michael Gove’s statement was that it managed to unite the Brexiters and the Government in opposition to it, but there is absolutely no doubt that people on the continent listen to what we say here. For instance, one reason why the French in particular are absolutely dead set against anything that looks like partial single market membership and are slightly nervous about it even for Northern Ireland, is that they have listened to rhetoric from London since the 1980s about deregulation and they take it seriously. I do not think that we have ever acted in the way that we have spoken, but a succession of Prime Ministers from both the big parties have taken great pleasure in going to Brussels and talking about the need to get rid of regulations. As we have said that for so long, it is perhaps unsurprising that our European partners take it seriously.

That is why one of the big fights to come will be the fight over the so-called level playing field. There is a degree of nervousness that whatever we sign up to now we will not adhere to in the future. The European Union is anxious to get assurances over a level playing field and that we will not diverge from its policies, even in areas that are not directly covered under the ambit of the future relationship. It is not necessarily about what Michael Gove said, but years of rhetoric have made some of our partners a bit wary of allowing us to go where we want.

The committee has already heard that the European Parliament is not comfortable with the agreement that has already been made in principle on guaranteeing the rights of EU citizens. The European Parliament is not convinced that the UK will stick by what it has promised.

It was one of the great insights into our constitutional system that, when we started negotiating the withdrawal agreement, we realised that we cannot give the kind of long-term guarantees to citizens that the EU is after, because we have sovereignty of Parliament and one Parliament cannot bind the next. That is why, early in the article 50 process, there was an enormous fight over the European Court of Justice having jurisdiction over the elements of the withdrawal agreement that cover the rights of EU citizens. We ended up with a compromise of, I think, nine years for that.

There is concern but, personally, I am not that concerned about the European Parliament trying to block the agreement, not least because of the unprecedented level of co-ordination between the Commission, member states and Parliament, which has been one of the interesting things about the Brexit process. The European Parliament has been kept in the loop all the way through the process. During the negotiations, when citizens’ rights were discussed, the European Parliament’s concerns were fed into the EU negotiating position. There are concerns, but I do not think that they will result in the European Parliament voting down the agreement. We have ended up with probably the only possible compromise between a legal system that is constitutionalised such as the European Union one, and one that is far less so, like ours.

09:30  

I will continue on the theme of the withdrawal agreement and the future relationship agreement. Some of the more rational Brexiters, looking at the clock ticking down, seem to be going back to where they were, at least rhetorically, a couple of years ago, in stating that the withdrawal agreement can be managed as, in essence, a monumental fudge by shifting as much of it as possible into the negotiations on the future relationship. Their argument is that we can fudge the issues that are causing difficulties for the withdrawal agreement by punting those into the next round of discussions on a future relationship. I do not see how that works, but it would be interesting to hear your thoughts on whether that has any chance at all politically. You talk about a series of games of chicken going on. The approach seems to be based on the idea that Europe will blink first in that regard. Is there any political possibility of that?

I think that you are right and the Brexiters are wrong, given what is happening. One of the calculations of Government whips about the vote to come in Parliament is that they will be able to peel off a sufficient number of Brexiters who just want Brexit to happen because of the threat of a second referendum if the agreement is voted down. That is going on. There are some in the Brexit camp who just want us to be out and then to sort it out afterwards. However, we cannot fudge the withdrawal agreement. We can fudge the future relationship, which we want to trade against the withdrawal agreement, which puts us in a weaker position, but the withdrawal agreement, as we have seen in the sections on the money and citizens’ rights, has to be crystal clear. Given what has happened over the Irish backstop, the European Union will make certain that there is no scope for ambiguity in the language around that in the version that is finally agreed.

You mentioned the idea of a second referendum and a people’s ratification vote. Beyond the domestic British political challenges of whether that is possible, how would the EU27 react to that? There have been a number of statements from various European politicians who are open to it. You have mentioned the impressive unity of the bloc so far. If the UK political environment got to the point where there was a majority for a people’s vote at Westminster, would the EU27 be open to the possibility of that being facilitated before 29 March? If so, how long before 29 March would that have to take place?

I draw your attention to a report that is out or is about to come out from the constitutional unit at University College London on the procedural and legal steps that would need to be taken to get us to a second referendum. The unit strongly intimates that doing it before the end of March would be just about possible but extremely difficult. There are two different EU issues there. One is whether EU member states would be open to us staying, to which I think the honest answer is that, in public, they would have to be but, in private, probably less so, among some of them at least. The second is about how we would withdraw. This is speculation upon speculation: were we to have a referendum and were it to decide that we were to remain, what would happen then? No one legally knows whether we could unilaterally revoke article 50 or whether we would have to go back to the negotiating table. That is a point over which lawyers disagree, so we do not know.

I am one of the pursuers in the case that is now going to the ECJ on exactly that point.

Yes. Steve Peers has a blog on EU law and one of the blogs in that is a debate between him and Steve Weatherill of the University of Oxford in which they take opposing sides as to whether we can unilaterally revoke article 50. It is well worth reading to see some of the legal issues on that.

The third issue is whether the EU would grant us an extension in the event that we decided to have a referendum but we could not do it in time. That would be by unanimity, of course. I find it hard to believe that it would not do so, partly because I find it hard to see us getting to that point under the current Prime Minister, in which case we would have a new negotiating team, so it would be hard for the EU to say, “No, we’ve had enough of this—let’s just stop and you can fall out with no deal”.

Can I ask a more practical question? I am one of 20,000 Spaniards who cross the runway into Gibraltar every day—what is going to happen at the end of March next year?

The honest answer is that I am not entirely certain.

No, indeed.

In the short term, in the transition period, very little will happen, but beyond that I do not know. Spain is not the most stable of countries politically at the moment either, which adds to the uncertainty. The danger is that a weak Spanish Government will see a chance to play the national card by playing hardball over Gibraltar. One of the tragedies of the Brexit process—it is perhaps inevitable—is how, given the stakes in what is going on, the special status of places such as Gibraltar and the Channel Islands has been overlooked. I do not blame the British Government for that, because there is so much going on that it is very hard to have the bandwidth to do this, but the sense of, “No one is talking about us,” is very noticeable if you go to Gibraltar or the Channel Islands. The honest answer is that I do not know what the future holds.

I appreciate that; what you say is entirely fair. Do you think that the position of Gibraltar has any implications for the Northern Ireland border discussion? Is there any linkage, because it is another border?

In the abstract, yes; in the political world so far, no. It is worth stressing the degree to which the Northern Ireland border is being treated differently by the EU because the Republic of Ireland insists that it should be. That is the key variable there. It is a nice example of how, if you are a member state and you really need the support of the EU and you get it, it makes a big difference.

I am sure that it would be different if the Gibraltar Government were in Birmingham like you, but it is just not getting through, is it?

No. I should say that the Government of Gibraltar has been tireless, and barely a day goes by when you do not see its representatives in Parliament or at the party conferences. They have been working this as hard as they can, to the point where at least people are aware of the fact that there is a Gibraltar issue, but I just do now see how that issue can rise in political salience, given the scale of the other issues that are involved in this.

The other question that I want to ask is about fisheries. The fishing industry is getting well and truly done over, because we are soon to be in a position where our fisheries minister—and indeed, the UK fisheries minister—will not even be at the table when quotas for the future are being sorted out. That is what it will be like for lots of industries in the future, but fishing is an industry where that experience is real now.

Absolutely—we will not be at the table. I do not know what the solution on fisheries will be. Again, I can point you to one of our teams. Craig McAngus at the University of the West of Scotland is doing a big research project on Brexit and fisheries and what Brexit means for Scottish fishing communities. I would advise you to look at his website and perhaps talk to him at some point, because he knows everything about fish that there is to know, which is not something that can be said for me.

The broader point on regulation is absolutely true. I do not think that even something like Chequers solves the problem for manufacturing to the degree that people seem to think that it does, because for manufacturers the issue of regulation is as important as customs and tariffs.

I was talking to someone from one of the high-end car manufacturers recently, who said, “Look, we sell expensive cars. If there is a 10 per cent tariff, we just stick it on the price and no one will notice, but what we do not want is to know that Fiat and co are sitting around a table setting the regulations that will determine what our cars look like in the future and we are not even in the room.” You are absolutely right that not being at the table when the regulations are negotiated is something that concerns a lot of manufacturing firms in this country.

I agree. Last week, the boss of PSA said that Vauxhall will go on to short-term working, if not close, and Nissan and Jaguar Land Rover bosses have said much the same in the past week in the run-up to the Tory party conference. I did not notice the Prime Minister making any observations about the economy of the car industry, yet Greg Clark signed some kind of deal with Nissan—we do not know what it is—about a year and a half ago. Can you shed any light on that? Is there a deal for Nissan that is different from the position for other car companies?

I have absolutely no idea what was done with Nissan. It is worth clarifying that the car manufacturers were talking about a no-deal scenario rather than a deal scenario. I think that the head of the Royal Bank of Scotland was also talking about that today on the “Today” programme. I do not think that anyone has said that they are going to close in the event that we leave the EU.

It will be interesting to see what happens in the future. When you talk to the big foreign car firms, they say, “Obviously this will make things harder and we will have to reassess,” but equally they will say, “We have a lot of sunk costs in the UK. We have paid an awful lot of money for plant and we are not just going to close that down and walk away.” For instance, BMW has plant and infrastructure here and I think that we are its second-biggest export market. I do not think that it will be as extreme as people walking away, given the previous investments that they have made and given the importance of this market, but it certainly will give them cause to rethink how they do things. Perhaps the most interesting person to listen to on this is the Japanese ambassador, who has become quite a character now and who is palpably upset about what is going on and what the implications are for the Japanese.

But your main point is that regulation is the bit that matters.

It is not that regulation is the bit that matters but that regulation matters as well. Obviously Honda has gone on record to say how much disruption at the ports will cost it because of its just-in-time supply chain. I am not for a moment saying that the customs arrangement do not matter, but I am saying that it is important not to forget the regulatory stuff because, for some manufacturers at least, that is also fundamental.

A point that has been made to this committee is that it is increasingly difficult to separate goods from services. If you buy an engine, for example, you will have a service agreement on that engine, so you cannot separate the two. To go back to my earlier points, we seem to be accepting that the question is how we implement Chequers, when so many people at the very top of the EU have said that that division between goods and services is simply unacceptable.

I will say several things to that. First, yes, you are absolutely right that services and goods are often bundled. I think that Rolls-Royce revealed the proportion of its exports that is made up of services—service contracts and maintenance contracts that are tied to the goods that it exports. Secondly though, there is the separation that will be allowable for Northern Ireland in the event that the backstop is implemented. It is possible to do, however messy it is. Thirdly, as I recall, about two or three weeks ago Michel Barnier came out with some figures about the potential damage that British comparative advantage would cause in the event that we were in some bits of the single market and not others. I still have not seen where those figures come from convincingly. You are right that it is difficult, but that does not mean that it is impossible, and it is on the table, in a manner—

You keep going back and saying that this fudge is possible for Northern Ireland but, even if that is the case, it is absolutely impossible for the rest of the UK, as the EU would never accept it.

It might be politically impossible, but my argument is that in principle it is not impossible, because if it is being done for Northern Ireland, it is in principle possible. I think that we then get into a political and interest-driven argument, which is absolutely fine. At the moment, the EU is saying that it will not accept it for the UK.

Donald Tusk said:

“Everybody shared the view that while there are positive elements in the Chequers proposal, the suggested framework for economic co-operation will not work. Not least because it risks undermining the single market.”

At the Conservative conference this week, it was announced that migrants would have to be on £50,000 a year before they came into the UK. Obviously, that would have serious economic implications, but what are the implications for the negotiations of that announcement?

That is for the future, remember. It is not about people who are already here; it is about people coming in in the future. The implications are that the EU will respond in kind to Brits who want to go and work in other EU member states.

Basically, it will cause a hardening of attitudes.

Yes, it will cause a hardening of attitudes and, generally, when people are talking about immigration policy, the two sides involved respond in kind, so yes, it will become harder for British people to go to other EU member states. It is worth stressing the point that Brits living or working in other EU member states will have rights, but they will lose the right of freedom of movement, so there are interesting questions for the Brit who lives in Germany and works in Luxembourg; they will have the rights in the country they live in, but how portable those are is something that we are going to have to talk about in the future.

We do not talk enough about the situation and the status of Brits living in other EU member states, but they will perhaps be the group that is most badly and immediately affected in the event of no deal. We have legal provisions in place now—or we will have—for EU citizens who are already here, whereas in many member states nothing has been done legally to address the question of what happens to British nationals in the event of no deal, because they are all waiting for the sign-off of the withdrawal agreement. In other EU member states, British nationals will fall into a weird kind of legal limbo, because they will not be covered by the law. They will not be covered by what the law says about the EU, because they will not be EU citizens any more, yet there will be no immigration law about them, because that will not have been drafted yet.

09:45  

I apologise for arriving late this morning.

I understand that you have already discussed the Northern Ireland issue before I arrived, but in your written evidence to the committee you say that geographical indications, intellectual property rights and the protection of personal data are other issues within the withdrawal agreement that are causing difficulty. Can you give us an update on where negotiations are with that and say whether we are likely to get a consensus on those issues?

The honest answer is that I cannot, I am afraid. I have spent two weeks at party conferences and have not been paying much attention to what has been happening in Brussels. Geographical indications were certainly a big issue two or three weeks ago. Whether they have made any progress, I just do not know.

It is interesting that you mention the party conferences because—this goes back slightly to the Northern Ireland issue—my observation of the Conservative conference over the past week was that there was a very firm emphasis on the union and the idea of unionism. Arlene Foster had a fairly high-profile presence at that conference. How does that impact on the difficulties that there are in reaching an agreement on Ireland? I was concerned about the message that the strong emphasis on that gave to Northern Ireland, Ireland and the EU.

It is worth emphasising this point, actually, because I think that it is often misunderstood. The party is the Conservative and Unionist Party, and I think that, even if the current British Government were not dependent on the votes of the DUP, this would be a massive political issue for the Conservatives; it would be for parts of the Labour Party as well. I think that it was Dominic Grieve who said during the withdrawal agreement debates in July that he does not know a parliamentarian who would vote for the implementation of the backstop as it is currently drafted. There is a very strong feeling among many MPs that they cannot preside over what they see as the separation of one part of the UK from another.

There are two aspects to that. The first is the one that we are all talking about, which is checks—that is to say physical checks and the symbolic and political importance that they would have—but the other, which I think is going to be equally important, is legal jurisdiction. Mr Grieve’s point, as far as I understood it, is that what would be unacceptable for him would be the notion that part of the territory of the UK would fall under a legal system over which we have no say. It is absolutely a very serious political issue.

Do you agree that that does not recognise the history of Northern Ireland and the conflict that there has been in Northern Ireland? The solution that came with the Good Friday agreement was that membership of the EU allowed people in Northern Ireland to feel that they were part of Ireland and also part of the UK, so an emphasis on the idea of unionism in relation to Northern Ireland is problematic at a stage where we are trying to reach a solution that maintains the integrity of the Good Friday agreement.

Absolutely. Here I would recommend the work of Katy Hayward at Queen’s University in Belfast, who understands that border like no one else, I think. The paradox here is that, since the Good Friday agreement, essentially in the case of both Northern Ireland and, to a degree Scotland, what we have done is work to make borders more ambiguous, so that there can be national identities, but the borders between countries are fuzzy and people can move quite freely. Brexit was a reassertion of a rather old-fashioned notion of borders—“There is the border. We control it. It is clear.” Trying to reconcile those two, particularly in the case of Northern Ireland, is proving massively difficult, as it was always going to be.

I have a question about the comments that Jeremy Hunt made at the recent Conservative Party conference regarding the EU and a Soviet prison camp. He has since backtracked on those comments, but nonetheless, he made them on the conference floor. Do you think that that type of thing will help the negotiations? How do you think it will affect relationships, bearing in mind that we are still in a situation where no deal has been agreed?

We should not fall into the trap of thinking that that is in any way new. One EU ambassador told me at the conference that they were “disappointed but not surprised”, which kind of sums it up. Our European partners are aware of the way that our politicians act, particularly at party conferences. It is not particularly helpful; in fact, it is particularly unhelpful in the sense that, in so far as they will alienate some people more than others, they will alienate the EU member states on which we might otherwise have relied the most for support—the countries of central and eastern Europe. Saying something that will offend the Baltic states strikes me as bad foreign policy, but it is just the tenor of language that we have at party conferences. Party conferences are a different thing, where politicians are talking to a different audience. The papers are full of reports that Conservatives act as if no one can hear them outside the room. I do not think that that is the case; it is just that they go to conference with the party faithful once a year—and bear in mind that the party is very badly divided—and they all go for the lowest common denominator.

At some point after 29 March, when the economy turns and starts to suffer and costs start going up and it potentially gets harder to obtain food within the UK—the UK Government has appointed a new minister responsible for that—how easy do you think it would be for the UK to change its mind and rejoin the EU? The UK economy will be in a pretty bad way in the near future.

We probably need to dig a little more into what will happen to the British economy. There seems little doubt that Brexit is already having an impact on the British economy. John Springford at the Centre for European Reform is doing a monthly estimate of what Brexit has cost the UK economy to date. If I remember rightly, his latest estimate came out last weekend. There is an impact. However, there is a danger—I see this from remain campaigners—of exaggerating or overdramatising what that impact will be.

Leaving the single market and the customs union will impact on the British economy, but it will not do so straight away. There will be other impacts. For example, we are almost certainly seeing a big slowdown in investment at the moment because common sense dictates that companies are waiting to see what happens before they invest. To all intents and purposes, we will not leave the single market and the customs union until after transition, and that is when those effects will start to hit—depending on whatever trade deal we might get.

The estimates suggest that that will lead to about a 5 per cent hit to the British economy. It is worth being specific about what is meant by that: it refers to the economy being 5 per cent smaller than it would otherwise have been over a period of years, not to the economy shrinking by 5 per cent on exit day. The point that I am trying to make is that although the economic impacts of Brexit are real, they will be far more subtle than a lot of people are making them out to be. They will be far more subtle, far harder to discern, particularly if employment levels stay relatively high, and far more difficult to pin on the single issue of Brexit, because it is happening over a period of years.

We should not necessarily assume that all of a sudden everyone will turn around and say, “Oh my God, the economy is doing worse. It is because we have left.” Essentially, the way that you will know that our economy is feeling the impact of leaving the EU is if you pick up the FT, look at a graph of growth across Europe and see that ours is lower than everywhere else in the eurozone. However, most people will not do that. The first cautionary note, if you like, is that the impact will be relatively subtle.

As to the meat of your question, if we want to rejoin, we can apply to rejoin, but we would have to apply to rejoin like everyone else. There are some things worth bearing in mind. First, what would be the political context in the UK that would allow that? In so far as the impacts that we are talking about are visible, it is perfectly conceivable that a majority, or a large proportion, of the British people, rather than thinking, “Oh my God, that was a mistake and we should rejoin,” will think, “We were absolutely right to leave, because the reason why our economy is not doing very well is that they punished us on purpose.” In the short to medium term, we might see a hardening of anti-EU attitudes in this country if the economy does not do very well.

Even assuming that a Government decided that it was right to attempt to rejoin, it would then face the problem that Britain would not get the special opt-outs that it enjoys as a member now. I am talking about the budget rebate and potentially, but not necessarily, Schengen and the eurozone. We would almost certainly have to apply to rejoin on terms that are far less favourable and far more politically contentious than the terms of our current membership.

I have listened to the debate this morning. There are so many unknowns at this stage, but surely one known is that Chequers is dead—the EU has said that. What is proposed is incompatible with the rules of the club. Just as you cannot be half pregnant, you are either in the club or you are not in the club.

If that is correct, what is the UK Government’s plan B? Do you think that it has a plan B, C, D or E? If, in the next few weeks, the EU keeps saying that Chequers is unworkable, what will the UK do? Will it put its hands over its ears? I do not know. You have just come from the horse’s mouth in Birmingham. What is the feeling about a plan B?

As a general rule, the only thing that I get from party conferences is not knowledge but flu. The Government has said that it will come up with a new set of proposals on the Irish border. Unfortunately, it looks like those proposals might not be ready for the October meeting of the European Council—although we do not know yet. An element of plan B will be those new proposals on the Irish border.

Chequers was never an outcome—it was an opening gambit and it was a political signal. It was quite a powerful political signal in some ways, was it not? It was a political signal that said that the Prime Minister is willing to try to compromise to the point of causing political problems for herself by making ministers resign. It was also, if nothing else, a very powerful statement of the fact that the British Government cannot be accused of not taking the Irish border issue seriously, because it was written with very little else in mind—it is a plan to prevent a border on the island of Ireland.

Like everything in political negotiations, it was partly about signalling. It was about signalling to the Irish and to the EU that the British Government would do everything it could to avoid a border. No one in the British Government expected that the EU would just tick off the Chequers proposal and say, “Fine.” They expected there to be a negotiation whereby the Government said to the EU, “Okay, come back with the specific gripes you have and we will negotiate.” That is what is going on.

The fundamental thing that we have not talked about—which I hope that we do not talk about because I am no expert on it—is the Government’s customs plans. I think that the EU is simply saying, “Look, you are either in the customs union or you are not in the customs union. The sorts of fancy dan arrangements that you are suggesting at the moment just will not fly.” That is partly for the reason that you gave before—it is a question of legal authority. The EU’s position is that you cannot have your tariffs and your border policed by something that is outside your legal jurisdiction, and I do not see that changing.

I will not ask you about detailed arrangements for the customs plan, but I was struck by what you said about the scenario of a free-trade agreement—if the Brexiteers win out. At the very end of the paper that you submitted to us, you said:

“Modelling work by The UK in a Changing Europe shows that livestock farmers in particular would be badly hit”

by the scenario of zero tariffs that would accompany a free-trade deal. You said that the modelling also demonstrated that Scotland would be worst affected in the scenario of unilateral tariff removal, particularly if direct payments were moved as well. You singled out beef farmers in Scotland as being particularly vulnerable. Can you tell us any more about that, as it is of great interest? I represent an area of Scotland that has 28 per cent of the beef herd, so the issue will be of great concern to people in my constituency.

I can certainly point the clerk in the direction of that research and the people who do it at the University of Newcastle. I am many things, but I am not a macroeconomist, so I would rather that those researchers spoke for themselves.

This is one area where the Tory party conference was absolutely fascinating, because it seems to me that there is an ideological fight going on within the Conservative Party and agriculture is one of the key things at stake. Some people in the Conservative Party are saying that Brexit is an opportunity to remove subsidies, cut tariffs and have cheap food. There are others in the party—I am talking about the parliamentary party—whose response to that would be, to paraphrase, “Are you mad? I live in a rural constituency. We will never win it again”.

I was at a fringe event about agriculture at the Tory party conference, which was fascinating because person after person in the audience put their hand up and said, “Look, I voted Brexit. I am a Brexiter, but”. The “buts” were, in no particular order: “We want to maintain a steady flow of seasonal labour or our business model will become unsustainable”; “We want a continuation of subsidies or our business model will become unsustainable”; “We need to maintain tariffs or our business model will become unsustainable”; and, “We need to keep EU regulations and therefore access to the EU market or our business model will become unsustainable.” There is a big debate to be had about agriculture.

So we need to ditch Brexit or our business model will be unsustainable.

That is not what they were saying, but of course the paradox in the farming sector is that the National Farmers Union advised people to vote remain but the evidence suggests that the majority of farmers voted to leave.

Thank you very much for that. It was very interesting. We will have a short suspension to allow for the changeover of witnesses.

10:00 Meeting suspended.  

10:05 On resuming—