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Event Report: Capturing European Views on the Progress of Brexit Negotiations

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About The Author

Dimitri Schneider (Guest Contributor)

Dimitri has been practising law since 2006 and is qualified in both Germany and England. Specialising in corporate and commercial law, Dimitri runs his own law firm - Schneiders - in Frankfurt. The firm's focus on expertise, absolute cost transparency and mental and operational mobility give clients an experience on par with having their own personal lawyer.

This article is part of the 'Brexit' series, edited by Matt Bogdan.

With the upcoming referendum on the UK's membership of the European Union, the Brexit series intends to explore key issues surrounding Brexit, particularly what effect EU law currently has on the UK, and what would be left with it gone.

Other articles from this series are listed at the end of this article.

On 2 May 2018, the Ministry of Economic Affairs and the Association of Chambers of Commerce and Industry in the State of Hessen, Germany, held a Brexit event in Frankfurt to discuss the possible economic ramifications of the UK leaving the European Union. This was one of the many Brexit-related events hosted by a variety of organisations in Frankfurt, Germany's financial hub, which aspires to challenge London as Europe's financial centre following the UK’s withdrawal from the trade bloc.

Among other distinguished speakers and representatives of renowned companies and influential organisations on the panel were Mr Robbie Bulloch (Deputy Head of Mission at the British Embassy), Mr Tarek Al-Wazir (Minister of Economics, Energy, Transport and Regional Development, State of Hessen) and Professor Dr. Wolfram Wrabetz (Deputy President of the Chamber of Commerce and Industry Frankfurt), who all participated in the interesting and informative roundtable discussion.

This article seeks to detail the major talking points from this event, and analyse what it suggests about how the negotiations between the UK and the European Union are progressing.      

The Mood of the Panel

The atmosphere among the participants of the roundtable discussion was rather constructive; the phrase "let's get the job done" was mentioned a number of times. If what was said by these high-ranking representatives is also being put forward by the key players in the Brexit negotiators, it is increasingly clear that the willingness to find a mutually agreeable solution has unequivocally grown. For example, Professor Dr. Wrabetz was quite sure that a deal will be concluded with the UK: in his view, "Hard Brexit" is seeming to slowly fade into the realm of worries past, such that even the key phrase – the "Special Deal" – does not seem to have quite the same provocative effect as it used to.

It is likely that the publication of the Joint Report from the negotiators of the European Union and the United Kingdom Government on progress during Phase 1 of the Brexit negotiations might have played a significant role in what seems to be a thaw between the UK and the European Union. The crucial sentence of the Joint Report is one which seems to suggest an implicit willingness not to pursue a Hard Brexit. This can be found at Paragraph 49 of the Joint Report, which reads:

In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which... support North-South cooperation, the all-island economy.  

The Moot Points

As was to be expected, Mr Bulloch promoted the idea of "Special Deal", whereby a bespoke agreement between the UK and the European Union – something along the lines of the special relationship between the EU and Switzerland – would be created. Moreover, Mr Bulloch reassured the audience that the UK was not seeking to become a tax heaven after Brexit. He quoted words from the UK’s Secretary of State for Exiting the European Union, Mr David Davis, that there were no plans to initiate a regulatory "race to the bottom" in the aftermath of Brexit: this is a sign that the UK does not intend to pursue a relaxation of regulatory restrictions and standards in favour of financial actors in order to "entice away" investments with more attractive conditions.

A further interesting point was the question of relocating the lucrative clearing of Euro-denominated securities – financial contracts stated to be in Euros – out of London into the European Union. Clearing houses assist stock trading and derivatives transactions, such as futures, options or swaps: they operate as "middlemen" by conducting the processing and the ‘clearing’ (the settlement) of transactions, as well as guaranteeing their completion.

Mr Al-Wazir suggested that supervision and liability belong together, and expressed concerns about the fact that this will not be the case after Brexit. However, this argument is not entirely convincing for a number of reasons. Firstly, by way of an example, there are substantial US-Dollar-Clearinghouses that are located outside the US. Secondly, there is no imminent danger that would justify the disruption of an already well-functioning and trusted system. Thirdly, the cost of the relocation should be taken into consideration. The UK's assurance in Paragraph 49 of the Joint Report does not give rise to fears that the UK plans to "go rogue" on the European Union.

It is therefore unfortunate that, on 13 June 2017, the European Commission released proposals regarding the regulation of clearing houses that is quite unfavourable to the UK. Among other measures, these proposals would allow the European Commission to direct certain third-country clearing houses (which would include those in the UK after Brexit) to relocate to countries in the European Union if they want to retain access to the Single Market.

The Case for the "Special Deal" 

One of the major trump cards that the UK holds is its undisputed know-how in certain sectors. The UK is the most developed capital market system in Europe. Sound and trusted know-how will not fail to find appropriate outlets; hence, quite substantial amounts of equity and debt are raised by companies from the European Union in London. Thus, it is clear that, the UK's know-how and financial services are crucial for a range of different industries across the European Union.

The UK is also one of the innovators in the sphere of company law and has one of the most popular legal systems in the (business) world. What are the reasons for its proliferation? For one, the sanctity of freedom of contract and the emphasis that is placed on private autonomy are highly valued qualities of English law for business parties. Moreover, English law offers commercially unique and very effective legal instruments that are not provided by civil law systems. Again, this pole position will not be easily challenged in the foreseeable future.

Furthermore, the UK is one of the largest – and thus most attractive – markets in Europe for numerous industries, including electro-technical and pharmaceutical products, as well as cars and associated products. Indeed, this author knows from their own legal practice how excited small-medium enterprises from the European Union become at the thought of marketing and selling their products in the UK.

Conclusion

Ultimately, the know-how and trust acquired over decades by the UK cannot be easily replicated, if at all. It is therefore submitted that it is in the economic interest of the European Union to conclude a well-tailored deal with the UK in regard to Brexit.

Therefore, it is promising and welcome that it can be gleamed from the panel discussion that took place in Frankfurt on 2 May 2018 that it is not a far-fetched hope that the European Union and the UK may be on their way to finding a viable solution which will be more than just a compromise. In light of some of the commercial considerations, this would be a solution that is also perfectly justifiable.

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Tagged: Banking & Finance, Brexit, Commercial Law, European Union, Legal Business, Regulators, Trade

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