Last reviewed 19 January 2017
If even the Queen still has no idea what Brexit means, despite Christmas 2016 marking almost exactly six months since the vote to leave the EU, is it possible to sum up — at least for the transport sector — where we are and what is likely to happen next? EU consultant Paul Clarke looks at the options available to the UK at this point (hard and soft Brexit and variables within these options) and how these might impact on UK hauliers.
What happens next?
Probably the first thing to make clear is that nothing substantive has happened in this six-month period, confounding the predictions of both those who wanted to remain and the Brexit voters. One side expected economic Armageddon on the day after the vote: the other thought the country would regain immediate control of its borders and laws. The reason that both were wrong is that “leaving the EU” is a process, not a single act. The UK cannot simply walk away from commitments and treaty agreements forged over a 40-year relationship, unless it wants to spend several years defending its actions in the international courts. It must negotiate its exit on terms agreeable to all sides which means, of course, deciding what it wants after the split is complete.
Being “pro having cake and pro eating it” is not an option, despite Foreign Secretary Boris Johnson’s confidence. Even if the European Commission (EC) and the European Parliament were full of goodwill towards the UK, it must be obvious that they cannot allow a Member State to leave with all the benefits of belonging to the Union, and none of the responsibilities. There is an often-expressed belief from Leave campaigners in the UK that German and French companies will not allow worries about free movement of people to get in the way of selling their cars or wine to British consumers. However, it will not be French or German companies making the vital decisions: it will be politicians. And politicians with elections coming up in their own countries will not want to risk looking “soft on the Brits”.
The point of view repeatedly put forward in Brussels is that if the UK is allowed to design its own ideal EU membership — plenty of access to the single market, lots of restrictions on the free movement of people, special exemptions for the City of London from financial rules — then every other Member State will begin demanding that the EU honour its own individual wish list — and the Union will collapse. As was pointed out by the then Chancellor, George Osborne, in the run-up to the June vote, the UK already has a better deal than most, in that it has full access to the single market but has stayed out of the single currency and the Schengen free movement zone. What it could not escape was the EU’s golden rule: adherence to the Four Freedoms laid down in the various EU Treaties regarding the unhindered movement of goods, services, people and capital.
Any Member State may decide to withdraw from the Union “in accordance with its own constitutional requirements”, Article 50 of the EU Treaty begins, and then, in four short paragraphs, it sets out that this intention must be notified to the European Council. This triggers a two-year negotiating period. The EU will be represented by the EC, acting on a mandate from EU Ministers, but agreement can only be concluded by the Council, voting by qualified majority, after obtaining the consent of the European Parliament. It is of course possible that the negotiating period could end with no deal in place, in which case the UK would simply cease to be a member of the EU. Only by the agreement of all the 27 other countries involved could the two-year period be extended. For those thinking that this surely will not be necessary, it is worth remembering that the only other country to leave the EU was Greenland, in 1985, after it gained home rule from Denmark. Those discussions took the full two years despite dealing with a population smaller than that of Tunbridge Wells and with only one product to worry about: fish.
The EU negotiators know that the possibility of a “sweetheart deal” for the UK getting past the European Parliament, let alone the 27 Member States, is vanishingly small. It would take only one dissenting voice to derail the process, as the EU was reminded when its supposedly uncontentious trade deal with Canada was very nearly scuppered at the last moment in 2016 because Belgian law required that the country’s regional parliaments must also give approval and Wallonia (population 3.5 million) was unhappy with the proposals.
Uncertainties ahead for UK hauliers
As a House of Lords’ briefing on the subject put it: “There are potentially a lot of uncertainties for UK haulage companies as a result of Brexit.” So let us examine some of them.
Too few drivers
The haulage industry has an ageing workforce and a looming retirement problem. It has, to a large extent, become dependent on being able to hire drivers from other Member States who can be brought in with compatible driving licences and who will be able to show that they have their Driver Certificate of Professional Competence (CPC). What happens to that supply when the UK leaves the EU? “We have at least 60,000 lorry drivers from abroad — and the Road Haulage Association (RHA) wishes to see access to labour from abroad continue” was the answer from one of the country’s leading trade bodies. Finding drivers is becoming so difficult that one employment agency was reported to be offering truckers from Bulgaria, Poland and Romania who already work in the UK £100 for each of their compatriots they could persuade to cross the Channel to work.
As well as potentially losing access to this source of labour, or needing to apply for limited numbers of visas made available under some post-Brexit immigration system, operators must also be concerned about the status of those foreign drivers they already employ. Both the British Chambers of Commerce (BCC) and the TUC have lobbied the Prime Minister, asking her to guarantee EU migrants’ right to remain in the UK after the Article 50 negotiations have concluded.
At the moment, the position is unclear and the Government has been reluctant to show its hand until it knows what will happen to UK nationals living and working in other Member States. BCC Director General Adam Marshall said that taking an early and unilateral decision would send a signal of goodwill to the EU that could only benefit the UK’s negotiating position. The Prime Minister did not respond.
Stuck at the border
Any drivers or operators who were in the industry in the 1980s will remember what life was like before the single market came into being, removing barriers to free movement of goods and services. Long waits at borders were an occupational hazard and having the right paperwork was a vital necessity. Any driver leaving the ferry at Calais today has in theory a relatively open road to Madrid, Milan or Munich. That will no longer be the case if the UK fails to secure membership of the single market.
There were approximately 100,000 sets of technical regulations in the then Member States in the mid-1980s that were subsequently replaced by EU regulations. To transport a lorry load of goods from London to Milan in 1988 required 88 separate documents, according to the Senior European Experts group (an independent body consisting of former high-ranking British diplomats and civil servants). The internal market replaced the 88 with one piece of paper.
Professor Alan Braithwaite, a Fellow of the Chartered Institute of Logistics and Transport (CILT), also commented on this problem. He said: “Over time, Brexit will create barriers at borders for the administration of trade in both directions. That will impact logistics efficiency, because goods will move more slowly.”
In addition, the CBI has expressed serious concerns that there will be delays on inbound and/or outbound movements of goods that will compromise the ability of the haulage sector to maintain the service levels that supply chain customers require. Many ports, it points out, simply do not have the space required to introduce customs controls or immigration controls on movement of goods and people between the UK and EU.
British companies used to complain of foreign-owned vehicles, full of cheap diesel, arriving to take work away from them. However, the introduction of the HGV road user levy, and the UK’s diesel prices moving a little closer to continental levels, have not so far changed the picture. Indeed, just 12% of the traffic currently crossing the Channel consists of British-registered trucks. Poland is leader in the cross-Channel freight market, thanks to its very low cost base. Things could get worse in that respect as UK traders could be faced with increased costs caused by the new customs restrictions. Would they try to pass some of these costs on to their transport providers?
A weaker pound will mean it costs more to buy from truck manufacturers in Germany and Sweden and spare parts, as well as costing more, may well take longer to arrive due to customs checks and other restrictions. Same-day deliveries from warehouses on the continent will become a fading memory. Insuring trucks and premises may also become more expensive if the financial sector loses its right to operate freely across the Union and raises prices to meet its new higher costs.
The CBI has made very clear that its members want to maintain the closest possible links with the EU. In Making a Success of Brexit (available at www.cbi.org.uk), it sets out six common principles that respondents from a wide range of companies identified as business priorities. Top of the list is the need for a barrier-free relationship with the EU (described by the CBI as the UK’s largest, closest and most important trading partner). That is followed by the need for a clear plan for regulation, to provide companies with certainty in the short term and which will balance influence, access and opportunity in the long term. A migration system which allows businesses to access the skills and labour needed to deliver growth is third on the list, followed by a renewed focus on global economic relationships (with the business community at their heart) and an approach that will protect the social and economic benefits of EU funding. The list of priorities ends with the call for a smooth exit from the Union.
Looking specifically at “Transport, Distribution and Logistics” in the report above, the CBI highlights that this sector is worth £76.8 billion to the UK economy — far more than Life Sciences (£6.4 billion), Food and Drink (£26 billion), Agriculture (£8.5 billion) or Energy (£36.2 billion). “Additional barriers to trade in goods would complicate the workload of this sector first, and should be avoided wherever possible,” the CBI argues. “And, with many jobs within this sector supported by non-graduate labour from the EU, it is vital that the exit from the EU is smooth and involves an adjustment period to allow this industry to adapt.”
Go Swiss or Norwegian?
Various options were mooted during the referendum by which the UK could stay close to the EU when it ceased to be a full member. It could for example have a similar status to Switzerland, with its set of specialist agreements with the Union guaranteeing it tariff-free access to EU markets, or it could go down the Norway route and join the European Economic Area (EEA) putting it on a par with Iceland and Liechtenstein. Again this would maintain free access to EU markets. Three things need to be borne in mind, however, for both of these options — and the first two would seem to be anathema to dedicated Brexiteers: the countries concerned have to pay into the EU’s budget; and they have to apply all the Treaty freedoms, including the free movement of people.
One point that was not much commented on during the referendum debates is also worth weighing in the balance. Neither the Norwegian model nor the Swiss gives those countries any say in setting the rules and regulations that they have to apply to maintain their relationship with the EU. The EC will simply mark a piece of legislation appearing in the EU’s Official Journal as having EEA relevance and that will be as much consultation as Norway or Iceland are granted. If, at some point in the future, the UK was to accept similar status in order to maintain the most advantageous trade links with the EU, would UK transport operators really not want their trade bodies or their MEPs to have the chance to influence, say, a major revision of the Driver CPC rules? This would be particularly worrying as the UK has frequently been seen as an ally by those in the EU wanting to modernise and improve transport legislation. So is there an option which would allow the possibility of influencing draft legislation, while maintaining full access to the internal market but restricting the number of migrant workers coming to the EU only to those filling specific skills shortages?
That would be the softest of Brexits — indeed it would be so close to being a full member of the EU that questions would have to be asked as to whether the whole process had been worthwhile given that the UK would effectively end up back where it started. However, for reasons discussed above, there seems little chance that this option will be entertained by Michel Barnier, the former French Foreign Minister who will be the EU’s lead negotiator. The UK Government has focused almost entirely on trade in its discussions on Article 50. Mr Barnier insists that other matters need to be covered including the UK’s share of costs such as EU staff pensions, unpaid bills on infrastructure projects and the decommissioning of nuclear power plants. He reckons that should come to about £50 billion; he does not sound like a man ready to offer the UK an easy way out of its current dilemma.
A bespoke Brexit?
Brexit Secretary David Davis has said that the UK does not want an “off-the-shelf” solution and will not be looking for an EEA-style agreement with the EU nor anything similar to Switzerland and its membership of the European Free Trade Association (EFTA). Prime Minister Theresa May said it would be a “red, white and blue” Brexit which, if it means anything, would seem to be as exciting for the French as it is for the UK. In reality, producing a bespoke Brexit is surely the point of the Article 50 negotiating period. However, that presupposes that the talks will not be as envisaged during the referendum debate when the confident prediction was that the UK would have so much to offer, in trade terms, that the EU would be unable to resist legitimate demands to do away with the Court of Justice, the free movement of people and, in all probability, the playing of the EU anthem, “Ode to Joy”, on Europe Day. That mindset can only lead to …
Hard Brexit means hard borders, with that between Northern Ireland and the Republic being the most contentious and difficult for the UK (not to mention what might happen if Scotland somehow manages to fulfil its First Minister’s pledge and stays, independently, in the Union). It will probably mean that the UK will be trading with the EU under the rules of the World Trade Organization (WTO) rather than having any special relationship. Even if Sir Ivan Rogers (the UK’s most senior diplomat in Brussels until he suddenly resigned on 3 January 2017) was wrong when he said a post-Brexit UK-EU trade deal might take 10 years to finalise, and even if WTO Director General Roberto Azevedo was mistaken when he said “negotiations merely to adjust members’ existing terms have often taken several years to complete — in certain cases up to 10 years, or more”, the UK faces an uncertain trading future.
So much legislation
A major problem for road haulage, compared with other sectors, is that so many of its rules are enshrined in EU legislation and it has direct business and personnel links (drivers) with other Member States. Or at least part of it does, with larger businesses being involved in cross-border trade (and mainly in favour of staying in the single market) while smaller operators concentrate on domestic work (and tend to be supporters of Brexit). The Government has said that it will introduce a Great Reform Bill once negotiations with the EU are complete, and that this “will convert existing EU law into domestic law, wherever practical”. So, no great changes on day one with time thereafter to sort out which laws the UK wants to keep?
One immediate problem that arises is the division in EU law between directives (which set a standard with which the Member States have to comply in their own laws) and regulations (which are not implemented in the Member States but must become part of their law without any change or modifications). Thus we have, as one example, Directive 2010/19/EU concerning spray-suppression systems of certain categories of motor vehicles and their trailers, which was implemented in the UK by the Road Vehicles (Approval) Regulations 2009 (SI 2009 No. 717). As an example of EU regulations which apply equally across all Member States, we need look no further than EC Regulation 1071/2009, on access to the occupation of road transport operator, and EC Regulation 1072/2009, on access to the international road haulage market, including provisions to be complied with by undertakings that wish to operate on national markets other than their own (cabotage).
All the UK legislation based on EU directives will be captured by the Great Reform Bill and will presumably, in the event of any version of a soft Brexit, remain on the statute book (as the factsheet Transport Laws and Current Practice — What Will Happen Post-Brexit? suggests). At that point, the UK will have to decide what to do about the EU regulations which play such an important part in governing the road transport sector. Bring them into UK law or abandon them? This would seem to hinge on whether the negotiators achieve a soft Brexit, and continue trading with the EU under broadly similar arrangements, or end up with a situation where the UK simply leaves the EU with no special access to the single market.
And this is where the problems really begin for the sector. Consider just some of the areas where European legislation has taken over, or at the very least, extended UK law affecting road transport.
Design and dimensions of trucks.
After Article 50
Will some or all of these laws be maintained in the UK? Even if the original EU legislation has been safely enshrined in UK law for a number of years, will politicians or special interest groups agitate for changes, arguing that employers in the UK should not be bound by European red tape? Given the level of antipathy to legislation such as the Working Time Directive and the Agency Workers Directive, it is almost certain that some laws will be repealed — even if only as a gesture of independence. Once it comes to specialist sectors such as road haulage, the Government may well set up working parties and consultation to overhaul particular sectors — we simply do not know.
Of course the question then arises, will UK drivers be allowed into other Member States if they are no longer controlled by the existing rules and regulations? The short answer is that no-one knows that either, or whether these matters will even be discussed during the Article 50 negotiations. The emphasis so far, both in the run-up to the referendum and since, has been on trade, to the exclusion of almost everything else. And, as the Queen discovered, the Government either does not know or will not say what it wants with regard to trade, so how likely is it that any deep and meaningful discussions have taken place in Whitehall about cabotage?
And that will not be a happy prospect for transport operators. Especially as they will be waiting to find out what happens to a whole range of employment legislation affecting their businesses. Leaving aside the purely transport-related rules and regulations, what will the UK do — in the event of leaving the EU with no agreements in place — about matters involving European law such as pensions, TUPE, data protection, VAT and health and safety? Those operators working in other Member States would also need to examine all of their contracts to ensure they remain legal and enforceable and would have to consider the position of any employees they had sent to work in offices or subsidiaries in other EU countries.
How likely is any of this to happen? That entirely depends on the extent to which the UK negotiating team feel that they have room to compromise. If Mrs May intends to prioritise the restriction of immigration into this country to the tens of thousands, then no rational observer can foresee anything other than a hard Brexit. The EU simply cannot afford to give the UK free access to the single market if it steadfastly refuses to move on the free movement of people. In that case, the UK would have to leave the Union and accept the tariffs and other trade restrictions that would result as it lost access to the single market. That may be a price worth paying, as the Leave campaign insisted, but the full implications have still to be assessed. The economy has not fallen off a cliff, as the Remain experts rather unwisely predicted, but, as this article has tried to explain, little has so far changed in the UK’s position. As the Prime Minister herself stressed, we are still members of the EU and will remain so, and will observe all the relevant rules and regulations until such time as the Article 50 negotiations are concluded. So, while we are not falling off a cliff, perhaps we are walking rather close to its edge?