A Brexit update: why the development sector needs to mobilise

You need to concentrate to keep on top of the Brexit negotiations. This is true even on a topic as circumscribed as international development- though I shall argue shortly that that throws the net pretty wide. The development sector is not fully engaged, I would say, and needs to work better together. Part of that means asking the right questions, including about the non-negligible possibility that we might not leave at all. There are seven priorities, for the Government and for the sector:

1. Map the political landscape, including both the remain and leave sides of the argument, and in the rest of the EUEuropean Union as well as in the UK;
2. Create and analyse scenarios up to and beyond the meaningful vote, so as to be ready for all eventualities;
3. Stay engaged in planning for the period after Brexit, not just during the transition period, but beyond 1 January 2021;
4. Understand better the implications of channelling money through the EUEuropean Union after Brexit;
5. Develop strong, eye-catching proposals for collaboration with the EUEuropean Union after Brexit;
6. Extend the aid analysis to other sectors, especially security, migration and climate change; and
7. Assess the extent to which Brexit proposals affect the EU’s future plans, especially for the next Multi-Annual Financial Framework.

This is not a trivial project and will require many hands to complete. The British cabinet has a war cabinet on Brexit to lead key decisions, as well, of course, as a new Government Department specifically tasked with managing Brexit. Should the non-governmental sector have a similar structure. Will BONDBritish Overseas NGOs for Development lead? Or the think-tanks?

Mapping the landscape

To catch up with the negotiations, start with Theresa May’s agenda-setting speeches at Lancaster House in London in January 2017, in Florence in September 2017, at the Munich Security Conference in February 2018, and at the Mansion House in London in March 2018. Check the Road to Brexit contributions by the Trade Secretary, Liam Fox, and the Foreign Secretary, Boris Johnson. Read the latest negotiating guidelines agreed by the EUEuropean Union Council in December 2017. Trawl through the various versions of the Draft Withdrawal Agreement, most recently the colour-coded version published in March 2018 -  all available in the EU repository of Brexit documents. Don’t forget to keep up-to-date with the work of the Brexit Committee in the UK Parliament. Track the work of the think-tanks, including ODI, CER, UKTPO and CGD. And finally, keep an eye on the press, for example a recent article in The Times, reporting that the UK is offering to continue contributing to EUEuropean Union aid programmes after Brexit, as quid pro quo for a deal on security.

Two points before diving in.

First, the obvious point that development is about much more than aid – and also about more than policy specifically labelled ‘external’. Trade, climate, security, and migration are all intrinsic to development. And when the EUEuropean Union takes apparently inward-looking decisions on agriculture or industrial policy, or action on CO2, these all impact on developing countries. So the issue is not that tightly circumscribed after all.

Second, it is necessary to stand back from the minutiae and survey the entire political landscape, both in the UK and the EU.  Some think – and many hope – that the UK may revoke Article 50, and decide to stay in the EU, perhaps if a ‘meaningful vote’ in Parliament in October triggers a political crisis. Others disagree, and think the legal routes are blocked. Meanwhile, the EUEuropean Union itself is progressing its own political agenda, responding inter alia to the ambitious agenda for reform laid out in Emmanuel Macron’s Versailles speech in 2017; and, actually, does not necessarily see Brexit as its most urgent priority.

The question, then, is not just what a Brexit deal might look like, but rather about a range of scenarios. There are five questions to examine, with actions relating to each. They are:

1. Will the UK leave? And what will the end game look like?
2. What will it be like if the UK stays? And what preparations need to be made for that eventuality?
3. What will the UK do wrt development if it leaves?
4. What will happen to the EUEuropean Union wrt development if the UK leaves?
5. What needs to happen now to prepare for the UK leaving?

In considering all these, I have found it helpful to think about possible applications of second best theory. Crudely, this says that if one of the conditions of the first best option is not available, the right way forward may not be the one that meets all the conditions save the missing one. The Free Exchange blog for the Economist has a nice example:

‘Consider a frivolous analogy to cookie-baking. If the optimal cookie contains chocolate chips and coconut flakes, but you have no chocolate chips, chances are you don't need the coconut either. The second-best cookie may be the gingersnap. If ingredients (or logical conditions) do their work through a certain combination or complementarity, you may have to aim for something completely different even if you're missing just one of them.’

Where do things stand at present?

So, where are we now?

• Phase 1 of the Brexit talks covered the rights of UK citizens in the EUEuropean Union and EUEuropean Union citizens in the UK, Northern Ireland, and the financial settlement. The outcome was summarised in a Joint Report in December 2017. It included the important financial commitment that the UK would continue to contribute to the EUEuropean Union budget, and to off-budget instruments like the European Development Fund, until the end of 2020, and would ‘contribute its share of the financing of the budgetary commitments outstanding at 31 December 2020’.
• The European Council agreed in December 2017 to transition to Phase 2 of the talks, covering the transition period and the framework for the future relationship. The text of the decision is here. Note especially that the UK becomes a third country on Brexit day in April 2019, and that it ‘will no longer participate in or nominate or elect members of the EUEuropean Union institutions, nor participate in the decision-making of the Union bodies, offices and agencies’, including during the transition period. Nevertheless, ‘all existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures will . . . apply, including the competence of the Court of Justice of the European Union’. Further ‘as the United Kingdom will continue to participate in the Customs Union and the Single Market (with all four freedoms) during the transition, it will have to continue to comply with EUEuropean Union trade policy, to apply EUEuropean Union customs tariff and collect EUEuropean Union customs duties, and to ensure all EUEuropean Union checks are being performed on the border vis-à-vis other third countries’.
• The Council then agreed in March 2018 that the transition period should last until December 2020 and adopted new Guidelines, endorsing the commitment to a close trading relationship, but warning against ‘cherry-picking’, for example on regulatory alignment. The Council emphasised that the UK’s decision to leave both the Customs Union and the Single Market would necessarily add friction to trading relationships. The Guidelines also note that ‘the future partnership should address global challenges, in particular in the areas of climate change and sustainable development, as well as cross-border pollution, where the Union and the UK should continue close cooperation.’ And they say that ‘in view of our shared values and common challenges, there should be a strong EU-UK cooperation in the fields of foreign, security and defence policy.’
• There is much more detail on all of this in the draft Withdrawal Treaty, including chapters on the European Investment Bank and the European Development Fund, and on Trust Funds.
• Meanwhile, the UK position on future cooperation with respect to development, principally aid, has been set out in a ‘non-paper’, reproduced for ease of reference in Annex 1. This focuses on the design of aid instruments for the period after 2020, and argues that they should be designed so as to enable the UK to participate. Thus, the UK suggests that ‘new instruments are designed so that they are open to external partners . . . Partners should be invited to participate at a strategic level, with a seat at the table, where they are able to contribute expertise or resources (funding or in kind).’ Participation would be on a case-by-case basis, and would apply to development aid and humanitarian instruments, as well as to Trust Funds, the European Investment Bank, and a peace-keeping facility. A preference is expressed for off-budget options.
• Theresa May touched on this issue in her Munich speech when she said that ‘while the UK will decide how we spend the entirety of our foreign aid in the future, if a UK contribution to EUEuropean Union development programmes and instruments can best deliver our mutual interests, we should both be open to that. But if we are to choose to work together . . ., the UK must be able to play an appropriate role in shaping our collective actions in these areas’.
• Further clarification was offered by a UK Minister, Harriett Baldwin, in a parliamentary debate (in Westminster Hall) in March 2018. Specifically, she said ‘if we opt into EUEuropean Union programmes when that is the most effective way to deliver our mutual objectives, we would expect to engage with the EUEuropean Union at a strategic level on programme direction and would need to be assured of adequate governance arrangements to allow us to track and account for our spending and the results we deliver.’

Let us then turn to the five questions, and the implications for people working on and in development.

Will we leave? And what happens if we do not?

First, will the UK actually leave? That is hard to predict, but there are certainly many campaign groups lobbying either for remain, or for variants of a ‘soft Brexit’ (for example, retaining membership of the single market and the customs union). Groups include : Remain in EU: (@remainineu); Open Britain); Britain for Europe; Vote for Europe; I’m still in; European Movement;  Britain Stays; Pro Europa; UK to Stay; 16 Million Rising; People’s March for Europe; and Best for Britain. Key players include Tony Blair, Nick Clegg, Andrew Adonis, Chuka Umunna, Anna Soubry, Vince Cable, and Mark Malloch-Brown, among many others.

At the very least, development practitioners need to keep track of the debates, and think about what the end game might look like. For example, what happens if the ‘meaningful vote’ promised for October rejects the framework deal agreed with the EU? Will there be another referendum? Or an election? Note that a petition to the UK Parliament calling for the vote to include the option of a second referendum will be debated on 30 April.

Second, if Article 50 is revoked and the UK stays, there will be a scramble. The Multi-Annual Financial  Framework covering the period 2021 to 2027 will either be agreed or close to. Within a few months, in June 2019, there will be elections to the European Parliament, with lead candidates (‘spitzenkandidaten’) identified for each party group before that. A decision will be pending on the future of the ACP, the EU’s partnership framework with countries in Africa, the Caribbean and the Pacific. Probably, there will be action on many other issues (new migration rules? Syria rehabilitation?). The EUEuropean Union will (hopefully) have moved forward on reform, for example with respect to the euro.

It is hard to imagine the UK back at the table, trying to catch up. It follows that the Government needs to stay engaged as far as possible, and that development people need to stay on top of the agenda, maintaining close links for the purpose with counterparts in the rest of the EU. For example, the European Think Tanks Group, of which ODIOverseas Development Institute (London) is a member, is tracking the evolution of proposals about the new EUEuropean Union budget framework, contributing to the debate, and expecting to respond to the Commission’s specific proposals, when they are published in May.

Relations with the EUEuropean Union if we leave

Third, and concentrating on development finance rather than the single market or the customs union, the non-paper and associated discussion offer one answer to the question of what the UK will do with respect to development if it leaves, viz continue to contribute to EUEuropean Union activity on a case-by-case basis. There has even been a suggestion, as in The Times article cited earlier, that the UK will use the development and humanitarian aid budget as a bargaining chip in the negotiation about access to EUEuropean Union institutions. At present, the UK contributes about £1.5bn a year to EUEuropean Union aid programmes, just over 10% of total oda. Over the seven year period of the next MFF, assuming no change in the overall size of the EUEuropean Union development budget, the total UK contribution could amount to over £10bn (at current prices).

I have no idea whether this is a serious proposition or not. Brexiteers would undoubtedly be highly sceptical, as Priti Patel, former DFIDDepartment for International Development Secretary of State, has already suggested. It is worth noting three points, however. First, there is a very good case for collaboration with the EUEuropean Union in one way or another, as Theresa May made clear in her Munich speech, and as the non-paper also argues. Second, however, the emphasis on a case-by-case approach is reminiscent of ‘cherry-picking’, or what Tony Blair has described as ‘cakesim’ (as in having one’s cake and eating it), which conflicts with the EUEuropean Union Council guidelines. Third, the devil is in the detail. At first sight, UK participation in EUEuropean Union aid instruments, would involve agreeing to the whole panoply of EUEuropean Union Council and Commission leadership, oversight by the European Parliament, implementation according to EUEuropean Union Regulations, financial control by the European Court of Auditors, and final adjudication of disputes by the European Court of Justice. Following Brexit, the UK would not be a member of any of these bodies, and the latest negotiating guidelines from the EUEuropean Union are clear that Brexit precludes ‘participation of the United Kingdom as a third-country in the Union Institutions and participation in the decision-making of the Union bodies, offices and agencies’.

These arrangements, by the way, would kick in from Brexit-day in 2019 and apply throughout the transition period, even though the financial obligations of the UK would continue. The relevant paras of the Withdrawal Agreement, coloured green and therefore agreed, read as follows:

‘during the transition period, representatives or experts of the United Kingdom, or experts designated by the United Kingdom, may, upon invitation, exceptionally attend meetings or parts of meetings of the committees referred to in Article 3(2) of Regulation (EU) No 182/2011, of Commission expert groups, of other similar entities, or of bodies, offices or agencies where and when representatives or experts of the Member States or experts designated by Member States take part, provided that one the following conditions is fulfilled: (a) the discussion concerns individual acts to be addressed during the transition period to the United Kingdom or to natural or legal persons residing or established in the United Kingdom; (b) the presence of the United Kingdom is necessary and in the interest of the Union, in particular for the effective implementation of Union law during the transition period. During such meetings or parts of meetings, the representatives or experts of the United Kingdom or experts designated by it shall have no voting rights and their presence shall be limited to the specific agenda items that fulfil the conditions set out in point (a) or (b).’

If the instrument of choice were Trust Funds, or if off-budget instruments were created, the role of the EP might be reduced, but other arrangements would apply. Is that why Harriett Baldwin emphasised not just ‘strategic programme direction’ but also ‘arrangements to allow us to track and account for our spending and the results we deliver’?.

An important element in all of this is access to EUEuropean Union funds by UK institutions, especially NGOs, which may well become harder after Brexit. That needs action now, as per the recommendations I made a year ago: full untying of EUEuropean Union aid ought to be an objective, for intrinsic reasons (because untying is a good thing), as well as to protect the interests of UK NGOs and research institutes. Harriett Baldwin said she was on the case of NGONon-governmental organisation access, but some have described the UK NGOs as hostages in the negotiations.

My own view on the financial settlement has been shaped by the trade debate, where single market access and customs union membership after Brexit has been described by Prof. Alan Winters as ‘Pay, Obey, No Say’, to which  I add ‘No way’. Instead, a better option, which I laid out in August 2017, is for new initiatives, for example on fragile states, jointly strategized and led by the UK and the EU, but independently implemented, respecting each sides’ different institutions. This is the ginger biscuit option, rather than the ‘coconut and chocolate chip cookie but without chocolate chips’ option.

On fragile states, for example, this could be a new and large scale facility, jointly owned, and bringing together the best of both sides’ aid and non-aid resources. From the UK side, the expertise of the Conflict, Stability and Security Fund, currently run by the Foreign Office, as well as the resources of DFID, CDC, and the full panoply of the UK’s renowned military and intelligence capability. From the EUEuropean Union side, the aid resources of the EU, but also the European Investment Bank, and the expertise of the European External Action Service, for example in running military and civil missions in fragile states. This could to be big and ambitious, with joint funding from existing resources running into the billions not the millions.

Bargaining chip or not, it is obviously important to think through aid relations with the EUEuropean Union after Brexit. Strong and eye-catching proposals are needed: another topic for development practitioners.

The previous paragraphs deal with aid, where the 0.7% legislation in a sense protects developing country interests in the negotiations. The same does not apply to trade, climate, security or migration, four other key pillars of the UK’s relationship with developing countries. There is good analysis on trade, not least by ODI. Has there been similar material on other topics? I would be interested to have references. And shouldn’t someone be commissioning a systematic overview? For example, a Global Compact for Migration is currently being negotiated in New York, but it is not clear how Brexit might affect the EU’s already problematic diplomacy. And does Brexit encourage or discourage the EUEuropean Union from ramping up climate ambition in time for the 2020 review and 2025 Global Stocktake by the Conference of the Parties of the UNFCCC?

In this connection, it seems a pity that the proposed full enquiry on this subject by the International Development Select Committee in the UK House of Commons appears to have fallen off the agenda, at least for the time being.

How will the EUEuropean Union adjust without us?

The fourth question is what happens to the EUEuropean Union with respect to development if and when the UK leaves. The main immediate question relates to the Multi Annual Financial Framework, on which proposals are expected in May. A paper from the European Parliament discusses the approval process in detail, and notes that the Commission would like to finalise the exercise before the elections to the European Parliament. Personally, I think it would be desirable to tie the final decision to the European Parliament electoral cycle, so that fiscal issues become visible in the democratic process next year – but that seems unlikely to happen. On the substance, there has been a series of papers setting up the formal proposals, including a White Paper on the future of the EUEuropean Union published by Jean-Claude Juncker in March 2017, and a ‘Reflection Paper’ on the budget published by the European Commission in June 2017. The main issues are about the value-added of the EU, the overall size and sources of the budget, and the allocation of funding between different uses. The European Think Tanks Group has usefully reviewed the external aspects, which need to be rooted in a vision of Europe 2030. . But how do the vision and the comparative advantage change if the UK is not a member? That has been little discussed.

From the perspective of Brexit, it remains to be seen whether the shortfall created by the UK’s withdrawal will be made up by Member States and what the impact will be on the distribution of the budget as between its main purposes. That may become clear in May, and thereafter as negotiations begin. A related issue is what might happen if the UK commits to making contributions to EUEuropean Union aid instruments outside the framework of the MFF. Might the EUEuropean Union be tempted to allocated money elsewhere if it knew the UK would make up the shortfall? Something else for the development community to watch.

Next steps for the development community

Finally, then, what needs to happen now to prepare for the UK leaving, or not leaving? The next six months are key, from now until the meaningful vote in October. It follows from the points made earlier, that the development community as a whole, including the UK Government, but also the NGONon-governmental organisation and research communities, need to:

1. Map the political landscape, including both the remain and leave sides of the argument, and in the rest of the EUEuropean Union as well as the in the UK;
2. Create and analyse scenarios up to and beyond the meaningful vote, so as to be ready for all eventualities;
3. Stay engaged in planning for the period after Brexit, not just during the transition period, but beyond 1 January 2021;
4. Understand better the implications of channelling money through the EUEuropean Union after Brexit;
5. Develop strong and eye-catching proposals for collaboration with the EUEuropean Union after Brexit;
6. Extend the aid analysis to other sectors, especially security, migration and climate change; and
7. Assess the extent to which Brexit proposals affect the plans for the next MFF.

This is not a trivial project and will require many hands to complete. The British cabinet has a war cabinet on Brexit to lead key decisions, as well, of course, as a new Government Department specifically tasked with managing Brexit. Should the non-governmental sector have a similar structure. Will BONDBritish Overseas NGOs for Development lead? Or the think-tanks?

Annex 1

The EUEuropean Union beyond 2020

Future Development Instruments: A UK Perspective

We stand at a key point in the future of EUEuropean Union development architecture. Debate on the shape of the post-Cotonou political framework for the EU’s strategic engagement with African, Caribbean and Pacific (ACP) states and Overseas Countries and Territories  is underway, and discussions are also taking place on the future financial frameworks for all EUEuropean Union development assistance from 2021.

A flexible, open and responsive EUEuropean Union is in everyone’s interests. We have seen how creating new, open, instruments, such as the migration Trust Funds, has enabled us to respond swiftly and effectively to large scale crises, working with the right partners in the right places. The flexibility shown by ECHOEuropean Community Humanitarian Office in opening up to externally assigned revenues (EAR) from third parties to participate in specific programmes, such as in the Sahel, where the EUEuropean Union is the lead humanitarian donor and has a strong field presence, has allowed key partners to boost the collective effort, and coalesce around a flexible but coordinated approach.

We are all clear that the development challenges facing us are only likely to increase in the coming years: reaching the SDGs, security, peace and stability, governance, human rights and the rule of law, migration management, investment worldwide, Africa, humanitarian aid and crisis response and conflict prevention. The $2.5 trillion funding gap to achieve the SDGs alone is well known. But it is also the complexity of the challenges that will require new and innovative approaches. We need therefore to collectively match this growing challenge with an increased level of ambition and creativity. Reaching out to a wide variety of partners which can offer technical expertise, geographical knowledge or presence, resources and/or funding, will increase the ability of the EUEuropean Union to develop new, joint approaches and increase our collective impact.

The EUEuropean Union has the opportunity now to design a set of future instruments which builds on the positive examples of the last few years, and creates an open and flexible enabling framework, within which the EUEuropean Union and its partners can work together to tackle these global challenges and help to build a secure, stable and prosperous world.

The EUEuropean Union will remain one of the largest development actors in the world, and the UK wants to retain a close partnership with the EUEuropean Union in the future. We share the same concerns, the same values and the same commitment to the SDGs, to the Paris climate change agenda and the Addis Ababa agreement on financing for development. We share a commitment to 0.7% and to testing new and innovative approaches.

We suggest that the new instruments are designed so that they are open to external partners that share these values and commitments, to enable this free-flow of ideas, pooling of technical expertise and resources, and joint approaches.  Partners should be invited to participate at a strategic level, with a seat at the table, where they are able to contribute expertise or resources (funding or in kind). Partners should be able to earmark funding within the geographical funds for Africa, the Caribbean and the Overseas Countries and Territories, and the Pacific, as well as to the neighbourhood.

The EUEuropean Union plays a global role in funding and responding to humanitarian crises, working with a wide variety of partners. The existing flexibility demonstrated by ECHOEuropean Community Humanitarian Office should be preserved, and further maximised by allowing key partners to contribute core, unearmarked, funding, in return for a close, strategic partnership in tackling the world’s humanitarian crises.

We welcome that the Commission’s proposal for new Post-Cotonou Agreement is open to external partners. This should be on an opt-in basis at a strategic level, with clear governance arrangements. We agree that political steering and activity takes place within the regional pillars, to ensure each region is given specific attention taking into account its particular challenges and needs, rather than at an ACP-wide level.

We suggest a coherent approach to migration, focussed on a “whole of route” approach. The trust funds have worked well, and their principles of flexibility and openness should be retained within any new instrument. A migration specific instrument could support joint European efforts, together with third countries and international partners, to better manage irregular flows, address their root causes, respond to humanitarian needs and maximise the development potential of migration.

The flexibility of the EDF to support peace keeping activities has worked well. We can see benefits in the proposal for a separate instrument to support global peace and security activities (including peacekeeping) but would like to continue to engage with discussions about the right structure. Given the global and regional nature of peace and security issues, the EUEuropean Union will need to preserve the ability to work with partners who have the relevant capacity and expertise. Any instrument should therefore be open to external partners to contribute on a case-by-case basis where priorities and objectives are shared, and governance mechanisms must ensure that partners have a strategic voice over activities to which they contribute.

We note the discussion on the EU’s investment instruments, and the proposal from the EIB for a new development subsidiary. We believe that here the same principles of open partnership and sharing of expertise should apply. In the future architecture for external investment, we would like to see particular attention paid to the importance of crowding-in private sector investment, facilitating the long-term development of local capital markets, and leveraging limited ODAOverseas Development Assistance budgets for maximising impact.  We need to find clever and more efficient and innovative ways of doing this in order to meet the challenge of financing the SDGs.

Priority should be given to the investment needs of least-developed countries and fragile and conflict-affected states, particularly in the areas of critical infrastructure and sustainable economic development. We would also stress the importance of using the EU’s investment architecture to promote collaboration between EUEuropean Union institutions and other regional and multilateral development banks, for example the EBRDEuropean Bank for Reconstruction and Development and African Development Bank.

The call for budgetisation of all EUEuropean Union expenditure is well understood on the grounds of transparency and accountability. But we believe that such transparency and accountability can be achieved with some creative thinking, even if some parts of the EU’s development programmes remain off budget. Specific funding streams could still be “ring-fenced” to guard against funds being diverted to other priorities without due process. Having an off budget development programme further enables closer, more strategic  partnerships, and thus increases the chances of additional financial contributions. In a world where development resources are increasingly squeezed, the opportunity for such additional contributions should be encouraged.

We welcome these consultations on the EU’s future development architecture. As a current and future development partner, the UK has a clear interest in ensuring these discussions result in a flexible and modern development architecture, promoting collaborative partnerships, value for money and development results for partner countries, which is fit for the challenges of the 21^st century. We look forward to discussing specific proposals over the coming months.