Brexit: The Proposed Withdrawal Deal | Brexit Update | PKF Francis Clark
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Brexit: The Proposed Withdrawal Deal

Following Cabinet approval, late on Wednesday 14 November the UK Government published a proposed withdrawal deal for the UK from the EU. They released a proposed legal withdrawal agreement, an outline ‘political declaration’ covering the future relationship (including free trade) between the UK and EU, and some accompanying explanatory material.

At 11pm on Brexit Day 29 March 2019 the UK will leave the EU.

The UK will enter a transition period from 29 March 2019 to 31 December 2020. During this time UK businesses will face little or no change in day-to-day business.

At a national level, the UK will still be party to existing EU trade deals with other countries, although it will be able to negotiate and sign its own trade deals with other countries to come into effect post-transition. Northern Ireland will effectively remain in parts of the single market and customs union. The UK will effectively remain part of the Common Fisheries Policy, without a direct say in its rules, but with a guaranteed share of fishing catch. The European Court of Justice will have jurisdiction over matters relating to EU law and EU citizens. EU citizens arriving in Britain will retain the same rights as those who arrive before Brexit Day.

The UK Government intends to use this period to negotiate a new trade relationship between the UK and EU, which it hopes can include technological and regulatory measures enabling trade and movement of people to continue flowing freely across the border between the Republic of Ireland and Northern Ireland. This will need to be a practical border proposal which satisfies the EU’s requirements for the island of Ireland border to remain ‘soft’ and open under any future free trade arrangements. The withdrawal agreement states that both the EU and the UK “shall use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship … with a view to ensuring that those agreements apply, to the extent possible, as from the end of the transition period” (Article 184).

A Joint Committee, to be co-chaired by a Member of the European Commission and a UK Government minister, will then judge whether the UK should:

a) continue with an extended transition period
b) move to a backstop situation of UK-wide customs alignment with the EU (in order to prevent a ‘hard border’ on the island of Ireland)
c) proceed to a free trade deal with the EU.

If there is a disagreement, on this or any other issue relating to the withdrawal agreement, the matter may be referred by either side to an independent arbitration panel comprised of members of the International Bureau of the Permanent Court of Arbitration based in The Hague (Annex IX). The UK will not have autonomy over this decision.

Will this deal actually happen?

  • EU summit

An EU summit on 25 November will give EU member states their chance to decide whether to approve the deal or not.

  • UK Parliament

Parliament will then vote on 10 December (tbc) to approve the withdrawal deal or not.

There is a significant risk that the deal could be rejected at this stage and opposition within the Conservative party has been expressed.

Some pro-EU and many anti-EU MPs agree that the withdrawal deal does not sufficiently respect UK sovereignty. If the EU and the independent arbitration panel are in agreement that a hard border in Ireland would be created by proposed changes, the UK could be held in the backstop arrangements indefinitely and never allowed to proceed to a free trade deal (despite assurances from Michel Barnier that the backstop is not meant to actually be used). So far, the UK Government’s proposed ‘facilitated customs arrangement’ to solve the Irish border problem has been met with scorn by EU negotiators.

Other UK political parties are calling for this Parliamentary vote to offer more than simple yes/no options on the withdrawal deal. They are seeking to be able to table amendments to allow MPs to vote on other options, including the holding of a second referendum.

The DUP have stated that they will vote to oppose the deal as it contains deeper commitments to single market and customs union for Northern Ireland than the rest of the UK (contained in the Protocol on Ireland/Norther Ireland, p302 of the withdrawal agreement); this protocol will apply unless and until it is superseded by a subsequent agreement between the EU and the UK. Unionists in Northern Ireland fear that this could theoretically allow the UK to solve the Irish border barrier to entering a free trade agreement with the EU at some future point by placing a customs border between Northern Ireland and mainland UK.

If the deal is rejected by Parliament, all options are open. The Prime Minister could face a leadership challenge, the country could face a second referendum and/or General Election (both requiring an extension to Article 50 to buy more time), and preparations for a no-deal departure would begin in earnest both in the UK and EU.

  • EU Parliament

If the deal is accepted by Parliament, it would have to be approved by the European Parliament in January/February 2019.

What about the free trade deal?

Even if the Irish border question is resolved to the EU’s satisfaction, there is no certainty on the content of the free trade deal the UK might ultimately move to. While transition arrangements are intended to make the short term business environment smooth for UK companies, no business currently has any certainty about what they should be planning for in December 2020.

The outline ‘political declaration’ marks the start of this free trade negotiation process. It says that both sides are seeking comprehensive arrangements creating a free trade area combining “deep regulatory and customs cooperation”, “zero tariffs, no fees, charges or quantitative restrictions across all goods sectors” (Part II). Both sides have stated that they are committed to “preserving financial stability, market integrity, investor protection and fair competition” (Part II). The outline notes that in terms of fisheries policy, the UK will be an independent coastal state after the end of the transition period; however, it commits to the negotiation of a new fisheries agreement with the EU covering access to waters and quota shares, to be in place prior to the close of the transition period (Part II).

If the withdrawal deal is approved in time for Brexit Day (29 March 2019), full negotiations on free trade will begin. 19 months of intense negotiation have been required to agree the proposed transition arrangements and withdrawal deal, disappointing many on both sides who had hoped to proceed sooner to the ‘meat’ of what the business and trade future of the UK and EU will look like. The forthcoming free trade negotiation teams face a huge challenge to cover the ground necessary in just 21 months, and many UK officials believe it is nowhere near long enough to deal with the huge structural changes needed in customs, immigration and the creation of new regulatory agencies. (source: Financial Times, 19 March 2018) The outline ‘political declaration’ notes that this is an “ambitious timetable” (Part V).

The free trade deal will need to hammer out the detail of customs, taxation and legal arrangements; trade in goods and services; and movement of people.

The UK Government (in the 7 July 2018 ‘Chequers Plan’) has stated that it is looking to:

  • Maintain a ‘common rulebook’ for all goods with the EU, including agricultural products;
  • Give Parliament freedom to diverge from these rules and accept the consequences;
  • Establish co-operative arrangements between EU and UK competition regulators;
  • Create a ‘joint institutional arrangement’ to interpret UK-EU agreements (meaning UK courts would have to continue taking into account EU case law where the common rulebook was being applied);
  • Continue to refer cases to the European Court of Justice for interpretation of EU rules but removing its role in resolving disputes between the UK and the EU;
  • Treat the borders between the UK and EU as a ‘combined customs territory’ (meaning the UK would apply domestic tariffs and trade policies for goods intended for the UK, but charge EU tariffs and their equivalents for goods which will end up heading into the EU);
  • Allow the UK to pursue independent free trade agreements with other non-EU states;
  • End the free movement of people between the UK and EU
  • Create a ‘mobility framework’ instead, to allow limited travel between the UK and EU in relation to study and work.

However, European Council President Donald Tusk said that the Chequers Plan “will not work”, and German Chancellor Angela Merkel and French President Emmanuel Macron also rejected the central component of the Plan at a series of news conferences. They reiterated that the EU would never agree to the UK’s proposal for a free-trade area for goods but not services, which they said would divide the EU’s single market and grant the UK preferential benefits over EU members. This view was echoed by the leaders of all 27 member states at the Salzburg summit on 20 September 2018.

The vice-president of the European Commission recently published no-deal plans including the warning that it will only allow UK nationals to make short visa-free visits to EU states if the UK Government offers the same terms to EU nationals visiting Britain. He has warned that their approach to a no-deal environment will be: “We will do upon you what you do upon us.”

A pledge that there will be reciprocal visa-free travel for short-term visits was subsequently included in the outline ‘political declaration’.

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