Brexit Tracker: January 2020

Brexit Withdrawal Agreement progressing through UK parliament

Following a substantial Conservative majority win in the UK general election, the draft Brexit Withdrawal Agreement is now going through the UK Parliament approval process. Once the agreement is passed in the UK, it will be the turn of the European Parliament to approve the deal. If passed on both sides, the UK will leave the EU on or before 31 January 2020 with a transition period until 31 December 2020. During this period, the UK will remain part of the EU's customs union and single market and talks on the future relationship between the EU and UK can commence. A ‘no deal’ exit remains the legal default if the deal gets rejected, but with the Conservative Government now having a clear majority the likelihood of this outcome has diminished dramatically. 

This Tracker looks at the provisions of the Withdrawal Agreement agreed between the UK Government led by Prime Minister Boris Johnson and the EU. If ratified, it will provide the basis for an orderly UK exit, avoiding a profoundly disruptive no-deal cliff edge on 31 January and move us to the next phase of talks on a future EU-UK relationship. However, the associated transition period until 31 December 2020 is far too short and Ibec continues to lobby for an extension to allow more time for negotiators to agree a new EU-UK relationship.

The revised Agreement has a lot to commend it, not least relative to the catastrophic implications of a ‘no-deal’. It includes far-reaching and vital provisions to avoid a hard border on the island of Ireland, protects the Common Travel Area, provides a ‘status quo’ transition period and breaks the current impasse. However, Brexit was always an exercise in damage limitation. The new deal goes some distance toward mitigating the potential risks to the all-island economy and supply chains, but we will inevitably end up in a worse place than where we are now.

The renegotiated deal means that Northern Ireland will be subject to preferential, but potentially complex, new customs arrangements. At the same time, the Political Declaration on the future relationship is far less ambitious than Theresa May’s previous deal, with much greater scope for EU-UK divergence into the future. This could have significantly negative economic implications for Ireland in due course. We have also been left with short, overly ambitious timelines to agree a future trade deal, which do not reflect business realities. As a result, Brexit will remain at the top of the agenda in 2020.

Section 1: Withdrawal Agreement

Area: The financial settlement
Issue: Can the EU and UK agree on UK financial obligation when it leaves?

Bill settled: An agreement reached on UK financial liabilities.

Area: Citizens’ rights
Issue: How will EU free movement be affected?

Rights protected, even during transition: The new Withdrawal Agreement protects citizen’s rights until the end of the transition period, at which time free movement will end and a new immigration regime will be introduced in the UK. Those currently living in the UK and EU27, and those who arrive to work, live and study up to the end of a transition period, will retain their rights in the country in which they reside after Brexit. However, after the transition, EU-UK free movement would end. Visas are unlikely to be needed for short-term visits, and there may be special arrangements for research, study and exchanges. For long-term stays, the UK and EU are likely to reintroduce visa requirements. Irish citizens would, however, benefit from the Common Travel Area (see below).

Area: Common Travel Area (CTA)
Issue: Will Irish and UK citizens continue to enjoy reciprocal free movement rights?

Major plus for Irish business and workers: The Ireland-UK CTA means Irish and UK citizens do not rely on joint EU membership to benefit from free movement, access to public and social services, or other privileges across the two jurisdictions. Under the revised Withdrawal Agreement, this would continue post-Brexit.

Area: Transition period
Issues: How long before a new EU-UK relationship kicks in?

Status quo possible until end of 2022: The Withdrawal Agreement includes a ‘status quo’ transition period until the end of December 2020. This can then be extended by one or two years, if requested by 1 July 2020. While the current UK Conservative government position is not to seek an extension, it would seem near impossible to agree a comprehensive new EU-UK relationship, including a free trade agreement within less than one year. Extension beyond 2022 will be extremely difficult and unlikely as negotiations will be outside the Article 50 process. The prospect of new rolling deadlines creates more uncertainty for businesses and future potential ‘cliff edges’ exits. Ibec continues to lead and seek support of EU and UK business partners in calling for an extension of the transition period.

Area: Special provisions for Northern Ireland
How will the Republic of Ireland – Northern Ireland border be managed?

EU – Northern Ireland alignment to avoid a hard border: Managing the post-Brexit economic relationship between Ireland and Northern Ireland demands unique solutions to avoid the need for a physical border and associated checks. The current Withdrawal Agreement replaces the ‘backstop’, with new provisions that will similarly avoid such checks and keep Northern Ireland aligned with the EU on a wide range of trade-related regulations; for example, EU state aid rules will apply in Northern Ireland. However, the Agreement does not commit to aligning Northern Ireland and the rest of the UK into the future; it only seeks to avoid new checks and controls to the extent possible. As such, the revised deal does not deliver the same economic benefits for Irish business as the previous all-UK ‘backstop’ proposal, which held out the prospect of close north-south and east-west trade and regulatory alignment.

The new arrangements for Northern Ireland are complex, and while it will enjoy preferential access to both EU and British markets, the nature of this relationship will be greatly influenced by the future EU-UK deal. While the ‘backstop’ was an insurance policy, the current Protocol is envisaged as a permanent solution, albeit with the ongoing consent of the Northern Ireland Assembly. After the transition period, Northern Ireland will legally remain in the UK customs territory but will apply the Union Customs Code. This means that all goods entering Northern Ireland must comply with EU rules. Goods moving from Great Britain to Northern Ireland will have EU duties charged if there is a risk of the product entering the EU or undergoing processing in Northern Ireland. This could potentially cover very large amounts of Northern Ireland imports. The details of the arrangements will be defined by an EU-UK Joint Committee before the end of the transition period. 

There will be no quantitative restrictions between Ireland and Northern Ireland. Certain pieces of EU legislation will continue to apply to Northern Ireland; this legislation is listed as an Annex to the Withdrawal Agreement. The UK and the EU commit to avoiding controls at Northern Ireland ports and airports to the greatest extent possible. The UK authorities will be responsible for implementation of rules on VAT and excise in Northern Ireland. A list of goods included as an Annex will be subject to EU rules on VAT and excise. The Northern Ireland arrangements are subject to ongoing political approval or ‘consent’ by the Northern Ireland Assembly and the implementation will be overseen by an EU-UK Joint Committee. If this consent is withdrawn a two-year cooling off period will kick in. In this case, the Joint Committee will work with the EU and the UK on next steps, taking account of the Good Friday Agreement.

Area: Goods on the market when the UK leaves
Issue: What is the legal status of goods on the market when Brexit happens?

Any product that an economic operator can prove had entered the marketplace, in the EU or the UK, before the end of the transition period can continue to circulate when the transition period has finished.

Area: Energy on island of Ireland
Issue: Will Brexit upset the all-island electricity market?

The renegotiated Withdrawal Agreement provides for North-South energy cooperation into the future and the maintenance of the Single Electricity Market on the island of Ireland.

Area: The Future EU -UK Relationship
Issue: What will the future EU-UK relationship look like?

Scope for major divergence: The Political Declaration on the future EU-UK relationship, which is aligned with the new Withdrawal Agreement, has been changed. The declaration points towards a less aligned EU-UK into the future, relative to Theresa May’s previous text. 

The earlier text had presented the all-UK ‘backstop’, and the customs and regulatory alignment that went with it, as the minimum starting point for a future trade deal. This is no longer the case and a standard free trade agreement is now clearly the destination. There is an aspiration to eliminate all tariffs and charges on trade between the EU and the UK in the future. Both sides commit to liberalising services trade beyond existing and limited WTO commitments. 

In any deal, the EU will want UK guarantees that it will not undercut its standards in the areas of state aid, competition, social, employment, environment, climate and tax – so called ‘level playing field’ commitment. If these are not forthcoming, market access will be limited accordingly. While the text of Theresa May’s previous declaration included such firm commitments, the text is now more aspirational. 

The text of the Political Declaration is not legally binding and future political developments will inevitably shape any deal, but it currently points to far looser alignment than is currently the case. This brings with it potentially significant trade and regulatory economic barriers. It also means Northern Ireland’s unique economic relationship with Ireland and Britain, as set out in the Withdrawal Agreement, has the potential to evolve in various different ways. This will inevitably have significant political implications within Northern Ireland and beyond.

Brexit Tracker January 2020 pdf | 120 kb