A new deal is agreed
To the surpise of many, on 17 October 2019 the UK and EU agreed a revised Brexit deal.
comparison between this and the deal previously negotiated by Theresa May shows that 90% remains the same, but there is one area of significant change. The Protocol to the draft withdrawal agreement dealing with Ireland and Northern Ireland (the Protocol) has been largely redrafted.
Quick recap: the deal comprises a legally binding withdrawal agreement which sets out the terms of the UK's departure from the EU, and a political declaration which sets out the UK and EU's aims for their future relationship after Brexit, but which is not legally binding.
Key provisions retained
Key provisions that have been retained in the revised withdrawal agreement are:
The transition period, during which EU law continues to apply in the UK, will last until the end of December 2020. This period can be extended to December 2022 if the UK and EU agree (there will be significant pressure on them to do so).
The transition was a key demand of business. It provides a vital stop-gap after Brexit during which all EU regulatory regimes stay in place and no customs border is erected between the UK and EU. There will be no regulatory change for business during this time.
EU citizens’ rights, which will be maintained after Brexit so that UK citizens already resident in the EU and EU citizens already resident in the UK will continue to retain their residency and social security rights.
Freedom of movement will apply during the transition period, meaning:
no immigration restrictions for business travel between the UK and EU by UK and EU nationals;
EU nationals who move to the UK and UK nationals who move to the EU before the end of the transition period will be able to apply for permanent residence.
The UK is implementing the rights of EU citizens through the EU Settlement Scheme.
- The UK will still pay the EU a significant financial settlement to leave, although the sum decreases the longer negotiations continue. The Office for Budget Responsibility (OBR) estimates that the bill is now around GBP33 billion, down from a previously predicted GBP39 billion. The OBR also expects most of the money - around three-quarters of the total - to be paid by 2022.
- Under the revised Protocol, the whole of the UK will leave the EU Customs Union at the end of the transition period. This means that the UK will be free to negotiate new trade deals with other countries in the future, and Northern Ireland - as with the rest of the UK - will be a beneficiary of those agreements. (Under Theresa May's deal, the whole of the UK would have stayed in the Customs Union until a way had been found to avoid a hard border between Northern Ireland and Ireland. During this time, the UK could not have agreed new trade deals.)
- Although there will be a legal customs border between Northern Ireland and the Republic of Ireland, in practice goods will not be checked at that border. No customs infrastructure will therefore be required on the island of Ireland - a key objective of both the UK and EU.
Instead, there will be a customs border between Northern Ireland and Great Britain (England, Scotland and Wales), with the following consequences:
- Goods arriving in Northern Ireland from Great Britain will not have to be cleared through customs or pay EU tariffs if their final destination is the Northern Irish market. This is a movement of goods within the single customs territory of the UK.
- Goods arriving in Northern Ireland from Great Britain will, however, have to be cleared through EU customs procedures (governed by the Union Customs Code) and pay an EU tariff if applicable, if they’re “at risk of moving into the EU.” Subsequently, if the goods in question remain in Northern Ireland, EU tariff payments will be reimbursed.
- The criteria for “goods at risk of moving to the EU” will be established by the Joint Committee that oversees the Withdrawal Agreement.
- Northern Irish exporters will be required to fill out exit declaration forms for goods shipped to Great Britain.
Regulation of agri-food and manufactured goods
- Northern Ireland will follow EU rules on the regulation of agri-food products and manufactured goods rather than UK rules, creating “a single regulatory zone” on the island of Ireland. This allows for goods to travel between Northern Ireland and the Republic of Ireland without regulatory checks at the border - a key objective of both the UK and EU.
- Instead, regulatory checks on goods arriving from Great Britain will take place upon entry into Northern Ireland.
- Depending on whether regulatory standards in the UK diverge from EU standards, regulatory checks on the movement of goods from Northern Ireland to Great Britain may also be required.
- Northern Ireland will remain part of the UK's VAT area, with HMRC remaining responsible for applying VAT legislation, including the collection of VAT and the setting of VAT rates.
- The UK will retain revenues accruing from VAT payments in Northern Ireland.
- In order to avoid a hard border on the island of Ireland, the EU's VAT rules for goods will continue to apply in Northern Ireland.
- Additionally, VAT exemptions and reduced rates applied in Ireland may also be applied by HMRC in Northern Ireland in order to avoid an unfair advantage on either side of the border.
- Northern Ireland will continue to be able to operate the EU's VIES system (VAT Information Exchange System) and to share data with Ireland and other Member States.
Single electricity market
- The EU's Single Electricity Market rules will continue to apply in Northern Ireland.
Consent of the Northern Irish Assembly
- The Northern Irish Assembly is required to give its consent to the above arrangements four years after the end of the transition period (the arrangements only come into force at the end of the transition).
- It will hold a vote within two months of the end of the four-year period on whether to continue the arrangements or not.
- If it agrees by a simple majority, the regime will apply for a further four years, after which a further consent decision will be required.
- If there is cross-community support in the Assembly in giving consent, the regime will continue for a further eight years, after which a further consent decision will be required. Cross-community support means either a majority of Assembly members, a majority of both Republican and Unionist communities, or 60% of Assembly members and at least 40% of each community.
- However, if the vote on an extension fails to win a simple majority, the arrangements will only be extended for a further two years. During that period the Joint Committee will be tasked with establishing a new system to keep the border open while protecting the EU's single market and customs union.
The UK and EU’s future relationship - a level playing field
- The final text of the political declaration has strengthened the obligation on the UK to maintain a “level playing field” with the EU if it wants to have a fully liberalised trade agreement. The declaration retains the original commitment to “open and fair competition, encompassing robust commitments to ensure a level playing field.” It adds, however: “Given the Union and the United Kingdom's geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field.” These commitments cover state aid, competition, social and employment standards, environment and climate change, and tax.
Who wins and who loses from the deal?
There’s no simple answer - both sides gain and lose from the deal.
- The UK and the EU both win in that a deal (if the UK Parliament ratifies it - a big if) avoids the negative economic consequences of a no-deal Brexit for both sides. The negative impact of no deal would have been severe for EU Member States which trade closely with the UK, but particularly acute for the UK economy.
- The EU wins because it is clear that the UK will be economically worse off as a consequence of Brexit: it will be a third country with no privileged access to EU markets until a trade agreement is negotiated. This is an important consideration in Brussels: the outcome is a disincentive to other Member States who might, at some stage, wish to consider leaving the EU.
- The EU could, however, also be seen to lose from the deal because it means that the UK will finally leave if the deal is ratified by the UK Parliament. This will be the first time in the EU's 62-year history that a Member State has left.
- The Irish and Northern Irish economies win because there’s no customs or regulatory interruption to cross-border trade within the island of Ireland - the one-Irish economy is maintained. Northern Ireland gains in particular as it remains de facto in the EU's customs union and single market, as well as the UK's customs territory.
- The 1998 Good Friday Agreement wins from the deal. The Good Friday Agreement, which was negotiated under the chairmanship of Senator George Mitchell, DLA Piper's Chairman Emeritus, brought to an end a 40-year period of conflict in Northern Ireland called the Troubles. Both the UK and EU were concerned that a border of any kind between Ireland and Northern Ireland could reignite inter-community violence in Northern Ireland.
- The Unionist parties in Northern Ireland could be said to lose from the deal. The Democratic Unionist Party (DUP) wanted to avoid Northern Ireland being singled out for different treatment from the rest of the UK as a consequence of Brexit for fear that any difference of treatment would undermine the union between Northern Ireland and Great Britain and be a step towards the unification of Ireland. At all costs they wanted to avoid a customs border in the Irish Sea, which is, in effect, what the new Protocol establishes.
- The UK could also be seen to lose from the establishment of a customs border in the Irish Sea. Some fear it hastens the dissolution of the UK and gives further force to Scottish nationalism, making a second referendum on Scottish independence more likely.
The UK asks the EU to extend the Brexit deadline to 31 January 2020
The UK Parliament failed to agree to the deal in a “meaningful vote” by 19 October. As a consequence, UK Prime Minister Boris Johnson was obliged to by legislation (the Benn Act) to ask for an extension of Brexit to 31 January 2020.
The Prime Minister subsequently succeeded in getting a majority in the House of Commons (Commons) to vote in favour of the deal, as a matter of principle. This was a significant moment - it’s the first time since the referendum result three years ago that the Commons has voted in favour of a deal to leave the EU.
He was unsuccessful, however, in getting a majority in the Commons to pass the implementing legislation, the Withdrawal Agreement Bill, before 31 October 2019. The Bill is necessary to make the withdrawal agreement legally binding under UK law.
As a consequence, the EU has agreed to extend the deadline for Brexit until 31 January 2020, with a right to shorten this period if the UK ratifies the deal earlier.
The UK will hold a General Election on 12 December 2019
In light of the impasse, the UK Parliament has agreed that a General Election will be held in the UK on 12 December 2019. All parties will be hoping for a decisive outcome to the election:
- If the Conservative Party gains a majority, the UK will leave the EU on the basis of the current deal, described in this bulletin.
- If the Labour Party gains a majority, they will seek to renegotiate the current deal, particularly to enhance environmental protections and workers' rights, and put it to a referendum.
- If the Liberal Democrat Party gains a majority, they will revoke the UK's decision to leave the EU.
- The result is, however, impossible to predict; but a hung parliament (where no party has a majority) is, alas, a distinct possibility.
Should you change your Brexit planning?
Our advice is to stay prepared for a no-deal Brexit.
We recognise that the chances of a UK government pushing for no deal are much slimmer now, given that the only major party pursuing that policy, even if only as a threat, was the Conservative Party. Their leader has now negotiated a revised deal, which he is not going to jettison lightly.
There’s still a risk, however, that the Conservative Party, if it leads a minority government in a hung parliament, might threaten to leave without a deal in order to force opponents to implement the Withdrawal Agreement Bill before 31 January 2020.
There’s also a growing risk that the EU may tire of a further extension(s) if no resolution in the UK is in sight. So they, in the end, might force a no-deal outcome.
All in all, there are too many unknowns to remove the possibility of no deal happening.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.