On 17 October, the metaphoric white smoke plumed from the Brexit negotiations as a new deal materialised. There were no changes to many of the big-ticket issues in the binding Withdrawal Agreement (WA) and non-binding post-Brexit Political Declaration (PD). This included no movement on the exit bill and citizen’s rights.
However, the small number of clause changes to the thrice-rejected Theresa May WA belied a massive UK shift on Northern Ireland and future trade relations:
Next steps: risk of a further postponement as no-deal prospects dwindle
The UK parliament must now ratify the WA and PD by 31 October to secure an orderly Brexit as planned. Ratification by the EU includes a consent motion by the EU Parliament, and final approval by the Council of the EU. Many hazards lie ahead for this strategy following the 19 October triggering of the ‘Benn Act’ request, sustained by the ‘Letwin amendment’, to the EU for a further Brexit extension. If the Bill does not pass or is subject to major parliamentary amendments requiring EU agreement, and there is a third delay to Brexit, then a general election or second referendum loom.
The changes and new burdens for business and HMRC
Below is a summary of the main changes in the new Brexit proposal. There are many risks and open-ended questions associated with them, including:
Removing the backstop
Theresa May’s backstop clause agreed with the EU sought to avoid physical checks at the NI border. This envisaged a transition period until 31 December 2020, when the UK would remain within the CU whilst a new FTA was negotiated. If no deal could be found which prevented border checks, then the UK would have remained within the CU until a mutually acceptable border solution could be found. This was viewed by Leave supporters as the worst of all post-Brexit worlds: trapping the UK within the EU without a voice on the rules and thwarting it from negotiating FTA deals around the world.
The UK government has now secured the removal of the backstop to be replaced by a new status for Northern Ireland.
Northern Ireland’s dual customs, VAT and regulatory status
The new protocol proposes that NI will have an innovative economic status for customs, VAT and regulation of goods to avoid any physical border with Ireland. NI will remain within the rest of the UK (Great Britain, ‘GB’, which excludes NI) for these rules. However, NI will also administer the EU rules on behalf of the EU for goods passing between NI and Ireland.
The details across the three areas are as follows.
Customs:
VAT and excise:
Single market regulatory alignment:
The logistics challenges for HMRC for the above dual regime will be a considerable challenge. Back in 2018, when Theresa May’s ‘Chequers deal’ proposed a UK-wide CU administration arrangement, the chief executive of the HMRC, Jon Thompson, suggested an implementation period of five to seven years. And HMRC would be simultaneously conceiving the new post-Brexit reporting systems for the rest of the UK. That is quite a workload.
Consent on NI arrangements
The NI measures come into automatic effect on 1 January 2021. NI’s Assembly will vote on whether to continue the measures four years later at the end of 2025. This is a switch to ‘mutual consent’ from the effective DUP veto contained within the first Johnson government proposal from the start of October.
In the case of a rejection, the measures will only be withdrawn after two years. This means the measure will remain in place until at least the end of 2026.
The Assembly may then vote every four years on continuing the measures. There is an option for the Assembly to extend this to eight years.
Transition period: a new no-deal cliff edge, December 2020
If the WA is agreed, the transition period deadline remains 31 December 2020. Until then, the UK will continue to apply EU law as if it were a member state. But the UK will leave the political and institutional structures of the EU and will have no representation or say in decision making. The UK will remain subject to CJEU, including its interpretation of the WA.
What has changed from the Theresa May WA is that the UK’s default position will be a ‘hard Brexit’ on 31 December 2020. The UK will revert to World Trade Organisation terms, and most favoured nation status duties rates. This can only be averted if the UK and EU have agreed an FTA governing customs, VAT and other exit issues. This means if the WA passes, the UK could be refacing a no-deal Brexit scenario, with the stockpiling and other preparations, at the end of 2020. Alternatively, the UK may request a further two-year implementation period until December 2022. Importantly, the UK must decide on requesting this further extension by 1 July 2020.
‘Level playing field’ kicked down the road
The level playing field provisions have been swapped out of the legally binding WA into the non-binding PD. The provisions committed the UK to not undermining the EU on policies including: state aid, competition, climate change, environment, social, and employment standards.
The PD states the aims of both parties on this matter when they come to negotiate a further FTA. The EU conceded this change since it will be able to fully negotiate them as part of a full goods and services trade agreement.
Where does this leave us?
The new WA and PD are undoubtably shrewd, compromising politics in terms of securing the government’s aim of an orderly Brexit this month. NI, instead of the whole UK, has been tied into the EU customs and single market rules to sidestep the physical NI border checks blocker that has prevented agreement for over three years.
But with the triggering of the Benn Act and Letwin amendment, the provisions of the WA lie open to amendments in the next week. A likely strong contender is reverting to membership of the CU for all the UK. UK and EU ratification of that would be impossible by 31 October. In which case, we will all be back on the Brexit roundabout for months ahead.
But the new deal has shown the likely landing ground of Brexit: it is a much looser affiliation to the EU than envisaged by Theresa May. Wish HMRC and business well with managing the multitude of new regimes it creates.
On 17 October, the metaphoric white smoke plumed from the Brexit negotiations as a new deal materialised. There were no changes to many of the big-ticket issues in the binding Withdrawal Agreement (WA) and non-binding post-Brexit Political Declaration (PD). This included no movement on the exit bill and citizen’s rights.
However, the small number of clause changes to the thrice-rejected Theresa May WA belied a massive UK shift on Northern Ireland and future trade relations:
Next steps: risk of a further postponement as no-deal prospects dwindle
The UK parliament must now ratify the WA and PD by 31 October to secure an orderly Brexit as planned. Ratification by the EU includes a consent motion by the EU Parliament, and final approval by the Council of the EU. Many hazards lie ahead for this strategy following the 19 October triggering of the ‘Benn Act’ request, sustained by the ‘Letwin amendment’, to the EU for a further Brexit extension. If the Bill does not pass or is subject to major parliamentary amendments requiring EU agreement, and there is a third delay to Brexit, then a general election or second referendum loom.
The changes and new burdens for business and HMRC
Below is a summary of the main changes in the new Brexit proposal. There are many risks and open-ended questions associated with them, including:
Removing the backstop
Theresa May’s backstop clause agreed with the EU sought to avoid physical checks at the NI border. This envisaged a transition period until 31 December 2020, when the UK would remain within the CU whilst a new FTA was negotiated. If no deal could be found which prevented border checks, then the UK would have remained within the CU until a mutually acceptable border solution could be found. This was viewed by Leave supporters as the worst of all post-Brexit worlds: trapping the UK within the EU without a voice on the rules and thwarting it from negotiating FTA deals around the world.
The UK government has now secured the removal of the backstop to be replaced by a new status for Northern Ireland.
Northern Ireland’s dual customs, VAT and regulatory status
The new protocol proposes that NI will have an innovative economic status for customs, VAT and regulation of goods to avoid any physical border with Ireland. NI will remain within the rest of the UK (Great Britain, ‘GB’, which excludes NI) for these rules. However, NI will also administer the EU rules on behalf of the EU for goods passing between NI and Ireland.
The details across the three areas are as follows.
Customs:
VAT and excise:
Single market regulatory alignment:
The logistics challenges for HMRC for the above dual regime will be a considerable challenge. Back in 2018, when Theresa May’s ‘Chequers deal’ proposed a UK-wide CU administration arrangement, the chief executive of the HMRC, Jon Thompson, suggested an implementation period of five to seven years. And HMRC would be simultaneously conceiving the new post-Brexit reporting systems for the rest of the UK. That is quite a workload.
Consent on NI arrangements
The NI measures come into automatic effect on 1 January 2021. NI’s Assembly will vote on whether to continue the measures four years later at the end of 2025. This is a switch to ‘mutual consent’ from the effective DUP veto contained within the first Johnson government proposal from the start of October.
In the case of a rejection, the measures will only be withdrawn after two years. This means the measure will remain in place until at least the end of 2026.
The Assembly may then vote every four years on continuing the measures. There is an option for the Assembly to extend this to eight years.
Transition period: a new no-deal cliff edge, December 2020
If the WA is agreed, the transition period deadline remains 31 December 2020. Until then, the UK will continue to apply EU law as if it were a member state. But the UK will leave the political and institutional structures of the EU and will have no representation or say in decision making. The UK will remain subject to CJEU, including its interpretation of the WA.
What has changed from the Theresa May WA is that the UK’s default position will be a ‘hard Brexit’ on 31 December 2020. The UK will revert to World Trade Organisation terms, and most favoured nation status duties rates. This can only be averted if the UK and EU have agreed an FTA governing customs, VAT and other exit issues. This means if the WA passes, the UK could be refacing a no-deal Brexit scenario, with the stockpiling and other preparations, at the end of 2020. Alternatively, the UK may request a further two-year implementation period until December 2022. Importantly, the UK must decide on requesting this further extension by 1 July 2020.
‘Level playing field’ kicked down the road
The level playing field provisions have been swapped out of the legally binding WA into the non-binding PD. The provisions committed the UK to not undermining the EU on policies including: state aid, competition, climate change, environment, social, and employment standards.
The PD states the aims of both parties on this matter when they come to negotiate a further FTA. The EU conceded this change since it will be able to fully negotiate them as part of a full goods and services trade agreement.
Where does this leave us?
The new WA and PD are undoubtably shrewd, compromising politics in terms of securing the government’s aim of an orderly Brexit this month. NI, instead of the whole UK, has been tied into the EU customs and single market rules to sidestep the physical NI border checks blocker that has prevented agreement for over three years.
But with the triggering of the Benn Act and Letwin amendment, the provisions of the WA lie open to amendments in the next week. A likely strong contender is reverting to membership of the CU for all the UK. UK and EU ratification of that would be impossible by 31 October. In which case, we will all be back on the Brexit roundabout for months ahead.
But the new deal has shown the likely landing ground of Brexit: it is a much looser affiliation to the EU than envisaged by Theresa May. Wish HMRC and business well with managing the multitude of new regimes it creates.