Brexit Views 21 March 2018

The last week has seen another important step forward in Brexit negotiations with the publication of a Joint Legal text that provides the basis for the final Withdrawal Agreement. Agreement between the EU and UK has now been reached on the critical issues of citizens’ rights and the financial settlement. However, disagreements remain on the “backstop” arrangements for Ireland and Northern Ireland.
 
On transition, a period has now been agreed that will last until 31st December 2020. During the transition period, the UK will retain full access to the EU’s single market and customs union although it will no longer be represented in the EU institutions.
 
While businesses will welcome agreement on the transition period, not all will be happy with Monday’s announcement.
 
Those in the UK fishing community might feel particularly aggrieved that domestic control of UK waters has been delayed until the end of the transition period and not on the date of EU departure as had originally been promised. Instead the UK will be consulted on fishing quotas during this period, which are expected to largely remain the same until 2021.
 
Businesses are also concerned that the proposed period will not be long enough to iron out all the details of the future relationship. It is critical that the transition period can run for as long as necessary and that a mechanism is put in place that will allow for it to be extended should agreement on the future relationship not be reached in the proposed time frame. This will ensure we can avoid the cliff-edge Brexit that might result in those circumstances.
 
What will be viewed as a “win” from the UK perspective is that during the transition phase the UK Government will be able to negotiate, ratify and sign new deals with third countries. This will finally show what international trade deals are actually on offer to the UK after it leaves the EU. While these deals won’t come into force until after the transition period is over, this time will test the merits of the UK’s Global Britain strategy and the value it will bring to a UK economy outside of the EU. This is critical as the UK Government’s Brexit strategy has been built around Global Britain. It is the pursuit of Global Britain that has dictated the UK’s decision to leave the customs union and not yet commit to any alternative customs arrangement, which has put the future of the border on the island of Ireland in jeopardy.
 
And on Ireland, it is disappointing that further advances have not been made on this issue. Agreement on the Common Travel Area and on North-South Cooperation are both key achievements as is the commitment to ensuring a “backstop” position is included in the Withdrawal Agreement. However, there is still no clear proposal on how the commitments from last December’s Joint Report will be met.  
 
The preferred position of the Chamber remains for the border to be solved through the negotiation of a comprehensive future trade arrangement. This will not only deliver on the political commitments made by both parties, but will also ensure a deal is put in place that protects the trade, economies and relationships between both islands. This is possible through an arrangement more comprehensive than the FTA that is currently on the table. The Chamber’s preferred solution as outlined in the Big Principles is a formal customs arrangement built on tariff and regulatory alignment between the EU and the UK as a whole.
 
The above is contingent on the UK not pursuing its own independent trade deals, but remaining part of the EU bloc for trade with third countries. We think this option provides most value for the UK as deals signed as part of a larger trading block will deliver better value than those pursued independently. The UK Government may learn this for itself during the transition phase if it continues on its current path.
 
Time is running out for a trade-based solution for Ireland / Northern Ireland. The final Withdrawal Agreement will need to be finalised by October to allow for ratification through the necessary channels of both the UK and the EU. Having a solution for Ireland by this time will be key to ensuring the UK Government can get the Withdrawal Agreement passed through Parliament. Without this, it is difficult to see Parliament passing the Agreement when the “backstop” solution remains the only viable option on the table. Failure to pass the Withdrawal Agreement through Parliament could result in a constitutional crisis in the UK.
 
The EU is expected to give the green light to begin talks on the future arrangement at the end of this week. This phase of negotiations is expected to be a lot more difficult than the withdrawal talks of the past year.