LP Brussels
New Brexit deal extends our membership of the EU, it does not end it.

New Brexit deal extends our membership of the EU, it does not end it.

By Mark Watts

So we have a new Brexit deal, and after the Letwin amendment successfully passed the Commons by a majority of 16 we have a little bit more time to scrutinise what the new Withdrawal Agreement and the Political Declaration mean for business. I would argue the new deal it is good, bad and ugly for business.

The Good: the deal ends the uncertainty, at least for now (see bad below), much of UK business will continue to be regulated as of now, and the movement of good and persons will continue in a frictionless manner. I know it sounds counterintuitive, but the transition period extends our EU membership, it does not end it. The EU will treat the UK as if it were a Member State, except for participation in the EU institutions and governance structures (Article 7). The transition period will help administrations, businesses and citizens to adapt to the withdrawal of the United Kingdom. Key issues such as the financial settlement, citizens rights, and governance are fully addressed. The United Kingdom Government also sought amendments to the Political Declaration approved on 25 November 2018 with a view to reflecting the different level of ambition of the United Kingdom Government for the future relationship with the Union, but the commitment to a level playing field for on state aid, competition, social and employment standards, environment, climate change and relevant tax matters, in addition to sectoral deals, remain.

The Bad: the deal only ends the uncertainty until the 31 December 2020 (Article 126). So in just over 14 months away, when we could see a repeat of the no-deal debate and negotiations all over again, with the risk the UK leaves with a no-deal Brexit. In the meantime we have to comply with EU rules, existing and new, with no participation in the EU institutions, including the EU agencies, and are governed in terms of EU law by a Joint Committee which meets in secret (Annex VIII, Rule 10), and is ultimately accountable to the European Court of Justice (Article 166 (2):The decisions adopted by the Joint Committee shall be binding on the Union and the United Kingdom, and the Union and the United Kingdom shall implement those decisions). The transition period can be extended by the Joint Committee for up to 2 years, and potentially more (Article 132). Vassalage? Well, probably as close as you can get. Meanwhile, the level-playing field provisions in the Political Declaration are non-binding, and the degree of frictionless access after the transition ends will be determined by the degree to which we align. So everything is still to play for, and yet we’ll be a third-country needing the backing from European Council and the European Parliament, but also the unanimous approval of 38 national and regional assemblies across the EU as well, and yet much of our leverage, including the £39 Billion, will have been lost.

The Ugly: the deal divides the United Kingdom, disrupting UK business, trade and travel because we are required to build and police a border down the Irish sea (Protocol on Ireland/Northern Ireland of the Withdrawal Agreement). Northern Ireland effectively remains in the EU, at least in respect of the EU Single Market, Customs Unions and VAT, and not just for the transition period, but quite possibly forever. A complex NI-GB border regime yet to be devised, will be imposed, overseen by the EU, and yet Northern Ireland or indeed the UK we will have no direct say. Let’s not forget that combined Northern Ireland/GB trade is 4.5 times Northern Ireland/Republic of Ireland trade and at least 68% of overall NI port traffic is direct NI-GB. So from a business point of view this new intra-UK border could be damaging and hugely costly for the whole of the UK. Politically I’m just not sure how sustainable that will be, with an end to the arrangement not even possible for 9 years things could turn ugly (Article 18 of the Protocol). And let’s not forget, that unlike the backstop, this system would not be replaced by a new free trade agreement between the UK and the EU.

The key challenges for business will be three-fold.

First, how we have a say in the way we are regulated when the UK Government are excluded from the EU decision-making institutions during the transition period which could last for 14 months, or forever. And the means UK business talking directly to the EU.

Second, how we ensure the border down the Irish sea, effectively managed by the EU, is as frictionless as possible. And that means business talking directly to the EU.

Third, how we ensure we secure a comprehensive FTA, robust sectoral agreements, and high levels of regulatory alignment, some form of EU agency participation, to have a say and minimise friction at the borders. And that means business talking directly to the EU.

So the UK business sector has to start planning now on how best to work with the UK Government during the transition, but also how best to work directly with the EU when from, the day the transition regime comes into force, the UK Government no longer has a seat at the table. And I’ve always believed that works best when we work together.

For reference here is the new consolidated text of the Withdrawal Agreement from 17 October 2019. It now runs to 537 pages but every business should be aware of its contents. It will significantly control how we are governed in the coming months, or even years.

Here is the revised Political Declaration. (27 pages, 17 October 2019)

Mark Watts, is Director of LP Brussels, a former two-term Member of the European Parliament, and has been advising organisations and businesses on Brexit for over three years. He writes in a personal capacity.

LP Brussels
LP Brussels