Are we seeing a glint of light at the end of the Brexit tunnel?
Prime Minister Boris Johnson, against all expectations and to the surprise of his political adversaries, appears to have secured a deal with the European Union. If approved, it will facilitate the UK’s departure before the 31st of October deadline.
The Revised Withdrawal Agreement contains several differences in 3 key areas:
- Customs;
- Northern Irish consent;
- The envisaged future relationship.
We appreciate that this has become complex. So, in simple terms, what has changed?
Customs and Goods
The Government’s previous proposal envisioned Northern Ireland remaining in the Single market for all industrial goods and agricultural products. Regulatory checks on goods from mainland UK entering Northern Ireland or the Republic would still be required. On the other hand, goods entering Great Britain from Northern Ireland would not be subject to such regulatory arrangements. Northern Ireland would remain within the UK’s customs territory requiring customs checks on goods moving between Northern Ireland and the Republic but away from the border, requiring technological and simplified declaration solutions.
Revised Withdrawal Agreement Terms:
- Northern Ireland will become a part of the UK’s new customs territory and enjoy unfettered access to the rest of the UK, whilst abiding by the terms of the EU’s Single Market for Goods;
- Northern Ireland will now become a party to any future trade agreements signed by the UK;
- However, EU tariffs will apply to any goods imported into Northern Ireland from any country except for the UK or the EU;
- Businesses importing goods into Northern Ireland from another third party will not be put at a disadvantage provided the destination is Northern Ireland and not the Republic of Ireland, through a system of tariff rebates;
- No tariffs will be payable on any ‘personal property’ passing between Northern Ireland and Great Britain, protecting online shopping.
Northern Irish Democratic Consent
Previously, the consent of each of the First Minister, Deputy First Minister and the Northern Ireland Assembly was required for the ‘single regulatory zone’ to continue, every four years. If any of these institutions refused the proposed system would have come to an end after a year. Effectively, The Democratic Unionist Party was given the ability to veto the continued existence of the zone.
Revised Withdrawal Agreement Terms:
- Consent of a majority of the Northern Irish Assembly is now required to continue with the new arrangements;
- This reduces the influence of the DUP as the other Northern Irish political parties which make up the Assembly must now agree to opt out of the arrangements.
Future Relations and Future Trading Relationship
This area contains the most far reaching differences.
Previously, under Theresa May’s version of the Withdrawal Agreement, the UK and the EU agreed to form ‘a single customs territory’ to enable trade in goods, at least in customs terms, to flow freely between the UK and EU. But, the ‘single customs territory’ would have prevented the UK from doing free trade deals. The reason why is important but complex.
Basically, future trading partners would not be keen to give UK firms access to their services markets because the UK could not give concessions on tariffs in goods. Similarly, the UK would have to abide by any concessions on tariffs granted by the EU to any future trading partners. On this aspect the British government had little or no say on the matter.
Revised Withdrawal Agreement Terms:
- a much looser arrangement has been agreed;
- the UK and EU aim to conclude a Free Trade Agreement with zero tariffs or restrictions on goods;
- access to each territory’s service sector without discrimination; and
- crucially, the UK will have ability to make comprehensive trading agreements with future trading partners such as the USA, a key demand of Brexiteers.
Next Steps and Pitfalls
As of the time of writing, the institutions of the European Union appear willing to ratify the agreement; it must be approved by the European Parliament and the European Council, the body which represents the governments of the Member States. Early signs are encouraging, reflecting perhaps Brexit fatigue and a desire to finally bring the Brexit saga to a close.
The outlook for the deal’s passage in the UK is less certain. A significant proportion of the Opposition remain determined to force an extension. Likewise, the DUP are signalling resolute opposition to the revised consent provisions, which is potentially pivotal as the Prime Minister is not only relying on their votes but seeking their blessing to help persuade wayward members of his own party too.
With Parliament sitting in a special session on Saturday we will find out soon if the Prime Minister has succeeded.
If the deal passes the Prime Minister, no stranger to being suspended mid-air, will have defied political gravity and brought much needed clarity to the direction of the UK economy. A boost to markets, businesses and households across Europe will be welcome.
Please be aware that this communication should not be considered financial advice.
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