BREXIT 3: AN UPDATE – WHERE TO NOW?
The UK’s new Conservative-led government now has a clear parliamentary majority of 80 seats to enable it pass into law the Brexit Withdrawal Agreement (the ‘Deal’) by the deadline of the 30 January 2020.
So it would seem the result has brought some clarity. Or has it?
On the 12 December 2019 the Conservative party won Britain’s General Election with a large majority and thus with it the power to fulfill their pledge to secure parliamentary approval of the Brexit Withdrawal Agreement by Christmas and leave the EU by 31 January 2020.
Despite the positive initial reactions of capital and currency markets, as well as they party’s election slogan “Get Brexit Done”, this isn’t the end of the matter. That is because the Withdrawal Agreement contains only the legalities around the divorce of Britain from the EU. It does not cover the future relationship.
So in fact, this is probably only the end of the beginning of the Brexit process. Prime-Minister Boris Johnson now has until December 2020 to agree a favorable forward-looking trade deal with the EU. Although he has until 30 June 2020 to ask for a further extension of Britain’s regulatory transition (standstill) period with the EU, Mr Johnson insists he will not ask for any extension. If a deal is not reached, Britain would then revert to World Trade Organisation tariffs and rules (i.e. a ‘No Deal’ or Hard Brexit).
Thus we are likely looking at another cliff edge deadline. Trade deals historically have taken years to deliver, but there are only some 6 months until the 30 June deadline. Perhaps because negotiations are not starting from scratch (it being a case of altering trade arrangements that are already in place) the PM must presumably be confident that a deal can be reached within this time, and is said to be looking as the so-called “Canada-plus” model.
SO WHAT IS “CANADA-PLUS”?
Under Canada’s free trade deal with the EU (Comprehensive Economic and Trade Agreement – CETA), Canada is not a member of the single market – so Canadian products are still subject to border checks. The deal eliminates all tariffs on the majority of goods, but does not extend to financial services, which is about 7% of the UK economy. The EU could decide to place greater barriers on Canadian trade with European countries, but Canada is free to strike trade deals with other countries. CETA took seven years to negotiate. It came into effect in 2017, and will be fully implemented within seven years.
THE BUSINESS ENVIRONMENT REMAINS UNCERTAIN, BUT THE POLITICAL ENVIRONMENT IS TRANSFORMED
To a significant extent the economic and business backdrop to all of this remains as it was before the general election. Uncertainty and the fear of the consequences of a “hard” or no-deal Brexit remain relevant. Yes, we are getting Brexit, but what sort of Brexit? According to official figures released by the Office for National Statistics earlier in November Britain’s economy grew at the slowest annual rate in almost a decade. Year-on-year growth in the three months to end-September slowed to 1% from 1.3% in the second quarter. But the economy avoided a recession by growing 0.3% in the third quarter.
What has however altered considerably is the UK political landscape. After Theresa May’s disastrously misjudged election of 2017, the administrations of Mrs May and Mr Johnson were unable to assert policy direction over various factions representing incompatible views. That has changed. A comfortable parliamentary majority should to enable the traditionally moderate Mr Johnson to plot a judicious and reasonable Brexit course which ought to be in the interests of all parties. This probably underlies the positive initial reactions of the markets. However, as of the time of writing in December 2019, there remains no clear route map as to how this will be achieved.
THE BACKGROUND FACTS
In a referendum in the UK held on 23 June 2016, a 3.7% majority of citizens voted for the United Kingdom to leave the European Union. Following a vote in the UK House of Commons (Parliament), on 29 March 2017 the Prime Minister of the United Kingdom wrote to the European Council President Donald Tusk formally triggering the process to leave the EU. The letter invocated Article 50 of the Lisbon Treaty and began the two-year countdown to Brexit. The deadline for leaving the was set at 11pm on 29 March 2019.
Two years of negotiations proceeded between the UK and the EU resulting in a) the ‘Withdrawal Agreement’ (e.g. the divorce settlement) and b) the ‘Political Declaration’ (the broad shape of the future political and trading relationship between the UK and the EU). These two documents have become known as the ‘Deal’.
During this period in 2017 Theresa May called a General Election in order to increase the governments majority of MPs (Members of Parliament) in the House of Commons and bolster support for the eventual ‘Deal’. The opposite happened and the government lost its overall voting majority in the House of Commons and thus its ability to pass legislation without coalition support. According to UK law Parliament must approve the Deal (the two documents) – before it can be enacted. However, the Deal has been rejected 3 times by the House of Commons as the government can no longer command a majority amongst MPs.
Because of this stalemate on the 14 March 2019, the Government sought permission from the EU to extend Article 50 and agree a later Brexit date and then on 20 March 2019 the Prime Minister wrote to European Council President Donald Tusk, asking to extend Article 50 until 30 June 2019.
Following a European Council meeting the next day, EU27 leaders agreed to grant an extension comprising two possible dates: 22 May 2019, should the Deal gain approval from MPs; or 12 April 2019, should the Deal not be approved by the House of Commons. The Deal was again rejected and so on 2 April 2019, the Prime
Minister announced she would seek a further extension to the Article 50 process and at a meeting of the European Council on 10 April 2019, the UK and EU27 agreed to extend Article 50 until 31 October 2019 (Halloween in the UK).
This extension period bridged across the dates for the election, across all EU member states, for Members of the European Parliament. UK elections for representation at the European Parliament took place. The Conservatives suffered heavy losses in these elections piling pressure on the PM to resign. Eventually Theresa May bought the EU deal bill before parliament for the 3rd time and it was again defeated. Theresa May resigned as party leader and consequently Prime Minister on 24 May 2019.
Boris Johnson was elected as the new Conservative party leader and therefore Prime Minister on 23rd July 2019. He pledged to renegotiate the “deal” and leave the EU before the deadline of October 31st.
Opposition members of parliament had previously passed legislation requiring the Prime Minister to as the EU or an extension to the leave deadline of 31 October if a deal hadn’t been passed by the UK parliament by 19 October.
While a new deal was negotiated, and parliament voted in favour of proceeding the bill through the parliamentary process, Boris Johnson removed the bill and pushed parliament to agree to a general election instead. It was widely suspected the reason for this was that further analysis of the bill would generate a range of amendments that would either water down its effect or make it un-passable. A deal was therefore not approved by the 19 October and the EU agreed to extend the deadline to 31 January 2020 and Britain headed towards a General Election that was held on December 12 2019.
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