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09 December 2020

79: Brexit: It’s the final countdown

With just three weeks to the end of the transition period, the Prime Minister heads to Brussels today to meet with Ursula von der Leyen, President of the European Commission, to try to resolve the deadlock over the UK / EU trade deal. While the mood music has been downbeat, developments elsewhere in the Brexit negotiations may hint at a willingness on the part of the UK government to compromise.

We’re (not) leaving together

Yesterday, Michael Gove, and the European commission vice-president, Maroš Šefčovič, announced that the Joint Committee established under the Northern Ireland (NI) Protocol to the Withdrawal Agreement (WA) had reached agreement on certain outstanding matters in respect of GB-EU-NI trade. You will recall that, in order to prevent a ‘hard border’ on the island of Ireland (which would have breached the Good Friday Agreement), the UK and EU agreed, in the Protocol, that – while NI would leave the EU with the rest of the UK – EU rules would largely continue to apply there.

Taking the negotiations as a whole, the UK government seems to have made a number of significant concessions from its original position in order to reach agreement, ie:

  • that EU regulations and standards will largely continue to apply in NI (remember the UK government insisting there would be ‘no border in the Irish sea’?);
  • that there will be additional checks and paperwork for certain goods crossing the Irish sea (the PM originally said these could be thrown in the bin, but it now seems ‘light touch’ paperwork will be required even for goods travelling from NI to GB);
  • that EU officials will be in place in NI – apparently it is now ‘more helpful’ for them to assist with checking compliance on a helpdesk and ‘hot desking’ basis, something Michael Gove previously opposed; and
  • to drop the controversial bits of the Internal Markets Bill, which would allow the UK government to change the GB / NI border arrangements in breach the WA Protocol.

The Democratic Unionist party have, unsurprisingly, condemned these developments as ‘unnecessary’ and ‘concerning’ – seeing them as differentiating NI, yet further, from the rest of the UK.

The UK government can point to a couple of ‘wins’:

  • that the major supermarkets (and other trusted traders) will have a grace period in terms of Phytosanitary checks on food products and in respect of medicines – justifiable on the basis there are no checks now because UK/EU standards in these areas are currently aligned and there is little risk of those standards (and so the products produced under them) suddenly diverging; and
  • that NI’s agriculture and fish businesses will be exempt from (EU) state aid rules – we suggest because the UK was able to convince the EU its new UK farming subsidy regime will be sufficiently robust to avoid undercutting.

The UK and EU and have also agreed a list of goods ‘not at risk’ of being smuggled across the border into the Republic of Ireland (they’ve got IKEA there too?), which means such goods won’t be subject to the full application of the Protocol in terms of additional checks and paperwork and obviating the need for EU tariffs to be paid on arrival in NI and then rebated (as envisaged under a no-deal scenario).

The Joint Committee reaching agreement has enabled the government to introduce (9 December) the Taxation (Post-Transition Period) Bill, which implements key aspects of the NI Protocol in UK legislation, providing legal clarity for how customs, VAT, and excise duty will be dealt with after the end of the transition period, including:

  • implementing the Joint Committee’s decisions on goods ‘not at risk’ of entering the EU;
  • ensuring that EU goods imported into NI from Ireland (ie the EU) are not subject to customs duties or processes;
  • ensuring that the UK’s customs regime applies for goods moving from NI to GB if those goods do not qualify for unfettered access; and
  • setting out the VAT and excise duty rules that will apply between GB and NI.

but not including provisions similar to those controversial clauses in the Internal Markets Bill now proposed to be withdrawn.

Who can tell?

It’s probably unwise to read too much from the above into the UK government’s overall approach to a trade deal, but its willingness to compromise on what were once ‘red lines’ seems to us to suggest the PM will seek to strike a deal (ie make more concessions). The EU may feel that the progress on NI did no more than repair the trust damaged by the Internal Markets Bill. A source there is reported to have said:

‘This does reset things and has helped lift the downbeat mood but it doesn’t necessarily mean a deal is any closer.’

The major disagreements remain those which have dogged the talks for months: fishing rights, business competition rules (notably state aid) and how a deal will be policed. There’s a good summary in the Guardian of these hurdles and solutions, and a suggestion that ‘splitting the difference’ on fishing quotas, transition periods for regulatory changes and agreement on non-regression clauses might get a deal done.

Ultimately, I suspect the PM will want a deal he can sell as a ‘Great Deal for Great Britain’ (Northern Ireland’s already on its own). But on BBC’s R4 Today programme this morning, an unnamed cabinet minister was quoted as saying he had no idea what the outcome of the talks was going to be – the answer was locked up in the PM’s head – and we certainly can’t see in there.

‘We’re leavin’ together, But still it’s farewell … I guess there is no one to blame … Will things ever be the same again? It’s the final countdown’ (Europe, The Final Countdown)

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