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13 October 2017

25: Great Repeal Bill – Over the borderline

The fifth round of Brexit negotiations closed this week.

While Mr Barnier said that there had not been enough progress on ‘divorce issues’ (ie divorce bill, citizen’s rights and the Irish border) to move on to the UK-EU ‘future relationship’, it is today being widely reported that a leaked ‘internal draft document’ suggests the EU may, after all, begin preparing for post-Brexit trade negotiations.

The UK Government, which has consistently pushed for the future relationship to be discussed in parallel, has also published further details of how it sees the UK’s post-Brexit trading relationships. These are guided by three strategic objectives: ensuring that UK-EU trade is as frictionless as possible; avoiding a ‘hard’ Irish border; and establishing an independent international trade policy.

UK-EU trade

A new Customs White Paper has been published by HM Treasury, setting sets out the Government’s proposed approach to legislating for a future customs regime, and to creating a framework that supports intra-European trade. As well as providing for implementation of a ‘negotiated settlement’ with the EU – the Government’s preferred outcome – the proposed Customs Bill will also provide for a range of other possible outcomes (including as a contingency how the Government would manage leaving the EU without an agreement on customs, in the event of no deal being reached).

By way of context:

  • the UK’s existing customs rules are mostly in EU law that is directly applicable in the UK through the ECA 1972, which will be repealed by the EU (Withdrawal) Bill;
  • domestic customs legislation has been largely unnecessary and is insufficient to form a coherent new regime post-Brexit; and
  • the powers in the EU (Withdrawal) Bill to deal with deficiencies arising from withdrawal and to implement the withdrawal agreement cannot be used to impose or increase taxation, including customs duties, excise or VAT.

Therefore, the UK will need new primary legislation (ie a Customs Bill), irrespective of any agreements reached between the UK and EU, to create a standalone customs regime, and to amend the VAT and excise regimes so that they can function effectively after the UK has left the EU. To allow business and Government to prepare for the UK leaving the EU, the Customs Bill, and the secondary legislation made under it, must be in place with sufficient notice to support the implementation of a new, standalone regime and ensure that the excise and VAT regimes function effectively on the day the UK leaves the EU. In the longer term, and depending on the outcome of the negotiations with the EU, the Government will want to consult on possible further changes to the law that will help UK businesses, but ‘now is the time to help businesses by providing continuity with the existing rules where possible’.

The paper itself refers to a ‘no deal’ or ‘cliff edge’ exit as a contingency scenario which it is ‘prudent’ to plan for. See, for example para 5.3, which states:

‘While the Government hopes and expects to achieve a negotiated settlement with the EU, it is only prudent that it prepares for every eventuality. The Customs Bill will give the Government the powers needed in a scenario where the UK leaves the EU without a negotiated agreement on customs arrangements, referred to here as a contingency scenario. This is not the Government’s preferred outcome to the negotiations. However, it is essential that the UK is prepared for all possible outcomes on customs arrangements.’

It’s been widely commented that, in order to ensure it can get the best deal, the Government should be fully prepared to walk away without a deal, ie maintaining its earlier ‘no deal is better than a bad deal’ mantra. However, the Government has somewhat undermined that position by asking for an ‘implementation period’ during which the current rules will apply – in essence, admitting that it is so keen to avoid ‘no deal’ that it would stay in the EU in order to achieve ‘a deal’.

The Chancellor’s view of the implementation period is summarised in the White Paper as follows:

‘[I]t makes sense to agree an interim implementation period, which will allow businesses both in the UK and the EU time to adjust to exit in a smooth and orderly way. Such an agreement should be reached as soon as possible in the negotiations to give businesses certainty and clarity about the future. How long the period is should be determined simply by how long it will take to prepare and implement the new processes and the new systems that will underpin our future partnership, but we are clear that ‘cliff-edge’ changes are in the interests of no-one, either here, or in the EU. That is why the UK will push hard to avoid them, and to ensure that businesses and citizens only have to adjust once to a new customs relationship.’

That brought the Prime Minister (and the Chancellor) under fire from ‘hard’ Brexiteers in Cabinet and on the back benches.

Trade policy

Moving on to trade, the Department for International Trade’s recent paper Preparing for our future UK trade policy prepares the ground by setting out some ‘future trade policy principles’.

Perhaps unsurprising given international trade secretary Liam Fox’s political views, these are unashamedly shaped by a belief in free-market liberalism – the paper proclaims its ‘overwhelmingly positive impact on prosperity’ and its ability to lift people out of abject poverty. So, the paper declares that the Government looks forward to regaining its seat at the WTO, and will work to see red tape cut, tariffs scrapped and subsidies phased out worldwide. It will appoint new Trade Commissioners to help develop trade with nine regions overseas, and will reach free trade agreements with ‘old friends and new allies’, while seeking to transition all existing EU trade agreements and other EU preferential arrangements and also complying with any EU obligations so far as required under the exit deal.

But this won’t be a ‘race to the bottom’ – the Government is confident that free trade supports and promotes sustainability, security, environmental and development goals, labour protections, human rights, anti-corruption and animal welfare. (Of course, those on the left would say those benefits are achieved rather more through market control, such as international agreements and harmonised regulations). And the paper acknowledges that, notwithstanding the benefits of free-trade, a ‘remedies framework’ will be needed to protect certain UK industries against ‘unfair and injurious’ trade practices – in practice, the UK may want to put duties on cheap imports (particularly steel, ceramics and chemicals).

The biggest issue in the short term is that the paper acknowledges the UK won’t be ready and lacks expertise: the Government needs ‘to identify existing EU measures that are essential to UK business’ and ‘to develop the capability to participate fully in every stage of a trade dispute’ – which rather suggests it hasn’t done so already.

The paper also suggests that the ‘strictly time-limited implementation period’ to be agreed between the UK and the EU, to allow business and people time to adjust, and to allow new systems to be put in place would be on ‘current terms, so that people and businesses will only have to plan for one set of changes in the relationship between the UK and the EU’ – ie the UK will, to all intents and purposes, remain a member of the EU during that period.

This is definitely a subtle difference of emphasis between the international trade secretary’s ‘time limited’ implementation period, and the Chancellor’s ‘as long as is necessary’ …

‘Feels like I’m going to lose my mind … Over the borderline’ (Madonna, Borderline)
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