Brexit

Is the UK crashing out of the EU on 31st October?

Three years have passed since UK voted to leave the EU on 23 June 2016 by a majority of 51.9% to 48.1%. Despite the UK triggering Article 50 to initiate the formal exit process with a leave date set for the 29 March 2019, the UK remains within the EU until at least the extended Article 50 deadline of the 31 October 2019.

 In this update following his recent two-part series, Will Martin, a Tetra Tech partner with expertise in product compliance requirements particularly in the UK, provides an update on the past turbulent weeks for UK politics and assesses the likelihood of No-deal Brexit.


 Prime Minister Boris Johnson’s Turbulent First 3 Months

Following his election by the Conservative party as leader, Boris Johnson took office as Prime Minister on 24 July. Continuing his bullish stance to leave the EU on the 31 October “come what may”, a turbulent three months have passed as the deadline loomed.

In Johnson’s first act, he dismissed 11 senior ministers and accepted the resignations of six others from Theresa May’s cabinet, installing ministers who are predominantly leavers and committed to his stance of leaving the EU on the 31st deadline with or without a deal[1]. Johnson also installed Dominic Cummings, mastermind of the winning 2016 leave campaign, as chief advisor. The government then set about raising the profile of no-deal Brexit preparations to increase pressure on the EU to revisit the controversial Irish backstop arrangements which proved to be the major stumbling block of Theresa May’s deal.

Johnson’s most controversial move was on the 28 August announcing he had asked the Queen to prorogue Parliament from 10 September to 14 October (24 sitting days) —the reason stated as to allow the new government time to plan the next session of Parliament. An angry backlash followed from politicians and the “remain” general public as this was viewed as a cynical ploy to prevent Parliament from holding the government accountable leading up to the 31 October deadline. Proroguing normally shuts down Parliament for a much shorter period and certainly never in times of political crisis (e.g., 4 days in 2016, 13 days in 2014[2]).

In response to the impending shutdown of Parliament, the Benn Act was passed by opposition members within Parliament that legally requires the government to request a three-month extension to the 31 October deadline from the EU should no deal be agreed by the 19 October. Included in those opposition members of Parliament were 21 conservative party members who were duly sacked by Johnson for not toeing the party line. This prompted one of Johnson’s cabinet, Amber Rudd, to tender her resignation on the 7 September in protest against the sackings while also citing concerns that the government was putting only limited effort into securing a new deal with the EU, instead focusing on no-deal preparations[3].

Legal challenges to the prorogation were brought, culminating with a Supreme Court ruling on the 24 September where it was unanimously found that Johnson’s advice to prorogue Parliament was unlawful. The Court’s president, Lady Hale, said the suspension “had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification”[4]. The prorogation was rendered null and of no effect, and Parliament duly returned on the 25 September.

The upshot of this aggressive approach is that the government currently does not have a working majority in Parliament. Due to the sackings and defections of Conservatives to other parties, the government has a majority of minus 23, making it difficult to pass legislation. Johnson lost all seven of his first votes as Prime Minister demonstrating the current weakness of his position.

The Boris Johnson Deal

Despite the rhetoric and public statements about preparing for no-deal and leaving on the 31 October come what may, Johnson’s government presented new proposals to the EU on alternative arrangements to the Irish backstop and a new political declaration on the future trading relationship between the UK and EU.

A revised Brexit deal was duly agreed at the European council summit in Brussels on the 17th October.

The key differences between Boris Johnson’s deal and Theresa Mays deal relate to the Northern Ireland backstop arrangement, and the political declaration on the future trading relationship between the UK and the EU.

Northern Ireland Backstop Change

Should no deal be reached on the future trading relationship by the end of 2020 the whole of the UK will leave the EU customs union which would allow the UK to be able to strike trade deals with other countries.  There would be a legal customs border between Northern Ireland and the Republic of Ireland, but in practice the customs border will be between Great Britain and the island of Ireland.  Goods deemed at risk of being destined for the EU will have any duty applicable collected at that border.  For goods, N. Ireland would keep to the rules of the EU single market, rather than UK rules.  That would remove the need for physical product standard and safety checks on goods at the border between Ireland and Northern Ireland as both countries will be in the same regulatory zone.  EU value added tax (VAT) will apply in N. Ireland for goods, meaning that VAT rates in Northern Ireland and the rest of the UK could diverge in the future[5].

These arrangements are highly controversial as it treats N. Ireland differently from the rest of the UK.  Boris Johnson himself stated in November 2018 at the Democratic Unionist Party (DUP) conference:

“We would be damaging the fabric of the Union with regulatory checks and even customs controls between Great Britain and Northern Ireland, on top of those extra regulatory checks down the Irish Sea that are already envisaged in the withdrawal agreement,” he told the DUP party conference in November 2018.

“Now I have to tell you, no British Conservative government could or should sign up to any such arrangement.”[6]

Johnson has then gone back on his word but the deal does give the N. Ireland Assembly a say in whether or not this arrangement continues, assuming no agreement on the future relationship between the EU and UK is reached that would replace the arrangement.  Four years after the end of the transition period, January 2025, the N. Ireland Assembly would have a vote on whether to continue with the provisions.  The DUP has voiced concerns that N. Ireland risks being locked into the arrangement indefinitely as they would have no guarantee of reaching a majority in the Assembly to discontinue the arrangement.  Nationalist would likely want to continue to be more closely aligned with the Republic of Ireland, and N. Ireland as a whole voted predominantly to remain in the EU in the 2016 election.  That could ultimately steer N. Ireland towards unification with the Republic of Ireland. The ‘special treatment’ of N. Ireland remaining closer to the EU than the rest of the UK has also given weight to Scotland’s growing calls for a second referendum on leaving the UK.  Scotland also voted predominantly to remain in the EU in the 2016 referendum and are not in favour of the hard Brexit being proposed by Boris Johnson’s deal.

Political Declaration Change

Whilst much of the text of the political declaration remains unchanged from Theresa Mays deal there are crucial differences.  Mays deal committed to close regulatory alignment to lead to minimal disruption to trade between the UK and EU.  Having similar regulation in the UK and EU would allow ongoing industrial regulatory co-operation and prevent many types of checks on trade.  Under Johnson’s deal references to a “level playing field” have been removed, instead saying that the UK and the EU should “uphold the common high standards […] in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters”[7].  Johnson’s deal is a hard Brexit with the UK leaving the EU’s common market and customs union to replace it with a Canada style free trade agreement.  That gives more flexibility for the UK to strike deals with other countries such as the US, but the trade-off is more customs checks and bureaucracy resulting in the loss frictionless trade with the UKs largest market, the EU.  Checks on goods at borders between the UK and EU will be inevitable under such an arrangement which backs up the DUPs concerns that customs border down the Irish sea would become a permanent fixture under Johnson’s deal.

Industry Feedback on the Johnson Deal

The aerospace, automotive, chemicals, food and drink and pharmaceutical sectors sent a letter to the government highlighting their concerns about the impact that Johnson’s deal would have on their operations.  In particular, weakened commitments to maintain regulatory alignment, and that the UK may no longer participate in specific EU regulatory institutions after any Brexit deal[8].

As described previously in this series, manufacturing operations in the UK have supply chains that are tightly coupled to continental Europe and rely heavily on the free and frictionless trade the UKs membership of the EU currently offers.  It was indeed the UKs membership of the EU that attracted the likes of Honda, Nissan, Toyota and other non-EU global manufacturers to invest in the UK in the first place.  The shift towards regulatory divergence and consequent steps away from frictionless trade make the UK less attractive in the long-term.  Manufactures also make the point they will still need to comply with EU regulation and standards as the EU will still be a significant market for them, but will also need to comply with diverged UK regulation adding complexity and cost to their operations.

Whilst references to European Medicines Agency (EMA), the European Chemicals Agency (ECHA), and the European Aviation Safety Agency (EASA) remain in the revised political declaration, commitment to participate in these institutions is watered down with a clause being removed that the UK will consider aligning with those agencies’[9][10].  Theresa May confirmed to parliament that she would seek UK membership of these agencies whereas the Johnson government has not offered similar assurances, only that ‘the government is seeking a “best in class” free trade agreement, where the UK would set its own regulatory standards’[11].  The aerospace industry body ASD has stated “regulatory divergence would pose a serious risk to our sectors” will result in “huge new costs and disruptions to many of our member companies”, and an “inability to shape safety rule making” which “will make it much more difficult to bring UK technology to market”[12].

The government’s own economic impact assessment of a Canada style trade deal published to coincide with Teresa Mays deal, estimated the UK would lose 6.7% GDP growth between now and 2034 compared to remaining within the EU[13].

It is notable that whilst industry has been highly vocal on the impacts of no-deal Brexit, most recently with Nissan warning no-deal Brexit could make their European business model unsustainable[14], this is the first time industry has expressed concerns about the envisaged future trading relationship.  A recent survey conducted by the SMMT found that Brexit is already impacting automotive with 11.8% of firms saying they had already divested from their UK-based operations, and 13.4% relocating operations overseas.  Furthermore, they found three quarters (77.2%) of firms stated there has already been a negative impact on business even before the UK has left the EU[15].

Likelihood of No-Deal

In the latest twist to the convoluted Brexit tale, Johnson putting his new deal to a vote to ratify his new deal in Parliament on Saturday 19th October, an amendment to delay the vote until its implementing legislation had passed through the Parliamentary process.  That ensured that the Benn Act 19th deadline passed, requiring Boris Johnson to send a letter to the EU to request an extension to the 31st October deadline in order to avoid a no deal Brexit.  This he duly did, albeit without signing the letter, and sending with it a second letter arguing that the EU should not grant an extension.

The government is still intending to press on passing the legislation through the House of Commons and House of Lords in time to leave by the 31st October (assuming that Parliament approves the deal at the end of that process).  To that end the government is tabling a bill to parliament to pass the 110 page European Union (Withdrawal Agreement) Bill in just three days, a process which would normally take several weeks.

If the government is unsuccessful in their bill to approve the WAB timetable, it seems highly likely the 31st October deadline would not be possible, and the EU would need to grant an extension.  The EU has already intimated this would be possible, with president of the European council Donald Tusk stating to the European parliament that ‘a no-deal Brexit will never be our decision’.

A no-deal exit from the EU then seems unlikely, at least at the end of October.  The government may be forced to request an extension beyond the 31st October, to finalise the WAB, then have a vote on the Johnson deal, which will then also need to be approved by the European Parliament paving the way for the UK to leave the EU and enter the transition period.

Whilst the government is still in a minority, opposition MPs have the potential to disrupt the government’s plans.  This could comprise adding amendments to the withdrawal bill such as requiring the UK to remain in a customs union with the EU, attaching a confirmatory vote to the Johnson deal, or requesting an extension to the transition period for one to two years to ensure sufficient negotiating time for the trading arrangement between the UK and EU.

Should any of these amendments pass that require Johnson’s deal to be re-negotiated, it is highly likely that rather than go back to the EU, the government will seek a general election.  They can then campaign on the promise of exiting the EU with his deal or without a deal, hoping to secure leave voters with the remain voters being split across Labour, Liberal Democrats, Green and SNP parties.  With a majority in parliament reinstated, Johnson could then deliver his deal through Parliament with a majority in place to smooth its progress.  That would be highly preferable over a second referendum as the Conservative government would only need to secure around 33% of the vote as opposed to over 50%.

The run up to the end of October will be a crunch point for Brexit.  In the coming days and weeks, we should finally have clarity on whether or not the UK will leave the EU, and under what terms, for better or for worse.  It should be stressed though that far from Johnson’s slogan of ‘getting Brexit done’, if his deal is passed it will be just the start of EU negotiations on the future relationship, something which will continue for many years to come.  Hopefully though some lessons will be learnt as to the efficacy of attempting to address highly complex, interconnected issues around sovereignty, immigration, trade, and regulation with a simple yes or no question.

To strengthen your product compliance strategy that can stand up to any upcoming Brexit situation, schedule a UK training on IMDS and/or REACH requirements. Details of upcoming IMDS and REACH training courses in the UK can be found here.

 

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[1] https://www.bbc.co.uk/news/uk-politics-49043973

[2] https://www.bbc.co.uk/news/uk-politics-48936711

[3] https://www.bbc.co.uk/news/uk-politics-49623727

[4] https://www.bbc.co.uk/news/uk-politics-49810261

[5] https://www.bbc.co.uk/news/uk-50083026

[6] https://www.bbc.co.uk/news/uk-50090030

[7] https://ec.europa.eu/commission/sites/beta-political/files/revised_political_declaration.pdf

[8] https://www.bbc.co.uk/news/business-50019069

[9] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/759021/25_November_Political_Declaration_setting_out_the_framework_for_the_future_relationship_between_the_European_Union_and_the_United_Kingdom__.pdf

[10] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840231/Revised_Political_Declaration.pdf

[11] https://www.bbc.co.uk/news/business-50008268

[12] https://www.bbc.co.uk/news/business-50008268

[13] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_membership_web.pdf

[14] https://www.bbc.co.uk/news/business-50000530

[15] https://www.smmt.co.uk/2019/10/uk-auto-gives-reality-check-on-no-deal-brexit-as-new-survey-shows-one-in-three-firms-already-shedding-jobs/