As has so often been the case with the Brexit process, it has been yet another tumultuous month in the UK-EU negotiations. Whilst the Future Relationship negotiations have continued to get bogged down over the summer months, it was the admission by the Northern Irish Secretary (Brandon Lewis) that the UK Internal Market (UKIM) legislation currently working its way through Parliament would break international law that sparked the most controversy. Not just with respect to the EU but also in terms of the prospect of a trade deal with the US. Whilst the prospects of a No Deal scenario with the EU have increased, there are signs to suggest that progress continues to be made towards a Deal.
UKIM Legislation Flashpoint
The key flashpoint with respect to the UKIM legislation is the provision for the NI Secretary to disapply parts of the Northern Ireland Protocol (which was agreed in conjunction with the EU Withdrawal Agreement). This relates to NI to GB trade and the reach of EU State Aid rules if the UK and the EU did not come to a satisfactory agreement.
From the UK side, given its promise of ‘unfettered access’ for NI businesses into the GB market, it objects to the prospect of NI businesses having to complete Safety and Security (Exit) Declarations on shipments into GB. However, the bigger issue is the potential reach of EU State Aid rules to affect companies operating in GB that have subsidiaries in Northern Ireland. The EU interpretation of the Withdrawal Agreement suggests that such companies, even if NI subsidiaries are small, would have to apply EU State Aid limits. The UK objects to this and wants to have the freedom to operate an independent State Aid regime from January. The UK Government has also claimed that the EU has threatened to withhold the granting of third country approval for GB and British companies wishing to export into the EU post-Brexit.
All of this political rancour has eroded trust and caused significant damage. That said, if one pays attention to the mood music concerning the Joint Committee which oversees the implementation of the Withdrawal Agreement, including the NI Protocol, then progress is being made. Some believe that these discussions could result in the need for Exit Declarations being waived, overcoming one of the key issues concerning the UKIM legislation. Most trade experts also agree that the UK will be granted third country status so that firms can continue exporting into the EU, as it granted such status to the UK previously on a temporary basis when the prospects of a No Deal loomed before. There is also evidence to suggest that progress is being made on the border arrangements required to manage trade from GB into Northern Ireland, although doubts remain as to whether that will be ready on time.
Future Relationship Talks
The State Aid issue is more problematic and remains a key stumbling block in the UK-EU negotiations. Of course, a State Aid agreement as part of a wider UK-EU trade deal would address the difficulties caused by the UKIM legislation, but that still seems a long way off. Although there appears to have been some progress in resolving the issues around fisheries, the level-playing-field difficulties persist. This, of course, will have a major bearing on agri-food in terms of the extent to which UK exports could access the EU market but also in terms of the standards that the UK would accept on imports from elsewhere.
Given that there are now just 98 days until the Transition Period ends, the prospects of a comprehensive Free Trade Agreement (FTA) between the UK and the EU are diminishing. Instead, the prospects have increased of a more basic FTA that would have zero tariffs and zero quotas on goods (including agriculture) but would offer little in the way of reducing non-tariff barriers (e.g. SPS checks) or dealing with services. However, to achieve this agreement the EU is still pushing for the UK to adopt a ‘shared philosophy’ on State Aid and to have a robust mechanism to deal with disputes (which is a relaxation of its stance on European Court of Justice (ECJ) oversight) as well as solid enforcement of domestic regulations. These latter issue have arguably become even more important in the EU’s eyes given the UKIM legislation introduced by the UK Government.
So, although the outline of a ‘landing zone’ is beginning to take shape, it remains to be seen whether the UK Government will agree to this. It is proposing an entirely independent State Aid regime based on WTO principles concerning such supports. It also wants to pursue its own trade deals, which as the accompanying article shows, would have significant implications for UK agriculture.
All the while, the UK is also trying to implement plans to manage cross-border traffic from January. It has recently introduced the concept of a ‘Kent Access Permit’ which hauliers would require before being admitted to travel towards Dover and the Continent. This is in a bid to reduce congestion as some estimates have suggested potential tailbacks of 7,000 trucks which would cause major disruption. All of this highlights just how much work still needs to be done in the months ahead. As reported previously, it is increasingly obvious that businesses need more time to operationalise all of these requirements, particularly if key pieces of infrastructure (e.g. Smart Freight System) are not going to be ready on-time. Whilst the Transition Period will end in December, one person’s Transition Period extension can be another’s Implementation Period if managed correctly. Such a period of at least 6 months is needed and is often a feature of other FTAs.
