Brexit Briefing: guide to the draft EU and UK Agreement on a “framework for the future”

Business needs certainty in order to plan for the future and underpin the economy and growth.  This has been a constant mantra for 250 years [thank you, Adam Smith].  Arguably - with the exception of times of war – Brexit is creating more uncertainty than there has ever been over that period.

This article responds to a slew of requests for a quick read on key Brexit documents, processes, timing and steps to the “point of exit” of the UK from the EU, and into a post-Brexit world.

Whether the UK leaves with a “deal” or “no-deal”, Brexit will occur at precisely 23:00 GMT on 29 March 2018 (that is midnight Central European Time).

If there is a “deal”, two linked documents will come into effect at that moment – both are presently “drafts” because each document has now to go through a series of complex ratification processes. 

The drafts are a “Withdrawal Agreement” and “Political Declaration”

Assume that - and it’s a big assumption - the “Withdrawal Agreement” and “Political Declaration” are both passed into UK and into EU Law (that is, by virtue of each document has been agreed by Parliament in London, and by every one of the 27 remaining EU states, and by the European Parliament).

 The Withdrawal Agreement, if all parties sign up to it, sets the terms under which the UK and EU would work together for a temporary - “transition” - period.  This will start when the UK leaves the European Union – 23:00 GMT on 29 March 2019 – and continue until the end of any “transition” period.  The EU proposed that transition should end on 31 December 2020.  This could, however, be extended to run until 31 December 2022 – a suggestion that emerged from the European Commission this last weekend (18 November 2018].  Ardent Brexiteers argue that 6 years from the date of the vote to leave is too long for a transition period, during which the UK will be ruled by the European Union, pay into EU institutions, but have no effective say in either the making of those rules or how the EU budget is set and spent.  

Why do we need a Withdrawal Agreement and “Transition Period” in the first place?  Europe maintains that it is constitutionally unable to begin negotiations about future relationship with the UK until after it becomes a “third country” outside the bloc.  The UK becomes a “third country” at the moment of Brexit.

So what have negotiating teams been talking about for the last 2 years?  Most of the time has been spent negotiating the terms of the transition arrangements.  One reason why we are so surprised that so many resignations from UK Government have occurred – how much more important is the Political Declaration?  Sure, the Withdrawal Agreement sets the tone for the long term, post-transition, arrangements, and many argue that it will be difficult to draw back from conditions of the transition – but isn’t what negotiations are for?

The Political Declaration. On the other hand, sets out a scope and agenda for discussions that should lead to the outcomes of the negotiations due to be completed within the transition period.

All this as the CBI meets today (19 November 2018) in London for their annual conference.  UK leaders – political and commercial – have had chance to scan the dual outputs from EU-UK and, as the impact of a “wrecking ball” hitting the UK economy with a “no-deal”, no transition, cliff-edge, crash-out, departure from the EU – have been modelled by economists.

The same today that the Europe Ministers from each of the 27 remining EU nations met to review the Withdrawal Agreement and Political Declaration under the direction of the European Commission and its negotiators.

And what are they hearing?  That: “All aspects of the Withdrawal Agreement have now been finalised and agreed at negotiator level.  This agreement marks a decisive moment in the negotiations.  The European Commission therefore recommended to the European Council, under Article 50 of the Lisbon Treaty, to find that decisive progress has been made in the negotiations on the orderly withdrawal of the United Kingdom from the European Union, allowing the negotiations on the withdrawal agreement to be concluded and the next step of the process to be initiated.  The negotiators have also agreed on an outline of the political declaration on the future EU-UK relationship.”

The Withdrawal Agreement covers all elements of the UK's withdrawal from the EU during the transition period: citizens' rights, the financial settlement, a transition period, governance, Protocols on Ireland, Gibraltar and Cyprus, as well as a range of other separation issues.

The EU and the UK negotiators have agreed on how to avoid a hard border between Ireland and Northern Ireland. Both will use their best endeavours to have a future agreement concluded before the end of the transition period by 1 July 2020.  Should this not be the case, the EU and the UK could jointly extend the transition period [with the proposal, yesterday, that this could be a late as 31 December 2021].

That backstop solution [to deal with the issue of the border between Northern and Southern Ireland] means that a single EU-UK customs territory will be established, which will apply from the end of the transition period until such a time as an agreement can be reached - if ever means that to keep Northern Ireland in the same customs territory as the rest of the Europe, the UK also remains in the customs union.  The single customs territory covers all goods with the exception of fishery and aquaculture products.

The creation of the single customs territory includes the corresponding level playing field commitments and appropriate enforcement mechanisms to ensure fair competition between the EU27 and the UK.

The outline of the political declaration published today records the progress in reaching an overall understanding on the framework for the future EU-UK relationship. The EU and UK negotiators will continue their work based on the outline.

What does this mean for businesses trying to plan for the future?

“Nothing is agreed until everything is agreed.”  The present Withdrawal Agreement – including the transition period – must take into account the framework of the future relationship.  The political declaration must therefore be further developed and agreed in its final form.

In parallel, the European Commission and the UK Governments will continue its preparedness and contingency work for all eventualities.  These endgames are set out in a series of about 200 “Technical Notices” that impact every aspect of the relationship between UK and EU in a post-Brexit world – from the export of animals (including ferrets, to the defence of Europe against terrorism) – thousands of changes that every millions of business and millions of citizens of the UK and EU will have to respond to.

What happens next?

The EU and UK negotiators will continue their work on the political declaration on the framework for the future relationship based on the outline published today.  It is up to the President of the European Council President, Donald Tusk, was mandated to decide whether and when to convene a meeting of the 27 Heads of State or Government.  He has called the meeting for Sunday 25 November 2018.  The meeting of Heads of EU States (known as “the European Council”) can decide, under Article 50, whether to endorse [or not] the Withdrawal Agreement and the joint political declaration on the framework of the future relationship.

Once the Withdrawal Agreement is endorsed by the European Council, under Article 50, and before it can enter into force, it needs then to be ratified by the EU and the UK.  For the EU, the Council of the European Union must authorise the signature of the Withdrawal Agreement [having ratified with each of the 27 Parliaments] before sending it to the European Parliament and its 600 MEPs for consent.

The United Kingdom must ratify the agreement according to its own constitutional arrangements – and we now know that this will be a “meaningful” vote by MPs.  There is an increasing chance that that the deal (which has been taken to mean the draft “Withdrawal” Agreement) will be voted down.

Whatever the outcome, “deal” or “no-deal”,  the UK will leave the EU – and many of its institutions and collaborative bodies, such as Euratom - on 29 March 2019.

Business, in planning for Brexit, needs to be aware of  today’s publication of the economic forecast for a no-deal Brexit – an 8% drop in economic activity lasting for several years before recovering.  This prediction of a slump aligns with our own outlook based on a realistic view of the terms of trade that the UK will adopt on Brexit as we reflect on the low probability of the UK moving from the most basic World Trade Association terms.

 And if any one of the fragile links in the chain to a Withdrawal Agreement leading to successful negotiations within the framework of the Political Declaration fails, the UK leaves the EU on 29 March 2019 with “no-deal”.  In this case, over 170 “Technical Notices” on the consequences of a crash out of Europe come into effect.  We have been reporting on the detail of these notices since the EU began to publish them early in 2018.

We believe that business should plan for a no-deal Brexit – and back out those elements that end up with agreement – be it on 29 March 2019 or at the end of a transition period, if there is one.  Better to plan for this scenario and tune the plan, than to have no plan at all and be caught out.  The lead-times for preparing and implementing contingencies is no so short that there is really no other option under any insightful risk and governance regime.  A view endorsed by UK Government bodies such as HMRC and the Immigration and Border Agencies, Defra and others in the last couple of weeks in their evidence to Parliament.

John ShuttleworthComment