What should business take from last Friday's UK Cabinet Brexit Statement?

London

The U.K. prime minister announced last Friday (July 6) evening that her Cabinet had formally endorsed her plan for a new “U.K./EU free trade area” and closely interwoven customs relationship with the European Union.  Both will form the mainstay of Britain’s future relationship with the EU following Brexit.

In her statement, Theresa May said “our proposal will create a U.K./EU free trade area which establishes a common rule book for industrial goods and agricultural products. This maintains high standards in these areas, but we will also ensure that no new changes in the future take place without the approval of our parliament.”

“As a result, we avoid friction in terms of trade, which protects jobs and livelihoods, as well as meeting our commitments in Northern Ireland. We have also agreed a new business-friendly customs model with freedom to strike new trade deals around the world.”

Michel Barnier in a response to the UK cabinet statement said “We will bend the EU’s rules for the sake of Ireland, but don’t think for a minute that we will unravel the single market for a departing U.K. 

Details of the new plan will be set out in an official paper this week.

Implications of statement for UK business?

Brexit Partners welcomes the UK Cabinet’s proposals to minimise the impact of Brexit on the manufacturing industry. Clearly there is still a lot more work to do and there is no guarantee that the European Union will accept the proposals.

Our main observations are as follows:

  • No Deal:  The Cabinet agreed to step up preparations for a “no-deal” scenario given the possibility the EU could reject the latest proposal, a statement released by the government said: "This is still a realistic scenario. UK business should also prepare “no-deal” contingency plans, especially if they are highly exposed to Brexit".

  • Services: Britain will not follow the EU’s regulations for services.  The Prime Minister acknowledges the UK and EU will no longer have the same level of access to each other's services markets going forward. Restrictions will be imposed, limiting access to each other’s markets. These will have major business implications. Divergence with EU on standards, regulation and other requirements will require major reorganisation and process changes. It is also important to recognise that an increasing number of goods rely on services contracts to operate. As divergence in services come into play, it will make it harder for UK services firms to be part of these European supply chains.
  • Borders: the U.K. will be required to continue to levy EU tariffs at its borders. It plans to use technology and “trusted trader” schemes to track goods on their journey through supply chains to market. Traders selling goods with lower tariffs destined for U.K. consumers would have the tariffs reimbursed. There will be additional costs and process changes required under these proposals.  
  • Courts: The U.K. government accepts a “joint institutional framework” will be needed to interpret the EU/U.K. agreement. “This would be done in the U.K. by U.K. courts, and in the EU by EU courts — with due regard paid to EU case law.” Organisations will need to be cognisant of both EU and UK law if trading across borders.
  • Legislation: MPs will be given “oversight” of the adoption of any EU rules and regulations into British law. UK firms will still need to maintain an eye on developments in the European Parliament and European Commission in developing long term strategies and understanding public policy.

  • International trade: when the United Kingdom leaves the European single market and customs union, the British Government will be able to strike its own independent trade deals around the world and have its own seat at the World Trade Organisation (WTO). Nonetheless, the UK’s ability to strike trade deals will be hampered by its obligation to the EU’s common rule book.
  • EU Budget contributions: will end with the UK’s membership of the European Union. This does not rule out “appropriate contributions” to EU projects in fields such as science and innovation. These may give continued access for UK firms to R&D funding grants and other opportunities.

  • Environment, climate change, social and employment and consumer protection: The UK Government concedes that the U.K. will pledge not to let regulatory standards fall below their current levels. In some areas, there will be concern that UK regulators may go further than the EU and that there is potential for “gold plating”.
  • Common Agricultural Policy and Common Fisheries Policy: the UK government statement insists the U.K. will leave these mechanisms to deliver an independent trade policy —” including seeking accession to the Trans-Pacific Partnership” — end free movement and end “vast” annual payments to the EU budget.

  • Mobility: There are very few details on ending freedom of movement with the EU. The UK Prime Minister has promised to prohibit citizens of EU member states to freely work and live in the UK. However, the UK Government in its statement includes a reference to a new “mobility framework” so “U.K. and EU citizens can continue to travel to each other’s territories and apply for study and work.” Organisations need to continue to assess the impact on their staff, recruitment and employment policies.
  • The Brexit departure date: The UK Government confirms it will stick to the Article 50 schedule and ensure Britain leaves the European Union on March 29, 2019. This will be followed by the so-called implantation period, which was agreed in the draft withdrawal agreement and is set for completion at the end of 2020. UK firms need to continue to plan on the basis of these dates.

 
Dr. Ray NultyComment