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Brexit Set to Occur End-January, While EU and UK Lay Foundations for Trade Talks

On 9 January 2020, British MPs gave their final backing to the Withdrawal Agreement Bill ensuring that the UK will leave the EU on schedule by 31 January 2020. This will lead to the eleven-month transition period where the UK will no longer be a member of the EU but will continue to follow its rules until 31 December 2020. The purpose of the transition period is to provide the time necessary for the UK and the EU to negotiate their future relationship, including, in particular, an ambitious and comprehensive free trade agreement. Even though the UK has yet to officially leave the EU, Prime Minister Boris Johnson met for the first time with European Commission Ursula von der Leyen on 8 January 2020 to discuss the groundwork for trade talks and to lay down their negotiating positions.

The UK House of Commons voted definitively in favour of the Withdrawal Agreement negotiated by Prime Minister Johnson. It now proceeds to the House of Lords for their approval, however, it is expected to pass through smoothly in this upper chamber of the UK Parliament. In comparison to the attempts of the previous Prime Minister, Theresa May, who repeatedly failed to get her Brexit deal through Parliament, it finally took only three days for the newly elected Parliament to pass the required legislation. Brexit secretary Steve Barclay stated that the legislation will deliver on the "overwhelming mandate" the Conservative party was given at the general election held in December, to take the UK out of the EU on 31 January.

According to a leaked draft agenda, the European Parliament for its part is expected to ratify the deal on 29 January 2020. With the necessary steps taken to leave the EU and begin the transition period, Prime Minister Johnson has declared that the UK is ready to start negotiations "as soon as possible" after 31 January.

The most challenging element of negotiating the future relationship between the EU and the UK is the strict time period laid down of eleven months. European Commission President Ursula von der Leyen said the EU would be open to the idea of establishing a “truly ambitious and comprehensive partnership” with “zero tariffs, zero quotas, zero dumping” that “goes well beyond trade and is unprecedented in scope,” covering a range of interests, from “climate action to data protection, fisheries to energy, transport to space, financial services to security”. However, President von der Leyen also emphasised that they will not be able to agree on “every single aspect” of their future relationship before the end of the foreseen transition period unless an extension to that period is agreed upon. Prime Minister Johnson has consistently and firmly stated that the UK will not seek an extension to the transition period under any circumstances, even going so far as to pass a law making it unlawful for his government to request such an extension.

President von der Leyen stated that if there is no extension to the transition period, negotiations on the future partnership would have to focus on certain “prioritised” areas, to which there are no international agreements to fall back on. She added that the negotiations for the prioritised areas would take “nine to ten months at most,” and that she would prefer to itemise a list of priority fields as soon as possible, with a possible view to “reconsidering the timeframe” before 1 July 2020 (the deadline by which an extension must be requested). This approach seems to be acceptable to the UK, as Prime Minister Johnson indicated to President von der Leyen that the UK could seek a piecemeal or partial post-Brexit deal with the EU, that leaves some issues unresolved but still lets it leave by the end of the transition period on 31 December 2020. However, trade negotiations between the EU and the UK cannot formally begin until the UK has officially left the EU. According to EU rules, the EU Member States must first agree a mandate for the EU Commission to negotiate a comprehensive trade agreement on their behalf. This means that, according to current expectations, trade talks will only start at the beginning of March.

Hong Kong traders will want to know that while both the EU and the UK are eager to move on to the next stages, there are many potential roadblocks that can emerge during the negotiations. Currently, the greatest issue of dispute is the extent to which the UK may or may not maintain regulatory, social (labour) and environmental standards with the EU once it has departed. On the one hand, Prime Minister Johnson made it clear that he is aiming for a future partnership that does not include any alignment with the EU, and that the UK will maintain control of its fishing waters and its immigration system. On the other hand, President von der Leyen reiterated the position consistently made by Michel Barnier, the Chief Brexit negotiator for the EU, that there would be consequences if the UK chose to diverge from EU standards. In particular, she added that if the UK were to diverge from EU social and environmental standards in the future, access to the single market would be impossible. “Without the free movement of people, you cannot have the free movement of capital, goods and services,” she said. “Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world’s largest single market.”

In short, it may come as a relief to Hong Kong traders to know – in the interests of certainty – that the UK Parliament has finally all but ratified the Withdrawal Agreement and that the UK will depart the EU on schedule on 31 January 2020. Nonetheless, while this will lead smoothly into the transition period, the eleven-month period is considered too short to negotiate the entire future relationship between the EU and the UK. Although both sides wish to put an end to the Brexit procedure as soon as possible, it seems as though the divide between their respective positions will inevitably lead to conflict during negotiations, making it unclear how deep and comprehensive any EU-UK trade agreement might be.

Content provided by Picture: HKTDC Research
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