24 Oct 2019
Brexit: UK Parliament Votes to Approve Deal Reached by EU and UK but Rejects Timetable to Leave by 31 October 2019
In the space of a tumultuous few days, the UK and the EU managed to reach a new deal, the UK Prime Minister reluctantly sent a letter to the EU requesting an extension to Brexit, and UK MPs voted to allow the legislation on the Withdrawal Agreement to pass to the next stage of the parliamentary process. However, the UK Parliament also rejected the timetable proposed by the government to fast-track the legislation that would have implemented the new Brexit deal in time to for the UK to leave the EU by 31 October 2019.
On 17 October, after months of deadlock in negotiations, the EU and the UK compromised on several previously difficult issues in order to agree upon a new withdrawal deal for the UK.
Under this new deal, the UK conceded to the EU’s position that there will be no checks of any kind for customs or regulations on the island of Ireland. An important point, however, is that Northern Ireland would still leave the EU customs union along with the rest of the UK, even though it would still apply EU rules on customs, tariffs and regulations. In this regard, the EU altered its position in order to permit Northern Ireland to remain legally in the UK customs union, but operationally and practically reside in the EU customs union. Under the deal, the UK would collect tariffs for the EU on goods heading into Northern Ireland. Businesses and traders in Northern Ireland would then be permitted to claim refunds on these goods if they remain in Northern Ireland or are re-exported back into the UK.
Therefore, the result under the new deal is that (i) regulatory and customs checks and controls would take place at ports on the Irish Sea on goods moving from the rest of the UK to Northern Ireland but they would not take place between Northern Ireland and the Republic of Ireland; and also (ii) Northern Ireland would remain part of the UK's customs territory and would be able to take part in any future trade deals the UK negotiates with third countries.
Additionally, the EU further compromised in permitting a mechanism that would allow a simple majority in the devolved Northern Ireland Assembly to vote against these proposed new economic arrangements in the future. The first opportunity for Northern Ireland to approve or reject the new arrangement would take place four years after the end of the transition period, which is currently scheduled to end on 31 December 2020 unless both sides agree to extend the transition period.
It will be of interest to Hong Kong traders to note another important aspect which is that the text of the legally binding withdrawal agreement has been amended in order to remove the UK commitment to remain close to the EU's regulatory system. The UK has committed, however, in the (non-legally binding) political declaration to a level playing field in the areas of state aid, competition, social and employment standards, environment, climate change and in relevant tax matters. As well as this, the UK has also committed, in the political declaration, to a Free Trade Agreement with the EU that would have no tariffs. As Hong Kong traders may be aware, the political declaration is intended to be used as the basis for the future relationship between the EU and the UK.
However, the ratification of the new deal has proved difficult in time for the UK to leave the EU by 31 October. On 19 October, in a historic Saturday session of the UK Parliament, instead of a vote to approve or reject the new deal, UK MPs voted to withhold their approval and force the Prime Minister to abide by legislation obliging him to seek an extension until 31 January 2019. Despite the insistence of Johnson that the UK would leave the UK on 31 October, “do or die”, the Prime Minister did send a letter requesting such an extension as required of him by law. However, he did not sign this letter and subsequently sent a second letter, this time with his signature, stating his belief that an extension would be a mistake.
Despite this setback, the Prime Minister brought forward legislation on 22 October to put the new Brexit deal into law, along with a motion setting out an accelerated timetable for the passage of the legislation. UK MPs passed the legislation by a majority of 30, which marks the first time that the UK Parliament has formally approved any Brexit plan to date. Nonetheless, UK MPs simultaneously rejected the timetable put forward by the government to facilitate the UK leaving the EU by 31 October. The Prime Minister had indicated that if the accelerated timetable was rejected, he would pull the legislation and would seek a general election. However, he has also signalled that a brief delay to the UK departure from the EU might be acceptable and, in response to the rejection by UK MPs of his timetable, the Prime Minister stated that the government would “pause this legislation”, but not pull it altogether. The Speaker of the House John Bercow has said that, for now, the legislation is “in limbo”.
Additionally, the Prime Minister has declared that “[o]ne way or another, we will leave the EU with this deal to which this House has just given its assent" and that the government would await a response from the EU on a possible extension. In this regard the President of the European Council Donald Tusk has stated that he would recommend to EU leaders to approve the extension requested by the UK.
In spite of the EU and the UK reaching a new deal and the UK Parliament approving the deal in principle, Hong Kong Traders will note that things remain uncertain regarding the path forward and that another extension to the departure of the UK seems all but certain.