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Brexit: UK Prime Minister Boris Johnson Well on Path to Breaking Brexit Deadlock

On 12 December 2019, Prime Minister Boris Johnson returned to Downing Street after winning a large majority in the UK Parliament with a strong mandate to fulfil his promise to leave the EU by 31 January 2020.  "This election means that getting Brexit done is now the … unarguable decision of the British people,” Johnson stated.  The Prime Minister intends to begin negotiations with the European Union as quickly as possible in order conclude an agreement on the future relationship by the end of the transition period of 31 December 2020.

Hong Kong traders will be pleased to know that the UK election held on 12 December 2019 has broken the parliamentary deadlock on Brexit and it is seen as very probable that the UK will leave the EU by the current deadline of 31 January 2020. “In terms of the immediate term after the general election, delivering the legislation for Brexit should be a very straightforward process in terms of the Withdrawal Agreement getting through the House, purely because we will be able to hold that majority together in a way that was not possible before as all candidates have endorsed the deal,” said a senior adviser to the Prime Minister.

The Withdrawal Agreement Bill, which sets out the legal framework for the Prime Minister’s deal, is expected to be submitted to the UK Parliament by 20 December 2019, where it will be debated and voted on by the House of Commons and the House of Lords. With a majority in the UK Parliament of  74 MPs (the largest majority the Conservative Party has obtained in over 30 years), the entire process is expected to go smoothly. After the Withdrawal Agreement is ratified by the UK Parliament, the European Parliament would then vote on the deal, which is also expected to pass it. Once the deal has been formally ratified by both sides, focus will quickly move to the transition period, which keeps the UK trading with the EU on the current existing terms and is in place until 31 December 2020. "Brexit doesn’t end on the 31st of January”, the Irish Prime Minister stated. “We enter the next phase, which is just as important, which is defining and codifying the future relationship that’s going to exist between the EU and the UK."

On the EU side, the European Council, which is made up of all the political leaders of the EU,  has asked the European Commission to present a mandate to start post-Brexit negotiations with the UK as soon as possible with Michel Barnier, who led the Brexit negotiations for the EU, to lead the negotiations on the future relationship. The EU is ready and will act “with great vigour and unity… it will be important for us to work quickly and precisely,” German Chancellor Angela Merkel stated. The future relationship will encompass everything from trade to security, defence, fishing, data protection and science; however, “the time is very short to negotiate [such] a broad field,” the European Commission’s new President, Ursula Von der Leyen admitted.

The European Council insisted that the EU aims to have a relationship with the UK “as close as possible” with zero tariffs and zero quotas, but warned it “will have to be based on a balance of rights and obligations and ensure a level playing field.” Additionally, French President Emmanuel Macron warned  that “[i]f the UK wants a very ambitious free trade agreement, then we need a very ambitious regulatory cooperation.”

However, Hong Kong traders will want to be aware that the former Brexit Secretary David Davis has held that the Prime Minister will diverge from EU trade rules once the UK leaves the Union. “The negotiating hand Boris has is much stronger, that is just an objective fact,” Davis said. “The second objective fact is that Boris himself does want to diverge.” Additionally, after the election, President Trump declared that "Britain and the United States will now be free to strike a massive new Trade Deal after Brexit [which] has the potential to be far bigger and more lucrative than any deal that could be made with the EU.”

Moreover, it remains uncertain as to how complex and wide-ranging an agreement Prime Minister Johnson wishes to pursue for the future relationship. An ambitious, overarching deal covering the entire spectrum of the future political relationship would likely take longer than the time permitted in the transition period as such an agreement would require the ratification of all of the Member States of the EU. Although the Withdrawal Agreement provides for such an extension (as long as the decision to have it is made by 1 July 2020), the Prime Minister has promised several times that he would refuse to request an extension to the transition period. It is thus expected that the UK would prepare, in parallel to the trade negotiations, for another potential no-deal scenario for the end of 2020. Nonetheless, it is also hoped that having such a large majority in the UK Parliament would allow Johnson more flexibility during the negotiations and to possibly request an extension should it become necessary.

An alternative to a wide-ranging agreement would be for the UK to negotiate a more limited trade agreement with the EU by using a standard or already existing model that would fall within the scope of the exclusive competence of the EU. This would require only the approval of the European institutions, and not the individual Member States. However, this type of standard agreement, with its limited nature, would clash with Johnson's goal of negotiating an ambitious “zero-tariffs, zero-quotas” trade deal that goes far beyond existing EU trade deals with countries like Canada or Singapore.

In short, Hong Kong traders will need to know that it seems all but certain that the UK will leave the EU with an agreement and a transition period in place. However, Brexit is far from over and it is progressing to the next stage which will lay the groundwork for the future relationship between the EU and the UK. Currently there is a strong determination on both sides to negotiate a deal within the transition period, but there is uncertainty as to how substantive this deal might be.

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