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Brexit: EU Withdrawal Act Becomes Law; UK Eyes Divergence with EU and Trade Deal with US

On 23 January 2020, the EU (Withdrawal Agreement) Act received royal assent and is now an official act of the UK Parliament. The transition period is to commence from 31 January 2020 for a period of eleven months until 31 December 2020, and the UK is now looking to conclude fast-track trade deals with the EU and the US. Prime Minister Boris Johnson is hoping to capitalise on the UK’s new independent trade policy by concluding comprehensive trade deals with both the EU and the US.

After the rocky journey since the Brexit referendum in 2016, traders will be relieved to know that the Withdrawal Agreement negotiated between the EU and the UK has been enacted into law on the side of the UK, ending a long period of uncertainty. Additionally, on 24 January 2020 Presidents Ursula von der Leyen and Charles Michel of the European Commission and European Council respectively, have formally signed the Withdrawal Agreement on the EU side. This now opens the way for its ratification by the European Parliament, which is expected to happen on 29 January 2020.

The UK cannot formally negotiate trade deals while it remains a member of the EU, but talks can begin after it leaves on 31 January 2020. As the UK begins to operate its own independent trade policy for the first time since it joined the EU, it is the intention of Prime Minister Johnson to run parallel negotiations with both the EU and the US. The UK is expected to publish its objectives for trade talks with the US in February 2020 while the target for trade talks with the EU is the conclusion of a Canada-style trade agreement by the end of 2020. Moreover, the UK will set out its strategy for new trade deals with Japan, Australia and New Zealand, as well as other countries.

As part of any trade deal, the EU is insisting on the need to have a strong level playing field, meaning the adherence to the bloc's environmental, social and competition rules. To this effect, EU officials want an agreement with the UK to be governed by "efficient and effective arrangements for management, supervision, implementation and review", and the European Commission has warned that it will impose fines or even suspend trade benefits if the UK does not comply with the terms of a planned post-Brexit deal.

Hong Kong traders should take note that the UK Chancellor Sajid Javid confirmed that the UK is seeking to diverge from EU rules after Brexit: “There will not be alignment, we will not be a rule-taker, we will not be in the single market and we will not be in the customs union — and we will do this by the end of the year”. The Chancellor dismissed risks of a clash or a risk that goods would no longer be able to be exported into the EU, despite the position of the EU, stating that “Japan sells cars to the EU, but they don’t follow EU rules”. UK business leaders are urging the government to publish its negotiating objectives for the next stage of the Brexit talks in order "[t]o give businesses any chance of being ready for the new relationship by the end of 2020".

The UK is also under pressure from the US to set out its negotiating position for the US-UK trade deal that has been constantly described as one of the primary benefits to withdrawing from the EU. One UK government official described the prospect of parallel negotiations with both the EU and the US as highly complex, akin to playing “an interesting game of chess”, given the competing demands of both the EU and the US.  US President Donald Trump stated during a trip to the UK in Summer 2019 that a substantial UK-US trade deal could lead to a “three to four, five times” increase in current trade between the two countries. However, British officials have apparently given a much less enthusiastic assessment of the potential benefits flowing from a new post-Brexit deal with Washington. Leaked government forecasts have suggested that a UK-US trade deal could benefit economic output by about 0.2% in the long term. In contrast, the same forecasts have predicted a loss of 5% in potential growth over the next 15 years if the UK concludes a Canada-style trade deal with the EU and leaves the EU customs union and single market.

Director David Henig of the UK Trade Policy Project at the European Centre for International Political Economy, a think-tank, stated that a UK-US trade deal could be struck in such a short timeframe if the UK did not expect special treatment: “The US have a template and have done quick deals before [however] such a deal may not be beneficial to the UK. A US-Australia deal completed very quickly at [Australia’s] request some years ago has been assessed as having a negative impact on their economy.”

Hong Kong traders will be keen to know that, given the short time-frame of the transition period of eleven months in addition to the Prime Minister’s refusal to consider an extension, the EU, the UK and the US are all expected to move quickly in their negotiations. However, it now appears that negotiations over the coming months will have to struggle to include the, sometimes, conflicting positions of what each side is aiming to insert in a comprehensive trade agreement. The involvement of the US in separate negotiations with the UK may prove to complicate even more the already complex trade talks to take place between the EU and the UK.

Content provided by Picture: HKTDC Research
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