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EU-UK Draft Withdrawal Agreement Wins UK Cabinet Support, But Brexit Struggle Far from Over

The UK Environment Secretary Michael Gove, a well-known supporter of Brexit, is believed to be the only senior ‘leave’ supporting minister to have backed the draft deal. Eleven out of Mrs. May’s 29 cabinet members are said to actually oppose the draft deal.

Shortly after Mrs. May made the announcement of her cabinet’s support, the EU’s chief Brexit negotiator, Michel Barnier, held his own news conference. He spoke of the EU’s success in helping to carry through the deal. “I believe we have made decisive progress,” Barnier exclaimed. The European Council President, Donald Tusk, is now scheduled to arrange a special leaders’ summit, possibly on 25 November 2018, to approve the withdrawal agreement.

Hong Kong sellers will be eager to know how the terms of the draft withdrawal agreement will impact on their trade with the EU and the UK after 29 March 2019. There follow some key provisions in the 585-page document that could be of some interest to traders:

  • There will be a 21-month transition period after the leave-date of 29 March 2019, and a “financial settlement” from the UK, of between £35bn and £39bn.
  • The particularly contentious issue of a “backstop” will guarantee that physical checks will not be reintroduced at the border with the Republic of Ireland, in the event that there is no settlement of an EU-UK trade deal. However, both sides have resolved to ensure that the backstop will not be necessary, by coming up with alternative arrangements.
  • If alternatives are not found by July 2020, the transition period may be extended beyond December 2020. If they are still not found by the end of the extended transition period, then the backstop would “kick in”. This would involve a joint EU-UK “single customs territory”, so that customs checks would not be needed on the border between the Republic of Ireland and Northern Ireland.
  • Another key point of contention among “leave” supporters is that the UK will not have the right to withdraw from the backstop customs union unilaterally.
  • Any goods that were lawfully placed on the EU or UK market before the end of the transition period may be further made available on the market of the EU or UK and circulate between these two markets until they reach end-users.
  • Where an economic operator relies on the abovementioned provision with respect to a specific good, that operator shall bear the burden of proof of demonstrating, on the basis of any relevant document, that the good was placed on the market in the EU or the UK before the end of the transition period.
  • The EU’s Customs Code shall apply in respect of EU goods, where such goods move from the customs territory of the UK to the customs territory of the EU, or vice versa, provided that the movement started before the end of the transition period and ended thereafter. A movement of goods which has started before the end of the transition period and ends thereafter shall be treated as an intra-Union movement regarding importation and exportation licencing requirements in Union law.

The draft withdrawal agreement, if adopted, will allow each side more time to come to a finally acceptable permanent Brexit agreement. The seven-page declaration on future relations that accompanies the draft withdrawal agreement is thin on detail. Yet, it commits to putting in place an ambitious free trade agreement, combining regulatory and customs cooperation, zero tariffs, and replacement of the backstop solution on Northern Ireland by a subsequent agreement that establishes alternative arrangements that would ensure the absence of a hard border on the island of Ireland on a permanent footing. 

In sum, while UK Prime Minister Theresa May has won the support of her cabinet on the draft withdrawal agreement, she still faces the difficult task of obtaining approval from the UK Parliament. As Michel Barnier has correctly pointed out, “We still have a long road ahead of us on both sides”.

Content provided by Picture: HKTDC Research
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