A briefing note on the withdrawal agreement

After months and months of negotiations, a draft withdrawal agreement between the EU and UK was published on Wednesday 14 November.

The draft Brexit Withdrawal Agreement sets out the terms of the UK's ‘divorce’ from the EU, over 585 pages. In addition, the EU and the UK published a joint political declaration on their future relationship, which sets out broad areas of future co-operation.

The UK cabinet approved the document on 14 November, which got the ball rolling. Now, the agreement goes to the other 27 EU member states for a vote (25 November) before coming to the UK Parliament in December. Below are the key issues affecting agriculture from the withdrawal agreement with analysis around what it could mean.

Withdrawal Agreement

The main aspect is the 21-month transition period, up to December 2020, allowing time for further negotiation of the future arrangement (if needed) and adaptation to a new relationship.

On page 4 there is a key paragraph regarding the UK’s ability to strike up other trade deals. It says that during the transition period the UK can ‘take steps to prepare and establish new international arrangements of its own’. However, any implementation of such deals can only kick in after the transition period ends, unless the EU agrees otherwise.

One of the big issues surrounds any potential hard border between the Republic of Ireland and Northern Ireland (NI). The withdrawal agreement notes a ‘protocol’ which could come into effect if a future relationship deal is not agreed within the transition period. If the protocol becomes active then a ‘single customs territory’ between the EU and UK will be established. The agreement states, ‘Accordingly, NI is in the same customs territory as Great Britain. The single customs territory shall comprise: a) the customs territory of the Union, b) the customs territory of the UK”. This would see the UK and EU having essentially a free trade deal. However, there would need to be checks to ensure neither party is being used as an access point for the other. In addition, the UK would not be able to strike up trade deals that could undercut the EU’s position, basically resulting in the EU pretty much having control over the UK’s trade agreements.

However, this does not completely get away from NI being treated differently to the rest of the UK. Whilst products originating in NI can be sold in GB under a UK origin label those exported to the EU will have to be labelled as UK (NI).

If this protocol comes into effect, both sides would need to agree on an alternative. If one side does not agree, then it continues.

Responsibility for the implementation and application of this will fall to a ‘Joint Committee’ comprising of representatives from the EU and UK, as well as being co-chaired by the regions. Being co-chaired, any decisions would have to be agreed by both sides, including any extension of the transition period and ending any protocols. Any decision to extend the transition period will need to be agreed by 1 July 2020.

It has also been agreed that the UK will pay a ‘divorce settlement’ of around £39bn.

Will the agreement come into force?

The next few weeks will be crucial. If all sides agree on the withdrawal agreement then it will come into effect on 30 March 2019. However, in the House of Commons on Thursday 15 November, Theresa May faced a lots of resistance from MPs (from all sides) to the initial discussion of the document. Therefore, from the UK’s perspective, the road looks a bit rocky. If MPs vote against the withdrawal agreement, there could be a number of options for what happens next.

1. Re-negotiate – MPs could decide that key aspects of the agreement need renegotiating. However, considering the deadline of Brexit is 29 March 2019, the view is there is not enough time. To ensure enough time, the UK could ask the EU to extend the Article 50 deadline. All 27 member states would need to agree.

2. Vote of no confidence/general election – a large majority against this withdrawal bill could trigger a vote of no confidence in the Government and result in the need for a general election. Again, lack of time could be a stumbling block to this taking place.

3. Second referendum/the People’s Vote – there have been many calls from MPs when scrutinising the agreement (on 15 Nov) for a second referendum. This could be giving the British public a choice between leaving the EU under the proposed plan or remaining part of the EU. Yet again, this provides a time issue as well as another problem. If this option were to occur and the public voted to remain in the EU, the 27 member states would have the ultimate say as to whether this could happen. The EU did not want to UK to leave in the first place so could willingly accept this decision. However, due to the time, money and effort spent on Brexit the relationship offered might be different.

4. A disorderly/hard Brexit – this would mean that as of 30 March 2019, the UK will no longer have a formal arrangement with the EU and no transition period would be put in place. This is where WTO rules would come into effect.

This does not provide a great deal of clarity and nor can it. All options seem open at present and although we are just over four months away, at the time of writing, the uncertainty surrounding Brexit goes on.

Future relationship between the EU and UK

The political declaration is a shorter document, running to just 7 pages. This explains the basic aspects of the EU/UK relationship post-transition. Here the EU and UK intend to enter into a series of partnership agreements which will govern our future relationship. These partnerships cover areas as diverse as security and foreign policy.  An economic partnership is perhaps the key area of interest for our industry.

Central to this is the intention to create a new Free Trade Area (FTA) with no tariffs, charges or quantitative restrictions across all goods.  There will be deep regulatory and customs cooperation to ensure a level-playing field within the FTA.

There will be some customs checks and controls on trade at the border. The extent of   this is not outlined and will depend to the ‘degree of regulatory and customs cooperation’ with regard to alignment of rules.  In this context, there is an intention to establish an alternative arrangements on the island of Ireland to ensure the absence of a hard border.

Would this deal be good for agriculture?

• Most will view an EU/UK FTA as positive for agriculture. It will minimise disruption to trade with the EU, important to many of our sectors.
• This goes further than other FTAs as there are no tariffs or quantitative restrictions across all goods. The EU already has a number of FTAs in place – such as with Canada and South Korea. However, these don’t make trade in all goods free. There are often quotas – for example the first 20,000 tonnes will be at a zero or reduced tariff – with the usual tariffs imposed beyond this.
• Checks at the border will mean trade friction and increased costs to trade. Studies place the cost of this at between 3-8%. In agriculture these costs will benefit farmers in sectors where we are net importers (eg. Pork, Beef, Dairy and Horticulture) but adversely affect exporting sectors (notably sheep) – as shown in our Horizon report on Brexit scenarios.
• The price to pay for the lack of restrictions on trade is ‘cooperation’ on regulation. At present these are completely aligned but post-Brexit the UK could start to make different regulatory decisions which might benefit our businesses. The EU might feel that a breakdown in cooperation has occurred if a change is made which provides an unfair advantage by creating an uneven playing field.
• The same is true on customs, where cooperation is also envisaged. At present we are in the same customs union. In future, if the UK were to strike its own trade deal with a country the EU doesn’t have a trade deal – with the USA for example – the EU would want to check that any goods transported from the UK into the EU haven’t originated in the US.

Luke Crossman - luke.crossman@ahdb.org.uk

David Swales - david.swales@ahdb.org.uk

Strategic Insight Team, MI