After many months of intense negotiations, the UK government and EU have published a draft Brexit treaty that sets out the future relationship between the UK and EU.

The UK will leave the EU on 29 March 2019, with a transitional period extending to 31 December 2020, during which time the UK will continue to follow all European Union rules and be under the jurisdiction of the European Court of Justice (ECJ).

The draft treaty is not a trade deal as such; that will have to be negotiated during the above-mentioned transitional period. This period can be extended if required (possibly up to December 2022), though after 31 December 2020 the UK would no longer be part of the Common Agricultural Policy.

Useful links:

What happens now?

In her statement to the House of Commons on 15 November 2018, Prime Minister Theresa May made clear that the agreement is “not the final deal”, but a “draft treaty”. She also emphasised that there will be a “new UK-wide temporary customs arrangement”.

The document is probably unlikely to survive in its current state as there are misgivings being expressed by Members of Parliament as well as sparking resignations by Cabinet Ministers, including the Brexit Minister (who was Dominic Raab, now replaced by Health & Social Care Minister, Stephen Barclay – whose role will now focus on UK preparedness for Brexit and seeing Brexit laws through Parliament).

As the government does not have a majority in the House of Commons and a number of the government’s own MPs appear ready to vote against it, it will be difficult to obtain Parliamentary approval for the draft treaty.

In addition, the Official Opposition has already made clear that it cannot support the deal in its current state as it does not meet its own tests for approval.

The agreement will also need approval by all the member states of the EU, so there are plenty of hurdles yet to overcome before there is a final version.

It is difficult to see how the agreement can remain as written, without further amendment, but at the same time it is hard to see how willing the EU is prepared to move from its current position.

Business reaction so far

The draft treaty appears to have been broadly welcomed by business leaders, saying it was much better than crashing out of the EU without a deal.

Although there are reservations that the draft treaty allows the EU to impose uncompetitive policies on the UK in the future, the deal would at least prevent a “cliff edge” on 29 March 2019, and should allow deferred investment plans to proceed with confidence.

There are concerns that many businesses have not yet made any preparations for a no-deal Brexit, as they are banking on a deal being in place by the time the UK leaves the EU next March.

Companies dependent on EU supply chains should be putting in place contingency plans whilst there are doubts about a deal.

Brexit summit 25 November 2018 and beyond

EU leaders are due to meet Prime Minister May on 25 November 2018 to sign the draft treaty to formalise it, unless of course something happens in the meantime.

If the draft treaty is signed, it then goes to the UK Parliament in December.

If approved (and EU Council and EU Parliament also approve) then the treaty takes effect on 29 March 2019 with the transition period to December 2020.

If rejected then the UK government has 21 days to present a new plan and possibly ask the EU for more time to re-negotiate, it can leave the EU without a deal, or can call a general election or a 2nd referendum (which, apparently would take 24 weeks to organise).

Key issues addressed in the Brexit treaty

It is a lengthy document, but some key issues it covers include:

  • Immigration – Up to 31 December 2020 (the transition period) EU citizens and their families have the right to live and work in the UK (and vice versa). After this, EU citizens can apply for a residence document.
  • Trade post transition period – If there is no trade agreement between the UK and EU by 31 December 2020, a “backstop” will take effect with the UK and EU forming a single customs territory. This would prevent the UK from implementing its own trade deals with countries outside the EU.
  • State aid – the UK will continue to be governed by the EU’s state aid rules, even after the end of the transition period (Article 93), which means the UK will not have the freedom to enhance such tax measures as R&D relief and the Enterprise Investment Scheme without EU approval.

No deal?

Due to uncertainty over the draft treaty being agreed, the government is likely to push ahead with its contingency planning for a no-deal Brexit.

Our VAT Director has written useful guidance for business on what to do if there is no deal:

[[Watch our video on the effects of a no deal Brexit]]

 
 

Sign up for our International Conference

The full implications of Brexit for international trade will be covered in our forthcoming international conferences 27 to 29 November 2018.

There are still places available if you would like to speak to an expert on how Brexit will affect your business.

For more details please enquire to – events@bishopfleming.co.uk or 03333 21 9000

For further information about Brexit, please contact a member of our Brexit team.

 

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