16 November 207
Ilona Serwicka is Research Fellow in the Economics of Brexit at the UKTPO.
The European Chief Negotiator for Brexit, Michel Barnier, has recently confirmed that the UK will cease to be a member of the EU at midnight (Brussels time) on 29 March 2019. This means that we are now less than 500 days and under 350 working days away from the Brexit date. More time has already passed since the United Kingdom voted to leave the European Union on 23 June 2016.
At home, the MPs are currently debating the European Union Withdrawal Bill (previously known as the Great Repeal Bill) in Parliament, which will repeal the European Communities Act 1972 that took Britain into the EU. The bill will incorporate all EU law into the UK statute books, meaning that on the day of UK’s departure from the EU there is no legal ‘black hole’ in the UK statute book – a guarantee of continuity and certainty.
The Prime Minister has recently announced plans to amend the European Union Withdrawal Bill to enshrine the exact date and time of UK’s departure from the EU into the UK law. Brexit Secretary David Davis said that ‘(the) amendment makes it crystal clear that the UK is leaving the European Union at 11pm on 29 March 2019’ and ‘remove(s) any confusion or concern about what ‘exit date’ means’.
This amendment, however, has been criticised by the Labour Party and at least 15 Tory MPs may rebel against it. The MPs opposed to setting an exact Brexit date in British law are concerned that the proposal will ‘tie the hands’ of the UK and force the UK out of the EU even if necessary preparations have not been completed by that date.
With the clock ticking, there is still a lot left to do in terms of necessary preparations.
Brexit negotiations to date (phase one) have focussed on three priorities – the rights of EU27 citizens in the UK and UK citizens in the EU27, the settlement of the UK’s financial obligations (i.e. divorce bill), and the Northern Irish border. Talks about the future relationship and the transition period (phase two) have not started yet and unless the UK offers clarity on the financial settlement, there is a risk that these talks may not start next month as planned. If the December deadline is missed, the next European Council meeting – that can decide whether the negotiations can move from phase one to phase two – will be held at the end of March next year.
Considering trade alone – and still there remains a plethora of other unresolved issues that the UK and the EU have to reach agreement on – the challenge for the UK remains to agree the future trade relationship with the EU within a very short timescale. For a new trade agreement to be in place on 29 March 2019, agreement has to be reached by October 2018 to allow for ratification of the deal by all the EU national parliaments. If the UK is intent on striking a deep and comprehensive trade deal with the EU – that covers both goods and services, seeks to retain the mutual recognition of rules and standards, and conformity assessments – the scale of the task grows further still.
But on Brexit day, the UK will also fall out of the thirty-plus Free Trade Agreements (FTAs) with other non-EU countries that currently affect it via its membership of the EU. The UK Government’s position is that these agreements will be ‘rolled over’, but this process of ‘grandfathering’ existing agreements is far more complex due to the technicalities linked to the Rules of Origin. It is also subject to formal renegotiations, as partner countries may have views on how Brexit affects their existing deals with the EU.
And agreeing new trade deals is a slow, drawn-out affair: the Peterson Institute for International Economics estimated that it has taken the US one and a half years on average to agree bilateral trade deals – and a further three and a half years to get to the implementation stage. But ‘one and a half years’ average is counted from launch date to signing – and excludes the preparatory work leading up to the launch of trade negotiations. In the case of the UK, it doesn’t seem like much ‘serious’ preparatory work for agreeing new trade deals has begun yet. Moreover, regularising our position with the EU and the WTO must come first.
Failing to agree a trade deal with the EU within the timeframe and dropping out of the existing FTAs, will cause the UK to revert to trading on the World Trade Organisation (WTO) terms. Trading on the WTO terms will see the reintroduction of tariffs on imports from the EU and countries currently covered by the preferential trade agreements – and this is likely to push prices up unless the UK decides to unilaterally remove all tariffs. Leaving the European Single Market and the European Customs Union – let alone leaving the EU with ‘no deal’ – will also lead to significant delays at the border, which will be detrimental to many businesses that are part of the ‘just in time’ supply chains.
Enshrining the Brexit date into UK law will not necessarily provide the certainty that both consumers and businesses really need. Considering that 29 March 2019 is less than 500 days away, the pragmatic solution to avoid ‘no deal’ Brexit is for the UK to remain within the EU for the transitional period – that is to ask for an extension of the period of Article 50 negotiations.
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.