26 Jun

'Brexit: the latest developments' by Paul O'Hagan, ABCC General Manager (VIC, SA, WA)

Since the UK’s vote to leave the European Union, the UK and EU have been negotiating the following three “divorce” issues:  how much the UK owes the EU or its “Brexit bill”; the future border between Northern Ireland and the Republic of Ireland; and the future rights of European citizens living in the UK and British citizens living in the EU. 

Notable progress has been made in discussions over the UK’s “Brexit Bill” and the future rights of citizens.  Whilst we are encouraged by the perceived progress, we caution Members that nothing will formally be finalised until everything is agreed in a final settlement.

The UK’s Brexit Bill

In December 2017, the UK provisionally agreed to pay the European Union a financial settlement for leaving the bloc.  Whilst the exact balance of this amount is yet to be fully negotiated, the number currently circulating is around £39 billion.  This figure will address the UK’s obligations to fulfil its already agreed upon contributions to the EU budget; liabilities for loans; and the pension contributions of EU officials during the UK’s membership of the EU.  Despite progress on this issue, however, Prime Minister May is under pressure from her pro-Brexit MPs to link payment of the Brexit Bill to a satisfactory future trade deal with the EU.

The Rights of Citizens

The UK government has underlined the importance of securing a deal which safeguards the rights of existing EU citizens currently resident in the UK and UK nationals in other EU countries.

On 21 June, the UK Home Office published its plans for a fast-track registration process for EU citizens who want to stay in the UK after Brexit.  Under the plans, the Home Office said the process for registration would be “short, simple and user friendly”, with the registration process taking a“matter of days” with an application cost of £65 each.

The Northern Irish Border & the Link to the Future UK/EU Trading Relationship

Most commentators agree that the most fraught part of the negotiations is the future of the Northern Irish border.   While both the UK and the EU have both agreed that the negotiations cannot result in the establishment of a “hard” border on the island of Ireland, consensus on how to come to a satisfactory outcome for both sides has yet to be reached.

As the only land border between the UK and the EU, the issue is directly linked to the UK/EU future trading relationship and specifically, the UK’s membership or relationship to the EU’s Customs Union. 

Prime Minister May is under intense pressure from pro-Brexit MPs, including Foreign Secretary Boris Johnson, for the UK to leave the EU’s Customs Union.  They argue that the UK must be allowed to sign its own free trade agreements with other countries, including Australia.  If the UK remains in the Customs Union, this would not be possible.  Johnson and others argue that remaining in the Customs Union would result in the UK having to adopt EU regulatory frameworks with no say on their formation and would ultimately be a failure in delivering the outcome of the Brexit referendum.

Despite insisting the UK will leave the Customs Union, May at the same time faces opposition from pro-Remain MPs along with Northern Irish MPs (on whom she relies for their support to pass legislation)  for the UK to remain as aligned as possible to the EU, to ensure a “hard” border is not required between Northern Ireland and the Republic. 

The UK continues to explore how to strike the balance on the issue and has put forward several proposals:

  • Negotiate a new customs partnership with the EU, in which the UK would collect EU tariffs on goods coming from other countries on the EU’s behalf.  Business is sceptical of this option due to costs and bureaucracy.  Pro-Brexit MPs also oppose the option as they fear it would keep the UK in the EU’s Customs Union by default.
  • A proposed “Highly Streamed Customs Arrangement” using technology and trusted trader schemes.  Also known as the “maximum facilitation” or “max-fac” option, infrastructure would need to be put in place on the Northern Irish border – something opposed by both Northern Irish MPs and the Irish Government.  Additionally, there are questions on how much the technology would cost and whether or not it could be put in place in time.
  • Recent reports also indicate the exploration of the Government’s willingness to retain the freedom of movement of goods, but not services, between the UK and the EU.

Negotiations with the EU on all these issues are ongoing and will return to the UK Parliament during debate on the EU Withdrawal and Trade bills.

Whilst the UK attempts to turn the focus of the talks with the EU to the future UK/EU relationship, most commentators do not expect significant progress in this area until negotiations take place during the 21-month transition period, following the UK’s formal departure from the EU on 29 March 2019.

What does this all mean for Australia?

Following the Brexit referendum, Australia was the first country to establish a Trade Working Group with the UK to scope out the parameters of a future trade and investment deal once the UK leaves the EU.  The group, bringing together officials from UK and Australian government officials, have met on several occasions.  The ABCC is a strong advocate of this initiative and feeds the views of our business community into the group.

Once the UK leaves the EU on 29 March 2019, the UK and Australia can begin to formally negotiate a trade deal.  The structure and depth of the deal, however, would rely on the outcomes of the negotiations on the UK’ s relationship to the EU’s Customs Union.  The aim is to conclude a UK/Australia deal before the end of the UK’s scheduled departure transition period from the EU.  During the transition period, however, the UK’s regulatory framework is likely to remain in line with that of the EU’s.

Prime Minister Turnbull, Foreign Minister Julie Bishop and Trade Minster Steven Ciobo have all repeatedly pledged their support for a comprehensive trade and investment deal with the UK.   The UK government has prioritised its future trade negotiations, with Australia, New  Zealand and the United States topping the list.

Latest Developments on Brexit

Brexit Bill Passes Parliament

With less than a year before the UK formally leaves the European Union, significant progress has recently been made in the UK Parliament in legislating for Brexit.  

On 20 June, the government’s EU Withdrawal bill passed through both houses of parliament following a revolt by pro-Remain Conservative MPs and substantial opposition in the House of Lords.  Fearing that negotiations with the EU could result in a “no deal” ahead of Brexit, the House of Lords had produced an amendment to the bill calling for a meaningful parliamentary vote ahead the UK’s departure from the bloc.  The Government was able to both overturn this amendment whilst at the same time placate pro-Remain Conservatives with Brexit Secretary David Davis’ announcement that it would be for the Speaker of the House to decide when MPs should be given the opportunity to approve the Government’s final Brexit plans.

Up next:   In the coming weeks, the UK Government will publish a White Paper detailing their plans on a proposed future relationship with the EU, along with returning the Trade and Customs Bills back to the House of Commons.

Chancellor Sets out Plans for “Global Financial Partnerships

In his annual address at Mansion House on 21 June, Chancellor of the Exchequer Philip Hammond set out his vision of the UK’s global future with plans for “global financial partnerships”.  With the objective of making the UK the “undisputed gateway to global markets”, key target markets include China, South Korea, India and Australia.  The partnerships will strengthen the financial services focus of existing bilateral dialogues.

 

Key Upcoming Dates

28 June 2018

Summit of EU leaders in Brussels where the topic of the Northern Irish border may be discussed.

18 October 2018

A key milestone – at a summit of EU leaders, the UK and EU hope to agree an outline of future relations, ahead of the UK’s transition period.

13 December 2018

Final EU Summit – if a deal is not reached in October.  The UK and EU will need to come to an agreement in December in order to leave enough time for the UK Parliament to pass necessary Brexit legislation (an Implementation Bill) ahead of Brexit.

29 March 2019

Brexit Day:  Due to take place at 11pm UK time/Midnight Brussels time

1 April 2019

The UK and Australia can formally begin negotiations on a future trade and investment deal.  The aim is to conclude this deal before the end of the UK’s scheduled departure transition period from the EU.  During the transition period, the UK’s regulatory framework is likely to remain in line with that of the EU’s.

31 December 2020

The scheduled end of the UK’s transition period*

 

Again, as a note to members, the dates above provide a guideline for where we see developments over the coming months according to general thinking.  All negotiations are fluid.

 

By Paul O'Hagan, ABCC General Manger (VIC, SA, WA) 

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