Brexit Draft Deal Floated, UK Continues Preparations for Trade Future with Other Partners

15 November 2018

Negotiators from the EU and UK have endorsed a draft text of a Brexit agreement, capping months of uncertainty over how the two sides will address some of the thorniest issues of the UK’s withdrawal from the bloc. Concurrently, UK officials have continued meeting with non-EU partners to lay the groundwork for its post-Brexit trading relationships. 

The Brexit deal, which faced scrutiny by UK Prime Minister Theresa May’s cabinet on Wednesday 14 November after news emerged of a negotiating breakthrough the day prior, is expected to address issues such as the border between the Republic of Ireland, an EU member state, and Northern Ireland, which is part of the United Kingdom. 

After hours of discussion and debate that went well into the evening hours, the UK cabinet gave their endorsement of the deal, the details of which will be parsed closely by experts in the coming days and weeks. 

“I firmly believe that the draft Withdrawal Agreement was the best that could be negotiated, and it was for the Cabinet to decide whether to move on in the talks. The choices before us were difficult, particularly in relation to the Northern Ireland backstop,” said May on Wednesday evening. 

“When you strip away the detail, the choice before us is clear. This deal which delivers on the vote of the referendum, which brings back control of our money, laws and borders; ends free movement; protects jobs, security and our union; or leave with no deal; or no Brexit at all,” she added. 

The accord was similarly welcomed by EU Commission and Council officials, with the EU’s chief Brexit negotiator, Michel Barnier, saying on social media site Twitter that “We have never negotiated against the UK but always with the UK. Today, in my capacity as the EU Commission’s chief negotiator, I consider that we have achieved decisive progress in the Brexit negotiations. UK will remain our friend, our ally and our partner.” 

The draft agreement itself numbers well over 500 pages, and a joint report circulated by EU and UK negotiators in tandem indicates that some issues, such as the details of the future EU-UK trading relationship and ensuring internal security, require more work. Officials have also released an “outline of the political declaration” on the future EU-UK relationship. 

On the former, the report says that “negotiators have agreed in principle the need for comprehensive arrangements creating a free trade area, combining deep regulatory and customs cooperation, building on the single customs territory provided for in the Withdrawal Agreement.” 

However, it acknowledges that while both sides want to make this relationship “as close as possible,” they will still need to make this “compatible with the integrity of the [European] Union’s Single Market and Customs Union and the development of the United Kingdom’s independent trade policy.” 

The outline political declaration also devotes several paragraphs to the future EU-UK economic partnership, describing a system underpinned by zero tariffs and no quantitative restrictions in goods, along with “ambitious, comprehensive, and balanced arrangements on trade in services and investment.” Other sections of the economic partnership are devoted to customs and regulatory cooperation, the backstop solution on Northern Ireland, financial services, digital, intellectual property, public procurement, mobility, transport, sustainable fishing, energy cooperation and carbon markets, and global cooperation, among others. 

The UK cabinet meeting was widely viewed as a key test for the draft deal to overcome, serving essentially as a pre-requisite for a Brexit summit among EU leaders to adopt the accord formally. If UK cabinet officials had balked at its terms, the agreement would likely have returned to the negotiating table for further revisions. Even with the approval on Wednesday, there were already signs of political upheaval as a result of the accord, with the UK’s Secretary of State for Exiting the European Union, Dominic Raab, resigning in the early hours of Thursday morning. 

The UK and EU have only a few months to wrap up the Brexit talks and ratify the deal’s terms, given that the official date for Brexit is set for the end of March 2019. While the two sides envision having a transition period in place to make the process smoother, they have also been releasing details of contingency plans should negotiations fail and the UK leave without an accord. (See Bridges Weekly, 22 March 2018

Although details are still emerging, world markets responded positively to the news of a draft deal, with the pound sterling significantly against the euro, according to data cited by the Financial Times. 

Prepping for new partnerships

The news of a draft deal came just days after a working group consisting of UK and US representatives met in Washington to continue discussions on their post-Brexit trade and investment relationship, building on a process established in July 2017. 

The latest meetings took place between 2-7 November and aimed at preparing both nations for Brexit, covering topics related to trade, foreign direct investment, and the participation of small and medium-sized enterprises in bilateral commercial activities. 

The group was first created by UK Secretary of State for International Trade Liam Fox and US Trade Representative Robert Lighthizer to prepare both nations for eventual free trade negotiations after the UK’s exit from the EU in March 2019. Last week’s talks marked the fifth meeting of the working group since its establishment. 

When the group was established last year, Fox suggested that a bilateral UK-US deal could lead to a £40 billion per year increase in trade in real terms by 2030, though that would depend on the accord’s terms as well as what the UK’s post-Brexit relationship is with the European Union. Formal trade negotiations cannot begin until the March 2019 Brexit date, given that the UK will still be an EU member state until that time. 

Trade officials from the UK and US also held another meeting of their “SME Dialogue” to highlight and share best practices on promoting SME exports, particularly in e-commerce and digital industries. Government officials from several departments including the Office of the US Trade Representative, the US Department of Commerce, and the UK Department for International Trade met with various SMEs to discuss ways for these companies to prepare for Brexit-related challenges and opportunities. 

Following both sets of meetings, the Office of US Trade Representative and the UK Department for International Trade released a summary outlining the topics discussed at the meetings. “The Working Group covered topics, including industrial and agricultural goods; services and investment, including financial services; digital trade; intellectual property rights (IPR); regulatory issues related to trade; and Small and Medium-Sized Enterprises (SMEs),” according to the statement. 

During the SME Dialogue, both parties released joint e-commerce guides for SMEs engaged in bilateral trade between the two nations. These include recommendations on steps to develop an e-commerce strategy, the landscape of e-commerce in the US and the UK, and how to best protect intellectual property and consumer privacy in the digital era.

Since the launch of the working group in 2017, both countries have collaborated on numerous Brexit-related fronts. While some relate to trade, others cover different policy areas, such as how to raise awareness of the bilateral relationship in the ocean and marine technology sector, and the two countries entered into a Science and Technology Agreement last year establishing a foundation for greater mutual research and innovation activities. (See Bridges Weekly, 19 July 2018

Both countries have agreed to hold a sectoral-focused SME best practices exchange as it relates to the marine technology sector in April 2019. The UK will also host the next SME Dialogue in summer 2019, which will focus on post-Brexit effects on the bilateral trade relationship. 

ICTSD reporting; “Brexit: Michael Gove's department 'too complacent' over risks to trade and food safety after exit from EU,” THE INDEPENDENT, 14 November 2018; “Liam Fox launches fresh drive on US-UK trade deal,” FINANCIAL TIMES, 24 July 2017; “Britain and E.U. Agree on a Plan for Brexit,” NEW YORK TIMES, 13 November 2018; “Sterling bounces higher as investors track Brexit,” FINANCIAL TIMES, 13 November 2018.

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