Brexit Update: What’s in the “new deal”?

28.10.19

After lengthy negotiations, the UK and the EU have agreed ‘in principle’ on a revised ‘New Withdrawal Agreement’. 

The bulk of the original Withdrawal Agreement that was agreed in November 2018 remains unchanged. No changes have been made, importantly, to the provisions setting out citizens’ rights, the financial provisions and the transition / implementation period. 

As in the original Withdrawal Agreement, the transition and implementation period would still apply until 31 December 2020 if no extension is agreed – i.e. the transition period has not been extended to reflect the time ‘lost’ as a result of the Article 50 period being extended from March to October, and would not be extended if the deadline is pushed back again to January.

The Agreement establishes that the transition period may be extended once for a time-limited period of up to two years: any extension must be agreed before 1 July 2020. During the transition / implementation period, EU law would continue to apply to the UK under the terms set out in the Agreement.

The new Agreement would be implemented in UK law by the European Union (Withdrawal Agreement) Bill - a summary of this will be available shortly. 

 

The revised ‘backstop’

The only material changes that have been made to the now 541-page agreement concern the protocol on Ireland / Northern Ireland. This protocol (starting on page 292 of the Agreement) was commonly known as the ‘backstop’, but that term is perhaps no longer accurate as the arrangements in the protocol are now intended to be ongoing rather than a ‘Plan B’ that would only stay in place until something else was agreed. 

The provisions in the protocol that were not changed relate to, for instance, the Common Travel Area and rights of individuals, as well as more ‘technical’ matters such as safeguards, implementation and enforcement. This post summarises the changes that have been made.

 

Northern Irish Consent

As noted above, where previously the ‘backstop’ would have applied ‘unless and until … superseded, in whole or in part, by a subsequent agreement’ (Article 1 in the original version), this requirement has now been removed. One of the main obstacles to the Withdrawal Agreement in its original form was the potential ‘indefinite’ application of the ‘backstop’, which in that original agreement would have applied on a UK-wide basis and not just to Northern Ireland.

In the revised version, the continued application of the key provisions of the protocol now depends on democratic consent in Northern Ireland (Article 18 in the revised version) and not on a superseding agreement with the EU. The UK’s unilateral declaration on consent provides that consent would be sought: 

•    at the end of the ‘initial period’ (four years after the end of the transition and implementation period); and 

•    at the end of each ‘subsequent period’, which would be either four or eight years depending on whether there was’ cross-community’ support for the previous approval. 

As long as consent is given at each of these points, the provisions of the protocol can essentially go on indefinitely. If consent is withheld, the relevant provisions cease to apply two years after the end of the relevant period (the ‘initial period’ or any ‘subsequent period’). In practice, this means that the protocol would apply until the end of 2024 (as long as the deal is in fact finalised and the transition and implementation period is not extended beyond 2020) before consent is required for the first time. 

 

Two distinct customs regimes

The revised protocol removes the requirement for a single customs territory between the EU and the UK (Article 6 of the original ‘backstop’ provided for a single customs union between the EU and the UK ‘in respect of all trade in goods’ except for ‘fishery and aquaculture products’). The revised protocol keeps Northern Ireland in the customs territory of the UK. The relevant provisions (revised Article 4) make clear that this has been changed to allow the UK to conclude trade agreements with third countries that include Northern Ireland.

The creation of a customs border between Northern Ireland and Ireland / the EU and its potential impact on individuals and businesses has been a bone of contention ever since negotiations started. 

The revised protocol now contains a general rule (revised Article 5) that no customs duties would be payable for goods brought into Northern Ireland from the rest of the UK (“rUK”) by direct transport, unless these goods are ‘at risk of subsequently being moved’ into the EU in which case the EU customs regime would apply. 

Goods that enter Northern Ireland from a third country would be subject to UK customs duties unless, again, the goods were at risk of subsequently being moved into the EU in which case customs duties would be paid under EU rules. 

The default position for (commercial) goods entering Northern Ireland from Great Britain or from third countries is that they are considered ‘at risk of being subsequently moved’ into the EU (und therefore subject to EU customs duties), unless it can be established otherwise. Goods would not be at risk if it can be established that they would not be subject to commercial processing in Northern Ireland. A Joint UK-EU Committee would develop further criteria during the transition and implementation period to identify goods that should be deemed not to be ‘at risk’, and must take into account the final destination, nature and value of the good, the nature of the movement and the ‘specific circumstances in Northern Ireland’.

UK residents would not be liable to pay customs duties on personal property brought into Northern Ireland from rUK.

 

Alignment with EU market regulations for goods

Much the same as in the original ‘backstop’, Northern Ireland (though, unlike the original backstop, not rUK) would remain aligned with relevant EU Single Market regulations on goods. The UK would be responsible for the application of these EU rules in Northern Ireland (revised Articles 6 and 7).

 

VAT and excise duties

Under the revised Article 8, the UK would be responsible for the collecting of VAT and excise duties in respect of Northern Ireland, and any application of reductions or exemptions. Revenues resulting from transactions taxable in Northern Ireland would, as a general rule, not be remitted to the EU. However, the VAT rules applicable in Northern Irelands would have to be consistent with EU requirements on how VAT should be structured.

 

Agriculture and environment

The original Article 10 that provided for the continuous application of EU agricultural and environmental regulations to Northern Ireland has been removed and not substituted. 

 

State Aid

The protocol maintains the existing provisions on State aid (revised Article 10 / original Article 12). This is potentially important as they provide for the continuous application of EU State aid rules ‘in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol’. 

Given that the Court of Justice of the European Union (‘CJEU’) has traditionally taken a wide view of whether a State aid measure might affect trade between EU Member States, the provisions in the protocol could potentially catch aid granted to rUK businesses producing goods that might be sent to Northern Ireland and then on into the EU. It may therefore not be limited to aid granted to businesses in Northern Ireland. 

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