A2 Global's Brexit Outlook: Despite breakthrough, important hurdles remain to passing new EU-UK deal

A2 Global's Brexit Outlook: Despite breakthrough, important hurdles remain to passing new EU-UK deal   

Latest Brexit Developments

  • On 17 October, the European Commission’s President Jean-Claude Juncker said that EU and UK negotiators had reached an agreement on the UK’s withdrawal from the bloc.
  •  The agreement remains largely the same as the one brokered between former British Prime Minister Theresa May and the EU but contains one important difference; Northern Ireland would remain in a customs union with the UK but will continue to implement some EU internal market rules, facilitating trade in agricultural and manufactured goods.
  • As part of the agreement, customs checks will need to be carried out in the Irish Sea, which will eliminate the need for controls and a hard border in Ireland. The Democratic Unionist Party (DUP) – the largest party in Northern Ireland whose support is key for any new deal to pass through the House of Commons – has said that it cannot support the deal as it stands.
  • The transition period, which will come into effect after the UK leaves the EU on 31 October, will last until December 2020. The EU’s Brexit negotiator Michel Barnier added that both the EU and UK want to negotiate a free trade agreement at a later stage, with Brussels offering tariff-free trade access for the UK.
  • The breakthrough comes amid key talks among EU leaders in Brussels on 17-18 October. UK lawmakers are set to vote on the new agreement on 19 October.

Analysis

  • The agreement comes after both sides agreed to intensify negotiations following a productive meeting between Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar on 9 October.
  • The outcome from the latest negotiating round marked a significant breakthrough thought unachievable from previous talks. British and EU negotiators have shown more willingness to compromise on key issues, paving the way to end months of stalemate.
  • Notably, the EU has maintained a more flexible approach towards holding new talks. It had previously ruled out re-opening any negotiations regarding the withdrawal agreement with the UK, but has been more willing to discuss key aspects of the draft deal, particularly the highly contentious issue of the Northern Ireland backstop – a kind of insurance policy that aims to avoid a hard border in Ireland in case of a no-deal exit. Critics of the backstop argued that it could tie Northern Ireland to the EU customs union indefinitely.
  • For Johnson the development is a clear political victory as he has successfully removed the backstop from the final agreement, helping the Prime Minister keep his pro-Brexit credentials intact. This means that hardline pro-Brexit lawmakers within the ruling Conservative Party are more willing to support the deal. Moreover, as Northern Ireland will remain in the UK customs union, it still stands to benefit from any trade deal signed between the UK and third countries after Brexit.
  • However, the DUP’s reaction to the announcement is a clear setback for Johnson. Indeed, even with the DUP’s support, current calculations on parliamentary support strongly suggests that passage of the deal is far from a foregone conclusion.

Outlook

  • In the likely event that Johnson’s new deal fails to obtain the necessary votes in parliament, this will almost certainly mean that the Prime Minister will then seek to request an extension from the EU. Johnson is legally required to ask for an extension by 19 October if MPs fail to vote in a favour of this new deal. This also means that the probability of a no-deal Brexit on 31 October is lowered.
  • An extension will then pave the way for a general election, which will give Johnson the opportunity to shift the current parliamentary arithmetic in his favour. The new deal strengthens the Conservative Party’s position, which will seek to take advantage of ‘Brexit fatigue’ among voters by pursuing its current messaging of ‘get Brexit done’ so the government can focus on other national priorities, including improving the NHS and tackling crime.
  • However, the likelihood of this scenario will diminish if the DUP changes its current stance and decides to support the new agreement. The UK government could commit to providing billions of pounds in funding for Northern Ireland in a bid to win the DUP’s support. Indications of a changing stance will manifest as public statements of support by senior DUP officials ahead of the vote in parliament. Conversely, DUP lawmakers in parliament could abstain from the vote, lowering the threshold of votes required for the deal to pass. Still, it is unlikely that the DUP will abstain, especially considering the significant political and economic ramifications the agreement will have for Northern Ireland.