A2 Global's Brexit Outlook: Parliamentary approval clears way for Brexit, high-stakes trade talks with EU

A2 Global's Brexit Outlook: Parliamentary approval clears way for Brexit, high-stakes trade talks with EU

Latest Brexit developments

  • ​On 22 January, the Withdrawal Agreement bill, which provides the legal basis for the UK’s departure from the EU, obtained the necessary approval through parliament to become law. It formally became legislation after Queen Elizabeth gave it Royal Assent on 23 January.
  • During an earlier vote on 9 January, members of the House of Commons – the lower house of parliament – voted by 330 to 231 in favour of the government’s EU withdrawal bill.​

 

Analysis

  • Passage of the bill was a foregone conclusion due to the comfortable majority held by the Conservative Party in parliament following the 12 December general election. The fact that all 330 Conservative lawmakers voted along party lines illustrates newly found unity after months of infighting over Brexit.
  • Once the UK leaves the EU, the next phase of negotiations on reaching a trade agreement with the EU will likely begin in March. The UK will enter a transition period after Brexit, during which it will contribute to the bloc’s budget and follow EU rules but no longer be a member. There will be no changes to existing trading conditions between the UK and EU throughout this period, which is scheduled to end on 31 December 2020.
  • Notably, the withdrawal bill stipulates that the transition period will not be extended after 2020, regardless of the outcome of trade negotiations with the EU. This limit is designed to encourage both parties to reach a trade deal as soon as possible but could be amended if a no-deal seemed likely. The 12 December election provided Prime Minister Boris Johnson with much more political capital than his predecessor Theresa May, likely translating to more flexibility during negotiations.
  • An important indication of the EU’s stance on a free trade agreement with the UK is the EU’s draft negotiating position, which will be revealed in early February before its formal adoption later that month.
  • The EU has indicated that any deal where there would be no duties or quotas on goods will require the UK to align with EU environmental, social, and state aid rules.




Outlook

  • For both the EU and UK, reaching a trade agreement is a key objective. However, given the tight timeframe, a comprehensive free trade agreement – which usually take years to negotiate – is unlikely. Instead, a basic trade deal covering certain areas is more likely at this stage.
  • Talks will likely begin sometime in March and key issues to resolve will include the specific arrangements determining the transfer of goods between Northern Ireland and Ireland.
  • While businesses will welcome more clarity over the terms and timeline of the UK’s exit, the next step in negotiations defining the future EU-UK trading relationship will have wide-ranging implications for bilateral trade. If both parties fail to reach an agreement on trade, this will mean higher tariffs for UK goods entering the EU and vice versa, while there will also likely be significant delays at ports. The impact of such a scenario will be particularly acute for sectors with integrated supply chains as well as agriculture and manufacturing firms relying extensively on cross-border trade.