Boris Johnson is being hailed a hero for pulling off a revised Brexit deal in the least likely circumstances. Amidst the bravado, after three long years of what were supposed to be the easiest negotiations on earth, I understand the temptation for exhausted MPs, with no time for proper scrutiny and with the fear of no deal hanging over them, to hold their noses in the unusual Saturday sitting and vote it over the line.
I would, however, remind them to look behind the shiny bright façade of the deal and examine its contents. Yes, it is a deal but what will it really mean? How will future generations hold you to account? Remember what is at stake: the future of our country, the freedoms and livelihoods of their constituents and the union of the United Kingdom. The Johnson Withdrawal Agreement has tweaked a few paragraphs in the Northern Ireland Protocol and the Political Declaration – i.e. the two annexes to May’s agreement from April 2019 – but much of it is a straight cut and paste of May’s deal. Parliament rejected that deal three times on the basis that it was not good enough.Johnson’s deal is no better and significantly worse in many respects.
Dominic Cummings’ propaganda machine is successfully keeping media focus on the NI Protocol when the real scrutiny should be on the Political Declaration. The PD delivers the meat of the UK’s future relationship with its largest trading neighbour for the next 10 to 20 years.
Once approved and ratified, the Withdrawal Agreement will be binding and cannot be changed, but it deals with a very limited number of matters – money, EU citizens and the transition period. In a sense, it is only about the past. The Political Declaration, on the other hand, is about the UK’s future interaction in over 65 different sectors and the rights and opportunities for UK citizens to enjoy (or not) important economic and social benefits. The declaration is not binding on this government or any future government and can be changed at will by any future government. If, in due course, the EU is not happy with the terms of the future trade relationship, then the UK still risks leaving without a deal in 2020.
Below is a quick summary of the effects of the Johnson deal:
In terms of goods, old paragraph 23 from May’s deal – “the United Kingdom will consider aligning with Union rules in relevant areas” – has been deleted. That is a crucial difference. Rather than having (as per May’s deal) a close “economic partnership” and a trading relationship that is “as close as possible” with the EU, the UK will now be a distinct market, setting its own rules and trading on a hands-off Canada-style basis. There will be no single market or customs area, market access will be much more restricted and trade will not be frictionless.
Contrary to previous Tory desires to reduce regulatory burdens, there will be more customs checks and red tape when it comes to UK exports to the EU. UK standards will most likely be lower than the EU so some goods may not be able to be marketed and sold in 31 states if they do not meet EU standards. Companies will have to comply with multiple rules and redesign their products for different markets. Or they will decide to comply with EU standards anyway. Products may become more expensive (due to lower economies of scale) or face delays.
In terms of EU imports to UK, they are most likely to be of a superior standard so will meet the UK minimum requirements. They’re likely to be cheaper (larger scale and one stop production for both markets) and transit faster. This may put UK businesses at a competitive disadvantage.
You also have to analyse this scenario in a wider WTO context – we still don’t know whether the UK will apply zero tariffs for imports from the rest of the world or insist on product standards. UK agriculture and manufacturing could face a double whammy if sales are undercut by cheaper EU and foreign imports.
There is a new section XIV – Clause 77 – which requires the UK to uphold the common high standards applicable in the EU and UK in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters. The UK cannot undermine the EU level playing field by allowing circumvention of EU rules.
This sounds positive, but this is a non-binding commitment, not enforceable until written into a FTA. The UK will no longer be committing to the EU rule book but just a loose commitment to observe high standards– whether from the EU or the rest of the world. In many areas, the EU standards are replicated elsewhere, for example the EU competition rules are being copied in Hong Kong, China and Africa, so the idea that the UK will be able to move away from them when dealing with other countries is wholly misleading.
EU rules for regulated industries are often made through regulatory networks and agencies where the UK currently enjoys full participation in rule-making. Now, the UK has downgraded its involvement to exploring “the possibility of cooperation” within the EMA (European Medicines Agency), EBA (European Banking Authority) and EASA (European Aviation Safety Agency). The wording is weak and offers no guarantees. For other networks, like telecoms, energy, transport and chemicals, the wording is feebler with access dependent on its extent of alignment and cooperation. It is clear that the UK will only have observer status – meaning that we will be rule-takers without any say in the formulation of policy or actual decision-making regarding authorisations or sanctions.
As over 80 per cent of the UK economy is driven by services, which has been a huge success story for UK business in the EU, , there is the risk of severe dereliction of duty if MPs do not focus on the service industry. This is not just financial services but digital broadcasting, insurance, legal and accounting advice, consultancy, e-commerce, data and transportation services which to date are provided on a pan-European basis across all 31 EU/EEA states.
Here, the Johnson and May Deals are identical. Services will no longer benefit from full passporting in all 31 EU/EEA states. Instead they will be relegated to the WTO framework with possible add-ons from a Canada-style free trade agreement, which are vastly inferior to the Lisbon Treaty. So, what does this mean?
- 85 per cent of our economy (services) will effectively be in the same position as a no-deal scenario.
- WTO terms for services are rudimentary compared to the EU rules – they allow minimum access to markets and prohibition on direct discrimination. Host states still retain discretionary power to impose regulatory barriers and standards.
- There is a limited equivalence regime for financial services.
- When it comes to digital services, there is no guarantee of rule of origin so broadcasters and programmers (Sky, Netflix) will need to move registration and staff to other member states.
- In e-commerce, there is limited cooperation on rules but no guarantees. Courier services are not covered, so one impact may be that that Amazon cannot provide next day deliveries from any order fulfilled from an EU member state.
Many sectors are dependent upon the EU’s state of the art passporting regimes – e.g. life insurance, travel insurance, health insurance, car insurance, financial services, architects, doctors, nurses, teachers and lawyers. They are all governed by their home state rules and do not have to comply with 31 different sets of requirements.
What this will mean in practice? As an example, a UK law firm will no longer be able to provide advice and legal representation across multiple states. Instead, their lawyer will have to requalify, establish and comply with Belgian rules and pay registration and insurance fees in both countries. That will not give the right to practise from Belgium across other EU countries.
According to the Law Society, the UK legal sector is the largest in the EU and contributed over £26 billion to the economy in 2017. EU law firms are keen to replace the UK’s success. The APPG on Legal and Constitutional Affairs has recommended that this “devastating” impact should be “avoided at all costs”. That story is replicated across multiple different business sectors.
Governance and diplomacy
Clauses 123 and 124: Changes to Part II remove the prior commitment in May’s deal to engage in cooperation and dialogue to liaise with EU to work as partners on regional and global issues. This reaffirms the UK’s autonomy and lack of commitment to cooperate or align its geo-political strategic agenda. Thismeans a wider global shift in diplomacy and international standing as the UK is not committing to align with the EU in global politics but has the freedom to align itself with other world powers (notably the US). This may cause turbulence in wider markets such as Asia, Japan and South Korea.
The dispute resolution mechanisms set out in May’s deal have also been altered. Disputes may be determined by the Joint Committee and Arbitral Tribunals, but there will be no obligation to refer to CJEU (as per May’s deal) but only a recommended reference where the dispute raises a question of interpretation of EU law. The ruling from the CJEU will be binding on the UK and there will be sanctions in terms of suspended access to markets and financial compensation if it does not adhere to the ruling.
All in all, when Johnson did his victory lap in the European Parliament yesterday, I rather think his fellow leaders were celebrating their upper hand in the negotiations and the concessions accepted by the UK in the last desperate hours. Johnson set out to procure a Rolls Royce but came back with a second-hand Reliant Robin.
This article was written by Gina Miller with expert legal input from barrister Anneli Howard