Brexit: Less than two months until Brexit and still no deal

2.13.2019

With Brexit closing in (29 March 2019), we take a summarising look at what has happened since the 'meaningful vote' on 15 January 2019 and what a hard Brexit will mean for UK companies.

Status – Less than two months until Brexit

January was a turbulent month for Theresa May. On Tuesday 15 January 2019 she lost the vote for her Brexit deal via the so-called 'meaningful vote', and on Wednesday 16 January 2019 she barely survived a vote of no confidence, which was tabled by Labour leader Jeremy Corbyn.

Since then Theresa May has presented her 'Plan B', which by most accounts included few to no changes to the original Brexit deal. Members of the UK Parliament have continued to debate the Brexit deal and on 29 January 2019 voted on a series of amendments, most of which did not get the support of the majority. 

One amendment did, however, get a majority after Theresa May ordered Conservative MPs to vote for it. The amendment called for the so-called 'backstop' to be replaced with "alternative arrangements to avoid a hard border". It was on the basis of this amendment that Theresa May returned to the EU on 7 February 2019 and attempted to renegotiate the Brexit deal, more specifically, the backstop. 

During the EU meeting, Jean-Claude Junker, President of the European Commission, ruled out any legally binding changes to the backstop in the draft Brexit deal, but did say that the EU would be open to adding words to the non-binding future relations document, which goes with the Brexit deal document.

The only seemingly positive take-away from Theresa May's and Jean-Claude Junker's meeting is that the EU has agreed to further talks to at least be able to discuss changes to the backstop, which Theresa May believes to be her final obstacle in gaining a majority in the UK Parliament.

A new reality for UK companies 

Reality has started to set in, and more and more UK company leaders voice their concerns – many urging the UK government to do everything possible to avoid a hard Brexit. 

A no-deal Brexit on 29 March 2019 will not only impede the UK's trade with the EU; it will also affect other nations that have entered into free trade agreements with the EU that EU members benefit from. Therefore, in case of a no-deal Brexit, UK companies will face World Trade Organisation (WTO) tariffs not only when exporting to the EU, but likely also when exporting to 'third countries', for example Mexico or Canada, which are today covered by EU free trade agreements.

The UK government has estimated that the UK, as an EU member, is currently party to 40 trade agreements that the EU has with more than 70 countries. If the UK can no longer benefit from the EU's free trade agreements, the UK will be forced to trade on the basis of the WTO rules.
 

WTO rules

Under the WTO rules, countries cannot generally discriminate between their trading partners. This means that if the UK gives improved benefits to one country, it must give the same improved benefits to all other WTO members. This principle of non-discrimination between members is also known as "Most Favoured Nation" (MFN) status. The UK can therefore not simply introduce lower tariffs for the sole benefit of the EU in an attempt to stimulate trade after a hard Brexit. The MFN principle is, however, subject to certain exceptions, for example the entering into of a free trade agreement.

WTO members may enter into free trade agreements with each other. These agreements typically provide for a tariff reduction (or even elimination) and other regulatory cooperation. As mentioned, the UK will be looking to replace the estimated 40 agreements with more than 70 countries as soon as possible, so that they can quickly – again – trade as unhindered as possible. If the UK does not manage to negotiate the free trade agreements by 29 March 2019, the UK will be subject to MFN tariffs, which will be applied equally to all countries.

What should companies do in the meantime?

Based on the latest developments – or rather the lack thereof – it is still not unlikely that companies may face a no-deal scenario. We urge our clients to draft a Brexit plan and stay up to date within the identified key areas. One thing in particular to look for is whether the UK applies for an Article 50 extension, which would postpone the current Brexit date (29 March 2019). 

For more information on the drafting of a Brexit plan, we offer a "Brexit Risk & Opportunity Review":

 

 

For more information on UK free trade agreements in case of a hard Brexit, please see the UK government website: 



For further useful links to get your company prepared for Brexit, please also see our previous news article:



If you have questions regarding the drafting of a Brexit plan or the risks to which your company is exposed in relation to Brexit, we will be happy to elaborate further.