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International Trade – Brexit Briefing Update

September 7, 2020

While it may have seemed rather quiet on the Brexit front since the pandemic began, both British and European trade officials have been attempting to broker a deal over the last five months that would see Britain exit the block at the end of the Calendar year (December 31, 2020). For those of you reading this and have been following these discussions, you will know that the talks have not been going well – officials are entering their 8th round of negotiations this week.

With less than four months left, it seems that a deal is looking less likely than ever before. So much so, that it is widely expected that the British Prime Minister, Boris Johnson will announce a new deadline of October 15thto secure a deal or walk away from negotiations with no-deal. That decision could come sooner than this date, based on reports over the weekend. The Financial Times reported that the UK government was preparing to renege on an international trade treaty signed by Britain and Europe in relation to Brexit. If true, this would be problematic for Britain.

Here is a reminder of what was agreed and signed in the treaty and why Britain is OK changing it with the potential introduction of new domestic legislation.

Britain formally left the EU in January of this year with a one-year transition period to iron out the exit details. The sticking points are focused on: EU access to the rich fishing waters of the UK; British subsidies to industries that trade with the EU; and the Northern Ireland border (not an easy one to get your head around and very sensitive).

On subsidies, Britain wants to have ‘no-rules’ and complete discretion to implement subsidies at will. The EU oppose this. In addition, it wants to restrict access by European fishing boats into the UK waters. Without Britain getting agreement on both of these issues, PM Johnson seems ok with a no deal and essentially a hard Brexit.

The new legislation that was discussed over the weekend would be a backup plan which would undo some of the withdrawal agreement that it signed with the EU, with important elements of the Northern Ireland border included. The British government is suggesting that it would take provision to override the withdrawal agreement requirements that states there should be custom controls between Northern Ireland and the Republic of Ireland. In the agreement, Northern Ireland was essentially carved out and would be subject to a special arrangement with the EU to avoid border controls. This was not popular with Unionists. In the event of no deal, the UK wants to override the treaty, and this is highly controversial because it is an international treaty!

In summary, part of the negotiations was predicated on this withdrawal treaty being implemented in full. The UK is no saying, if there is no trade deal, the government wants to back out. This is seen as a threatening tactic to force the EU to make a deal. And based on the mood from both the UK and EU leaders, it is unlikely a deal can be reached.

Overriding an international deal is highly controversial and will damage Britain’s diminishing reputation in the world. Remember the UK government has been loud in its remarks that it wants to be a powerful player and leader in international trade, often citing new deals to be signed with the US once they have exited the EU at the end of the year. This may be more challenging if they purse this course of action on the treaty. The withdrawal agreement is an international treaty (legally binding document) and cannot be overwritten with domestic law. This would send the wrong message to future, potential trade partners that Britain can no longer be trusted. The US congress has already said that they would not sign any future trade deal if the Northern Ireland Good Friday agreement was compromised by Brexit.

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