5 Minutes to Brexit

by | Mar 18, 2019 | Trade Working Blog

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Less than two weeks before “B-Day”, the Brexit process has descended into disarray.  There is still a risk that the UK will crash out of the EU on or shortly after 29 March with no deal in place, notwithstanding King Canute-like attempts to avert this.  Perhaps more likely, however, there is a prospect of a long delay of months or years – or equally that PM May’s original Withdrawal Agreement will finally be agreed, meaning in effect status quo ante for trade until the end of 2020.  All of this leaves business – including New Zealand exporters – with little certainty, even as the clock ticks down to Brexit.

Commons Chaos: What happened?

The UK House of Commons descended into disarray last week as MPs once again tried to navigate a path through the Brexit quagmire.  Although Parliament has made some decisions, what will actually happen next remains unclear.  Last Wednesday, the UK Parliament narrowly voted to reject an economically-painful “no-deal” exit from the EU – at any point ever, not just on the scheduled 29 March departure date.  However, in the words of one of the senior European Commission negotiators, the Wednesday vote was rather like the Titanic voting for the iceberg to get out of the way: a no-deal exit will be the default on 29 March unless deliberate action is taken to avert it.

“…the Wednesday vote [to reject no-deal] was rather like the Titanic voting for the iceberg to get out of the way…”

The following day, Parliament voted to ask the EU to extend the 29 March Brexit deadline until at least 30 June, subject to passing PM May’s Withdrawal Agreement by 20 March.   The Prime Minister will accordingly bring her agreement back for a third “meaningful vote” – two previous attempts having failed – this week, probably on Tuesday, if she feels that there is sufficient support.   There are some signs that the governing partner DUP and erstwhile hardline Brexiteers are considering voting for the Withdrawal Agreement – something they had vehemently rejected earlier – as preferable to the alternative.  The opposition Labour Party may also be softening its position, potentially to support a second referendum.  If the Withdrawal Agreement fails a third time, a general election or at least a Tory leadership change may also become more likely.

Brexit deadline extension?

Notwithstanding the British Parliament’s vote last week, an extension of the Brexit deadline beyond 29 March requires unanimous agreement from the EU.  The European Council meets on Thursday – and the signals so far have been that the UK will need specific justification for a delay: “putting off the evil moment” is unlikely to cut it, although a general election or second referendum in prospect are likely to be considered sufficient.  In the end, EU member states may be more flexible than their stated position – but the Commission has also made it very clear that it is not prepared to renegotiate the Withdrawal Agreement.  

Contributing to the general sense of the surreal, should the UK still be part of the EU by late May, it will be legally obliged to participate in European Parliament elections as well – even as it may be moving to exit the EU.

What happens if the Withdrawal Agreement fails to pass again?

If the Withdrawal Agreement is rejected a third time, the Government has indicated that it will still seek an extension to the 29 March deadline but the timing of this would be in the EU’s hands (and Mrs May has threated that this could be very lengthy – perhaps even a couple of years – or indefinite).    

Even if the Withdrawal Agreement passes, a short extension of less than three months would probably be required to allow the EU and UK to pass the necessary enabling legislation, given that the 29 March deadline will by then by a mere week away.   And it is also possible that Parliament may pass the deal but require its approval in a second referendum, which would delay Brexit further (even if the referendum votes to leave on that basis).

What does this mean for New Zealand business?

Should the Withdrawal Agreement pass before 29 March, in effect we revert to business as usual for New Zealand exports, at least until the end of 2020, thanks to the “transition period” included in the deal.   (The UK could also formally start negotiations with New Zealand for an FTA, although this could not be concluded until after 2020.)

In other scenarios, and even though we are in effect at ‘five minutes to midnight, the picture is far less clear – which uncertainty is, of course, in and of itself damaging to business.   The UK has now released a tariff schedule for a no-deal outcome which leaves in place tariffs and tariff quota restrictions on many of the key agriculture products of export interest to New Zealand, although it removes tariffs on other goods.  (We intend to cover this in more detail in a later blog.)  At a minimum, however, the risk remains of significant disruption in the market for some time to come. 

This blog was prepared by Stephanie Honey, Associate Director of NZIBF.

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