UK Resolve to Leave the EU on 31st October With or Without a Deal Strengthened Through New Cabinet Appointments

Summary
Commitments made by Conservative party leadership candidate Boris Johnson to renegotiate the Withdrawal Agreement to remove the Irish ‘back-stop’ and leave the EU on 31^st October come what may, have been reiterated in his early statements as Prime Minister. This position is reinforced by the appointment of a cabinet consisting of like-minded ‘hard Brexiteers’. While the EU remains committed to avoiding a ‘no-deal’ Brexit, this now hinges around persuading Prime Minister Johnson the invocation of the ‘backstop’ can be avoided and Prime Minister Johnson then mobilising Parliament behind ratification of the existing Withdrawal Agreement, on the understanding joint action on technical solutions will make the backstop irrelevant. Recent history in this regard is not promising. The EC continues to prepare for a ‘no-deal’ scenario; including how to keep dialogue open in the event of the UK’s ‘no-deal’ departure from the EU on 31^st October. Critical to keeping dialogue open will be the UK honouring its financial obligations to the EU, an area where to date Prime Minister Johnson has reiterated his campaign pledge to withhold payment until a new trade framework is agreed. All hope thus lies in either a ‘Boris Back-flip’ before October 31^st, on a basis which holds out to EU leaders some prospect of an eventual negotiated arrangement for the UK’s withdrawal or a general election in which an anti-Brexit coalition secures a firm majority.

During his campaign to become leader of the Conservative Party, Prime Minister Johnson committed any government he led to:

leaving the EU on 31^st October, with or without a deal, with the preferred option being having a withdrawal deal in place;
securing modifications to the Withdrawal Agreement, notably in regard to the Irish ‘backstop’, so as to ensure a deal is in place;
holding back the UK’s payment of the financial settlement of outstanding obligations to the EU if no agreement has been concluded and there is no prospect of new trade arrangement (1).

As a demonstration of the new governments’ resolve Cabinet members have been required to commit unequivocally to leaving the EU on the 31^st October, with those unwilling to make such a commitment leaving or being sacked from the Cabinet. A new wholly ‘hard Brexit’ Cabinet unequivocally committed to leaving the EU on 31^st October is now in place to support Prime Minister Johnson in his party election campaign Brexit pledges (2).

Despite the hard line which Prime Minister Johnson has carried over into the new UK government, EU leaders have committed to continuing to seek an agreement to avert a ‘no-deal’ Brexit. Incoming European Commission President Ursula von der Leyen has ascribed a ‘duty’ to both parties to reach an agreement, with this backing up Chancellor Merkels’ resolve to find a way out of the impasse. Ursula von der Leyen has even spoken of the scope for a further extension of the article 50 period, if more time is needed to ensure a Withdrawal Agreement is in place (1).

However EU Chief Negotiator Barnier has clearly stated any constructive discussions with the new UK government to resolve the current impasse will need to be based on cooperation in facilitating ‘the ratification of the Withdrawal Agreement’ (1). Even Chancellor Merkel is insisting ‘the withdrawal agreement is the withdrawal agreement’, with any efforts to manage the Irish border issue needing to be addressed in the accompanying Political Declaration. She does however believe there is a way of managing the border in a way which would mean ‘the backstop will be overwritten’ (3).

This is likely to be the critical consideration in avoiding a ‘no-deal’ Brexit since as Irelands’ Deputy Prime Minister Simon Coveney has warned ‘If the approach of the new British prime minister is that they’re going to tear up the withdrawal agreement, I think we’re in trouble’. He went on to note how in this context ‘a no-deal departure would not be the fault of the EU…. but would be entirely down to UK political considerations’ (4).

Against this background a number of lines of approach to the current Brexit impasse are being explored in the EU. The first option focusses on finding a wording which will provide a way for Prime Minister Johnson to declare the backstop will never need to be invoked and therefore the UK Parliament should ratify the Withdrawal Agreement. Unfortunately EC officials are not optimistic. ‘Between December 2018 and March 2019, the EU issued three sets of promises outlining speedy work on a future trade deal to avoid the backstop’. Each of these texts was more elaborate, with the final text including a reference to the initiation of ‘joint work on “alternative arrangements” to avoid a backstop’ (5). This however proved insufficient to convince Tory Eurosceptics to vote for the Withdrawal Agreement under a Theresa May led government. EC officials appear to be hoping Prime Minister Johnson’s unbounded enthusiasm and boyish charm will prove sufficient to swing the dial of Parliamentary support behind the ‘Withdrawal Agreement’; based on the personal assurances of the Prime Minister that he would never let the backstop enter into effect and a shared commitment to working out ‘alternative arrangements’.

The second strand of EC thinking on how to avoid a ‘no-deal’ Brexit hinges around the scepticism with which some EC officials view candidate Johnson’s campaign pledges. These officials take the view a Prime Minister Johnson is perfectly capable of a policy ‘back-flip’ on his “do or die” rhetoric around a ‘no-deal’ Brexit on 31st October. These EC officials have been encouraged by efforts by both the House of Commons and House of Lords to prevent any proroguing of Parliament in order to push through a ‘no-deal’ Brexit on 31st October 2019 (6). It is felt this could facilitate such a policy ‘back-flip’ by Prime Minister Johnson come the end of October. This accounts for the continued openness of the EU to an extension of the Article 50 period.

However it needs to be borne in mind that President Macron is concerned that the continued membership of a reluctant UK is not in the interest of the EU. There is a view in Paris that the economic disruptions which a ‘no-deal’ Brexit would give rise to would be such that the UK would rapidly return to the negotiating table. This view is not universal amongst EU member states governments, particularly those such as Ireland and the Netherlands who would be most directly affected by a no-deal departure. In these quarters there are real fears that public opinion in the UK has been stoked to such a fever pitch that a ‘no-deal’ Brexit could give rise to a ‘Dunkirk‘ mentality (7), where the UK turns its back on the EU and seeks to strike out on its own wholly autonomous global trade policy.

This gives rise to the third avenue the EC is exploring namely, intensifying ‘no-deal’ Brexit preparations. This includes work by some EC officials on what can be done to bridge the abyss in EU27/UK relations which would emerge on the back of a ‘no-deal’ Brexit on 31st October 2019. These officials are seeking to work up the basis of a ‘platform for re-engagement on the day the UK leaves which might be used once the dust has settled’. This includes the provisional drafting of a declaration expressing ‘the EU27’s regret at the lack of a deal and offering to re-engage if the UK accepts its financial commitments’ (7).

This strongly suggests any post ‘no-deal’ Brexit reengagement will critically hinge around the UK’s willingness to meet in full its outstanding financial obligations to the EU. Unfortunately this is something Prime Minister Johnson implicitly ruled out in his first public statements as Prime Minister.

These preparations for ‘bridge building’ in the event of a no-deal Brexit on 31^st October have been complicated by the recent politicisation of technical discussions around the maintenance of trade flows. Senior Conservatives have sought to down play the negative effects of a ‘no-deal’ Brexit by arguing the economic damage would be mitigated by the series of side deals with the EU which are already in place (8).

This has infuriated the EC which described these claims as ‘pure-rubbish’. The EC maintains the only measures set in place are temporary and unilateral and in no way constitute mini-deals. Just how temporary such arrangements are is illustrated by the fact the emergency freight haulage arrangement in place is scheduled to lapse at the end of December 2019, only two months after any 31^st October ‘no-deal’ Brexit (8).

Remarks by prominent ‘hard Brexiteers’ who are now in Cabinet to the effect that a ‘no-deal’ Brexit could provide an economic stimulus to the UK economy of ‘in the region of £80 billion’ are not helping the atmosphere for efforts to avoid a no deal Brexit. These comments by Jacob Rees Mogg were described as ‘terrifying’ by the then Chancellor Philip Hammond (9), given the modelling of the Office of Budget Responsibility (OBR) and analysis from the National Institute of Economic and Social Research (NIESR) that a no-deal Brexit would push the UK economy into a serious recession (10). This would be a result of: heightened uncertainty and declining confidence’, which would ‘deter investment’; ‘higher trade barriers with the EU’, which would ‘weigh on domestic and foreign demand’; a sharp fall in ‘the pound and other asset prices’ (11).

In terms of likely immediate developments, the Guardian reports Prime Minister Johnson is planning to ‘visit key EU capitals in early August’. This is felt by EC officials to be a sensible course of action, since it will allow the new Prime Minister to gauge the mood in EU capitals, in a way which will avert any premature confrontation with the EC which could heighten the risks of a ‘no-deal’ Brexit

The G7 meeting in Biarritz at the end of August is being seen as ‘an important stepping stone to finding a mutually advantageous way forward’ within the Brexit process. This it is hoped would be followed by yet another emergency EU Summit in September which would see a deal set in place and the UK depart the EU on 31^st October 2019 (7).

Against this background the Brexit Secretary Stephen Barclay has suggested this will lead to a situation where Parliament would then be asked to vote on any new deal achieved’, with the options of

rejecting the amended deal;
leaving the EU without a deal;
revoking Brexit (9).

However according to press reports there is now ‘a growing belief in Brussels that Johnson has no intention of negotiating with the EU, but is instead driving forward with a no-deal exit with the understanding that parliament will block him and it will be necessary to call a general election’ (12). This follows on from Prime Minister Johnson refusing to hold further talks with the EU unless the Withdrawal Agreement and the ‘backstop’ are both on the table for review (13).

Provoking an outright confrontation with the EU May be part of Prime Minister’s Johnson’s strategy, with the resulting parliamentary deadlock and general election allowing him to campaign as the only “True Brit” capable of taking on the evil machinations of Brussels. Since a jingoistic election campaign could then see of the threat of the Brexit Party and see a Johnson led government returned to power with the necessary parliamentary majority to see through the Prime Ministers version of Brexit. However this is a high risk strategy with the possibility of the Brexit Party splitting the pro-Brexit vote and a Labour/Liberal Alliance securing a sufficient majority to halt Brexit altogether.

Comment and Analysis

There remains profound uncertainty over what will happen come the 31^st October. This uncertainty is complicating the commercial relations of ACP exporters in their dealings with the UK and EU27. There are 5 principal areas of uncertainty which are of concern to ACP exporters:

· uncertainty over the basis for tariff treatment of ACP exports to the UK, given the lapsing of EU trade agreements in regard to the territory of the UK in the event of a ‘no-deal’ Brexit;

· uncertainty as to the value of the £ in the immediate post ‘no-deal’ Brexit period given projections of a potential 10% devaluation of the £ against the $ under a ‘no-deal’ scenario;

· uncertainty over the specific market conditions which will be created for particular ACP agro-food exports under a ‘no-deal’ Brexit;

· uncertainty over the efficiency of UK trade administration arrangements for preferential imports under a ‘no-deal’ Brexit scenario;

· uncertainty over the administration arrangements to be applied along triangular supply chains serving the UK market via initial points of landing in EU27 countries, particularly in the floriculture and horticulture sectors.

Current Tariff Treatment for Exports to the UK Market
Each of these areas of uncertainty can be addressed to varying degrees. In terms of ensuring continuity of current tariff treatment for exports to the UK market the position of LDCs is secure, while 21 ACP governments have already signed Continuity Agreements with the UK which would enter into effect in the event of a ‘no-deal’ Brexit (see table 1).

Table 1: EPAs Rolled Over	EPA partners
EU-CARIFORUM EPA	Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago, Haiti
EU-Pacific EPA	Fiji, Papua New Guinea
EU-Eastern & Southern Africa (ESA) EPA	Madagascar, Mauritius, Seychelles, Zimbabwe

Talks on the ‘rolling over’ of the SADC-EU EPA and bilateral EPAs concluded with individual west African and central African countries into UK only ‘Continuity Agreements’ remain on ongoing. Uncertainty around the prospects for successfully concluding these negotiations primarily affects exporters from Kenya, Ghana, Cote d’Ivoire, Cameroon, Botswana, Namibia, Eswatini (formerly Swaziland), and South Africa. ACP exporters from these countries need to lobby their governments to conclude Continuity Agreements or similar such arrangements which preserve current duty free-quota free access to the UK market from 1^st November 2019.

However it needs to be recognised that particular challenges face the governments of Kenya, Ghana, Cote d’Ivoire and Cameroon given the partial nature of the EPA process in the East African, West African and Central Africa regions. Concluding ‘Continuity Agreements’ with the UK would further complicate intra-regional trade relations in these regions, with this problem being particularly acute in the East Africa Customs Union, where it could trigger a collapse of this increasingly fragile regional integration initiative.

Table 2: On-Going Continuity Agreement Negotiations
EU-SADC EPA Group	Botswana, Lesotho, Namibia, Swaziland, South Africa, Mozambique
Problematical EPA Process Countries
EU-EAC EPA	Kenya
EU-Central Africa	Cameroon
EU-Ghana & EU-Ivory Coast EPAs	Ghana, Côte d’Ivoire

Against this background the UK government needs to be lobbied to:

• adopt the same type of Market Access Regulation (MAR) approach which the EU has retained in place for Kenya, with this being extended to Cameroon, Ghana and Cote d’Ivoire so as to minimise frictions within African regional trade integration initiatives, this could be achieved without triggering a WTO challenge;

• if, necessary this option should also be applied to imports from Botswana, Lesotho, Namibia, Swaziland, South Africa.

The Prospect of a Devaluation of the £
Recent analysis suggests a ‘no-deal’ Brexit could give rise to a 10% reduction in the value of the £ against the US $. ACP exporters will need to explore options for hedging their currency transactions against devaluations or denominating exports in $ or € in trade with the UK beyond 1^st November 2019. If this is not possible they should review whether, in light of other potential cost increasing effects of a ‘no-deal’ Brexit, exports to the UK market are likely to remain commercially viable beyond 1st November 2019

Reviewing the Specific Market Effects of a No-Deal’ Brexit for Particular ACP Exports
How the UK withdraws from the EU will have an impact on how markets of interest to ACP exporters will be affected. For example, a no-deal Brexit will remove 550,000 tonnes of EU white sugar from the UK market. This is equivalent to around 25% of UK consumption and as a consequence is likely to have a significant impact on UK sugar prices in the immediate post-Brexit period. This could bring immediate benefits to ACP sugar exporters that can reconsolidate their current duty free-quota free access to the UK market for the immediate post-Brexit period (see accompanying epamonitoring.net article ‘Low EU sugar prices lead to calls for greater market transparency’, 24 June 2019). Conversely the return of 550,000 tonnes of EU27 white sugar on to the EU27 market could exert a price depressing effect on EU sugar prices which are only now showing signs of recovery. This would then harm the earnings potential of ACP sugar exports to EU27 markets, depending on the contractual arrangements which will have been set in place to cover sales in the 2019/20 marketing year or whether ACP sugar exporter chose to play the sugar spot market during this period of uncertainty.

Similarly if the UK leaves the EU without bilaterally negotiated TRQs for bananas being apportioned between the EU27 and UK market this could increase competition on EU27 banana markets with consequent price depressing effects (although this effect will require careful evaluation).

Thus across a range of sector ACP exporters will need to be factoring in the effects of a ‘no-deal’ Brexit on the markets they currently served.

Getting to Grips with Trade Administration Issues and the Functioning of Triangular Supply Chains
In terms of trade administration issues a host of EU trade administration documentation currently applicable to the import of preferred products into the UK will simply not be valid once the UK is no longer part of the EU. Some of these dimensions ACP exporters will be unable to do anything about (e.g. the UK no longer being able to use the EU REX rules of origin administration system). In other areas ACP exporters can make sure their trade administration arrangements are in order.

For example, ACP exporters will need to ensure that their existing Economic Operator Registration Identification number (EORI) is still valid once the UK has left the EU. Any EORI’s issued by a customs authority in a EU27 member state will no longer be valid for the UK, while any UK issued EORI will no longer be valid for exports to a EU27 member states. While new EORI number can be secured within 3 days and can be applied for online, ACP exporters will need to ensure these necessary steps have been taken by 31^st October if problems are not to arise.

This is particularly important since EORI numbers are the basis for the issuing of the Binding Tariff Information (BTI) decisions and Binding Origin Information decisions (BOIs), which set out the tariff to be applied to preferred imports and provide verification of the origin of the import so the preferred duty can be applied to the consignment in question. If this documentation is not in order ACP exporters could have to pay the full MFN tariff.

These and other basic trade administration issues will need to be taken up and addressed by ACP exporters.

In addition, ACP exporters could usefully seek to ensure they are qualified to attain Authorised Economic Operator (AEO) status so they can have access to ‘fast-track’ customs clearance processes. This privileged treatment will take on increasing significance in the face of the increased demands and system strain under which the UK border control service is likely to be placed in the immediate post Brexit period.

Securing AEO status is a lengthy and complex process requiring sustained engagement in ensuring the integrity of the supply chain. Against this background ACP exporters should initiate a process as soon as possible to secure AEO status for the handling of their exports to the UK, as part of broader efforts to ‘Brexit proof’ their export supply chains (see accompanying epamonitoring.net article ‘Can AEO Accreditation Help Assist ACP Exporters Using Triangular Supply Chains in Overcoming Potential Brexit Related Trade Disruptions?’, 1 August 2019).

Finally for ACP exporter trading into the UK market along triangular supply chains there is a need to launch discussions with the EU and UK authorities on what cooperation arrangements can be set in place to ensure that trade in products which enjoy the same terms and conditions of duty free-quota free access to both the EU27 and UK markets can continue to flow freely along triangular supply chains.

Unfortunately the politicisation of such technical discussions through their categorisation as ‘side deals’ which reduce the economic cost to the UK of a ‘no-deal’ Brexit has made the convening of these necessary trilateral discussions more difficult.

Against this background the concerned ACP exporters should encourage their governments to hold separate but parallel discussions with the EU27 and UK authorities to establish what needs to be done on both sides of the new EU27/UK border to allow the continued smooth functioning of these triangular supply chains.