UK Brexit Bulletin: Friday October 2

Prime Minister Boris Johnson will speak to European Commission President Ursula von der Leyen on 3 October to take stock of the final formal round of Brexit trade talks and to “discuss next steps”

• The call will come after the conclusion of the ninth and final formal round after of negotiations between the UK and EU over a trade deal.
  • For the first time, the teams are expected to begin consolidating a legal text in the areas on which they agree, which will form the final agreement. This has so far been resisted by the EU side without UK concessions on subsidy policy and fisheries. There have also been extended negotiating sessions on fishing and the level playing field in this week’s talks.
  • If this week’s talks are deemed to have been constructive, both sides are expected to agree to intensify negotiations before the summit on 15 October.
  • At the beginning of this week’s negotiations, the UK sent the EU new negotiating documents which covered: fisheries; law enforcement and judicial cooperation; energy, including civilian nuclear cooperation; mobility and social security coordination; and the so-called level playing field commitments.
  • The document on state aid offered to lay out a series of “principles” on controlling domestic subsidies, and offered the EU  hope that the UK would build on provisions in the recently signed UK-Japan deal. However, it has been reported that the EU are unhappy that the document doesn’t provide appropriate governance proposals that would allow the EU  to hold the UK to its pledges. The EU wants to ensure that in the event of a breach, parts of any trade deal could be immediately suspended.
  • On fishing the UK offered to allow European fishing fleets to continue to use UK territorial waters at the end of the transition period with quotas slowly being reduced over a three-year period. However it has been reported that the French are hostile to the proposal and have demanded that the UK accept “permanent quotas” for French fishing fleets in UK waters.

The EU has begun legal proceedings to try and prevent the UK from using domestic legislation to change aspects of the Brexit Withdrawal Agreement

• European Commission President Ursula von der Leyen called the proposed Internal Market Bill a “breach of the obligation of good faith,” and said the Commission would send a notification letter to the UK initiating the EU’s infringement process by which it seeks to enforce legal obligations.
  • The UK has said it will “respond to the letter in due course”. UK officials remain unconcerned by the legal proceedings, they point to the fact that the legal mechanism triggered by the EU is a common tool it uses to pile pressure on national governments with the average infringement procedure lasting 35 months.
  • It comes after the Bill, which would allow the UK to unilaterally alter provisions in the Withdrawal Agreement, passed the House of Commons 340 votes to 256 after the Government accepted an amendment that would give MPs a vote before the Government could use any of the powers in the bill to break international law. The bill will now head to the House of Lords where it’s not expected to complete its passage until at least December.
  • This gives time for the UK and EU to reach a political agreement before any legal process could be completed in the courts. The legal proceedings can be long and uncertain and a trade deal could make the contentious provisions in the Internal Market Bill irrelevant.
  • Meanwhile it has been reported that the European Commission has set out a proposal that would determine which goods moving from Great Britain to Northern Ireland should attract a tariff after  1 January. The proposal would involve working out the differential between an EU tariff and the corresponding UK tariff on a product. The higher the EU tariff compared with the equivalent UK tariff, the more likely it would be that that good would be smuggled across the border and into the Republic of Ireland.

UK Chief Brexit negotiator Lord Frost has written to the UK auto manufacturers to confess they will likely face tariffs even if a trade deal is secured

• Frost warned that even if a zero tariff and zero quota trade deal is secured with the EU, UK car manufactures may still face tariff due to the EU’s resistance  to diagonal cumulation.
  • Diagonal cumulation would allow UK carmakers to treat car parts from countries both the UK and EU have trade deals with such as from Japan and Turkey as “UK-origin”, in order for them to meet the requirement that cars should be 45 per cent “locally made” to qualify for zero-tariff access to the EU under a trade deal.
  • The EU has rejected this request and has instead offered cumulation only to components from EU countries, meaning EU car parts can be classified as being of UK-origin.
  • This is particularly problematic to UK  car manufacturers as 60% of parts for assembled cars made in the UK come from outside the EU. Unless a specific agreement can be reached with the EU this could result in UK car exports facing tariffs.
  • In contrast, most French and German cars do not have the same level of foreign parts, so they could be exported tariff-free into the UK.
  • In the longer term this has the potential to make some UK vehicles, such as those produced by Nissan and Toyota, uncompetitive in European markets.

Other Brexit news   

• Data and Media Minister John Whittingdale said he is optimistic the country would get a so-called adequacy decision from the EU to keep data flowing after Brexit. “I don’t think the EU has ever had negotiations about adequacy with country which has been closer in terms of their own legislative protections than it has with the UK, so we can see no reason why we shouldn’t get an adequacy agreement” he said.
• The Government is running a series of sector-specific webinars throughout October to help businesses prepare for the end of the Brexit transition period. Sectors covered include retail, construction, aerospace, services and more. Officials will walk firms through basics like making sure they’re prepared to export and import, classifying goods made in multiple countries, and ensuring their goods meet regulations in both the EU and UK, as well as transferring personal data between the two regions. Register here.
• The UK and Norway has signed a framework agreement on fisheries. The framework agreement commits the UK to negotiate annually with Norway on access to waters and quotas, in a bid to serve business and consumer interests while maintaining sustainable catches. The deal includes a principle the UK hopes to agree as part of its post-Brexit deal with the EU — a commitment to consider “zonal attachment” as part of the management of shared stocks, which means an analysis of the coasts fish are naturally attached to. “Zonal attachment” also features in the agreement between Norway and the EU.
• The EU Economy Commissioner Paolo Gentiloni presented the its new Customs Union Action Plan — a set of measures aimed at making customs controls more effective. Starting from next year, EU countries will receive support to buy state-of-the-art equipment for customs controls. The EU will also launch a new digital hub to better analyse customs data and a single portal for businesses to complete border formalities online. The plans will also help the EU face the challenges arising from Brexit.
• The Government has introduced a statutory instrument in parliament to remove EU state aid legislation from domestic law after the end of the transition period — the State Aid (Revocations and Amendments) (EU Exit) Regulations 2020.
• The Belgian Government has warned that if there is no deal between the EU and the UK, road transport companies will have to rely on a limited number of permits distributed under a quota system of the European Conference of Ministers of Transport (ECMT) for international operations. Applications for these close on October 7.