Brexit Delayed?

Dechert LLP

The UK Parliament, having for the second time rejected the Withdrawal Agreement negotiated between the UK government and the EU, will vote on it for a third time next week. If it is approved, the UK will ask the EU for a short delay to its departure date, from 29 March to 30 June, to allow time for the necessary legislation to be put in place. If it is not approved, the UK will seek a longer delay, possibly of up to two years. Delaying the Brexit date requires EU unanimity; this is not guaranteed, leaving open a risk that the UK could still leave on 29 March with "no deal." But it appears likely that the EU will agree an extension. Whether this is long or short depends on whether enough of the Parliamentary opponents of the Withdrawal Agreement change their minds.

Despite negotiations over the last two weeks between the EU and the UK leading to further clarifications of the Withdrawal Agreement, the UK failed to achieve its objective of legally binding changes that would enable it unilaterally to terminate the "backstop" (a protocol that would keep the UK in a customs union with the EU unless or until arrangements are agreed that would ensure there would be no hard border in Ireland). As a result, the UK Attorney General's advice was essentially unchanged, that there remained no means for the UK unilaterally to exit the backstop.

In the light of this, the UK Parliament voted overwhelmingly against the government’s proposed Withdrawal Agreement, for a second time, even if the scale of the defeat was smaller than on the first vote. Parliament then also voted decisively against leaving the EU without a deal – and to that end instructed the government to ask the EU to postpone the 29 March exit date.

The UK government has now said it will put the Withdrawal Agreement to a third vote early next week. It has made clear that, if the Agreement is approved, it will ask the EU Council (meeting next week, on 21-22 March) for a short "technical" delay, until 30 June, to allow time to adopt the necessary legislation before leaving.

The government has also made clear that, if the Agreement is again rejected, it will request a longer delay (speculated to be 1-2 years) and that it will hold a series of "indicative votes" in April to test support for other Brexit options. This could lead – possibly after a change of premiership and/or a general election – to a "softer" Brexit, with the UK opting to remain in the EU customs union and/or the single market, or to a second referendum that could reverse the decision to leave the EU. A delay beyond June would also require the UK to participate in elections for the European Parliament on 23-26 May.

The government is calculating that the stark choice between a long delay and a risk of "no Brexit" will convince opponents of the Withdrawal Agreement to vote for it next week (or possibly even in a fourth vote later). The UK Attorney General is also working to "clarify" his legal advice in a way that may offer opponents of the deal some reassurance. But while there are signs of some softening of positions, it is by no means clear that the government will secure a majority, which would require at least 75 Members of Parliament to switch sides.

An extension to the Brexit date requires the unanimous agreement of the other 27 EU Member States. This is not guaranteed: there is no consensus between them over how long to delay the exit date and what if any conditions to apply. Unless and until they agree, the UK will automatically exit the EU on 29 March without a deal in place. But since this would be highly disruptive for not only the UK but many EU states too, it appears likely that an extension will be agreed.

The UK has the right simply to revoke the Article 50 notice which triggered the exit process, and the Prime Minister has several times referred to this power. Use of this mechanism plays no present part in the political debate, but nothing should be excluded amid the political turmoil and the looming 29 March deadline. The European Court ruled recently that such withdrawal is permissible so long as it is “unconditional and unequivocal.”

In the course of the week, ahead of the Parliamentary vote on whether to rule out leaving with "no deal," the government published details of the UK’s temporary tariff regime that would apply for up to 12 months if the UK left with no deal, pending decisions on a permanent approach. Under the temporary tariff, 87% of total imports to the UK by value would be eligible for tariff free access. Tariffs would still apply to 13% of imports, notably some meat and dairy goods, and finished vehicles. To avoid new controls on goods at the Northern Ireland border, no tariffs would apply to goods crossing from Ireland. The new tariffs, and their absence in Northern Ireland, would have substantial implications for some sectors. But we will not analyse these further unless a "no deal" Brexit appears imminent.

Given that there remains a risk of a "no deal" Brexit, albeit diminished, businesses continue to be advised to maintain their preparations for this eventuality. Our previous briefs offer a checklist of action points and other advice.

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