Brexit deal proposals prompt Cabinet resignations

A proposed agreement between the UK and the EU, including single market access for Northern Ireland and a five-year post-transition commitment to VAT, has prompted resignations from Cabinet ministers Esther McVey and Dominic Raab

The UK would apply the EU's customs code in Northern Ireland. This would allow Northern Irish businesses to bring goods into the single market without restrictions.

As regards wider trade and business issues, the political declaration on future Brexit terms says the UK and EU are committed to ‘preserving financial stability, market integrity, investor protection and fair competition’, along with ‘close and structured cooperation on regulatory and supervisory matters’.  Equivalence assessments will begin as soon as possible after March 2019 and are scheduled to be concluded before the end of June 2020.

It also states: ‘The EU and the UK recognise and commit themselves to implementing the principles of good governance in the area of taxation, including the global standards on transparency and exchange of information, fair taxation, and the OECD standards against Base Erosion and Profit Shifting (BEPS).

The EU and the UK will promote good governance in tax matters, improve international cooperation in the tax area and facilitate the collection of tax revenues.’

Under the proposed agreement, Council Directive 2006/112/EC on the common system of VAT will continue to apply ‘in respect of goods dispatched or transported from the territory of the United Kingdom to the territory of a Member State, and vice versa, provided that the dispatch or transport started before the end of the transition period and ended thereafter’. It will continue to apply ‘until five years after the end of the transition period with regard to the taxable person's rights and obligations in relation to transactions with a cross-border element’ between the UK and a member state.

Refund application that relate to VAT that was paid to a member state by a taxable person established in the UK, or which was paid in the UK by a taxable person established in a member state, ‘shall be submitted under the conditions of that Directive at the latest on 31 March 2021’.

The draft withdrawal agreement, which runs to 585 pages, is the culmination of the months of UK and EU negotiation since the referendum result in June 2016. It sets out the framework for Brexit and is accompanied by a political declaration on the future relationship, which sets out the broad structure, scope and objectives for the UK’s future partnership with the EU.

A joint statement from the two sides makes clear negotiations have been particularly challenging in two specific areas, which will require further work during the negotiations on the future relationship.

Following what the Prime Minister called ‘impassioned debate’ on the proposals, both Brexit secretary Dominic Raab and work and pensions secretary Esther McVey have resigned, citing concerns over the proposed regulatory regime for trade.

In her resignation letter, McVey claimed the UK was ‘handing over around £39bn to the EU without anything in return’, and that the agreement trapped the UK in a customs union.

One of these is trade in goods, where the negotiators have agreed in principle the need for comprehensive arrangements creating a free trade area, combining deep regulatory and customs cooperation, building on the single customs territory provided for in the withdrawal agreement.

The statement says: ‘Exactly what balance of rights and obligations will be compatible with the integrity of the EU’s single market and customs union and the development of the UK’s independent trade policy will be the subject of the future relationship negotiations.’

The draft withdrawal agreement includes a protocol on Northern Ireland that provides for a legally operative backstop, including a single customs territory between the EU and the UK. In his resignation letter Raab said this presented ‘a very real threat to the integrity of the UK.’

‘I cannot support an indefinite backstop arrangement, where the EU holds a veto over our ability to exit.

‘The terms of the backstop amount to a hybrid of the EU customs union and single market obligations. No democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement.

‘That arrangement is now also taken as the starting point for negotiating the future economic partnership. If we accept that, it will severely prejudice the second phase of negotiations against the UK,’ Raab wrote to the Prime Minister.

For his part, EU negotiator Michel Barnier claimed the proposed solution was designed to avoid a hard border on the island of Ireland.

Barnier said the aim was reach an agreement by July 2020, with the possibility of jointly considering an extended transition if more time is needed.

‘Only if at the end of the transition, extended or not, we are still not there with a future agreement, would the backstop solution that we agreed today kick-in,’ he said.

In the backstop scenario, the two parties have agreed to create a EU-UK single customs territory. Northern Ireland will therefore remain in this same customs territory as the rest of the UK.

In addition Northern Ireland would remain aligned to those rules of the single market that are essential for avoiding a hard border. This concerns agricultural goods as well as all products.

Negotiations will now continue to finalise the full political declaration for review by the Prime Minister, and the leaders of the EU27.

EU President Donald Tusk has said a European Council meeting, in order to finalise and formalise the Brexit agreement. It will take place on Sunday 25 November at 9:30.

May, who is widely thought to be facing further Cabinet resignations over the terms of the deal, is to begin the process of getting the draft withdrawal agreement through Parliament later today.

Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community is here

Outline of the political declaration setting out the framework for the future relationship between the EU and the UK is here

Report by Pat Sweet

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