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View from Brussels: On the cusp of a Brexit deal

Image credit: PA

EU and UK negotiators managed to push through an unexpected Brexit deal on Thursday (17 October) which now needs the approval of both the British and European parliaments to become a reality. Here is what the pending agreement has in store.

The updated Brexit deal primarily makes changes to custom arrangements and provisions linked to Northern Ireland’s status, as this was the main sticking point between the two parties.

In terms of more tangible outcomes, the political declaration agreed by the negotiators mainly charts the course ahead and commits the EU and UK to a number of measures that will govern everything from energy and transport to dataflows.

If Boris Johnson gets the votes he needs on Westminster and enough MEPs back it in Strasbourg, the long-awaited exit will happen at midnight on 31 October and a transition period will start ticking down until December 2020.

It is during that time that the nitty-gritty details will have to be hammered out. But this week’s draft pact paints out the broad lines that those negotiations will have to follow.

On transport, the revised text says that a Comprehensive Air Transport Agreement (CATA) should be brokered which covers market access, safety, security and air-traffic management.

There are also sector-specific arrangements for road, rail and maritime which focus on maintaining the status quo of the Belfast-Dublin and Eurostar train services, as well as coastguard communication.

All modes of transport will have existing international agreements as a safety net, according to the text.

Energy and climate policy are, as expected, likely to remain largely unchanged as a result of the UK leaving, as in many areas like liberalisation and decarbonisation the sector is a market leader.

The real concerns about prices are focused on what will happen if the agreement does not get the necessary support, which is still a firm possibility. The UK government’s no-deal plan, Operation Yellowhammer, conceded that prices could increase because of reliance on imported power from mainland Europe.

Severing ties with the EU energy market and a weakened pound could increase prices by half a billion pounds per year, according to a National Grid report.

The head of trade association Eurelectric, Kristian Ruby, warned that “when you throw all the rules up in the air at the same time, lack of clarity, predictability and rule of law is what is very concerning for us”.

But the updated Brexit deal aims to head off that eventuality by setting up “a framework to facilitate technical cooperation between electricity and gas network operators and organisations”.

The UK’s intention to leave the Euratom treaty on nuclear power also gets specific provisions. Both parties pledge to set up a new agreement that will safeguard trade in materials, including medical radioisotopes: a notable concern linked to no-deal.

On carbon pricing, the draft deal mentions that the UK’s proposed emissions trading scheme should be linked to the EU’s own cross-border system, after Britain leaves the so-called ETS sometime in 2020.

Sam Van den plas, an analyst at Carbon Market Watch, told E&T that the “more orderly process” promised by the new deal could “mitigate the risk to the EU carbon price”.

The price of carbon allowances has fluctuated wildly in recent weeks thanks to Brexit uncertainty, but stabilised around €24 per tonne when the agreement was announced.

It is another area where the threat of no-deal has promised havoc: carbon market watchers have predicted that a UK crash-out overnight could shave between €3-5 off the price per tonne.

But in other areas, the situation is still rather vague. On space policy, for example, the document commits both to seeking “appropriate arrangements for cooperation”. EU officials have stressed that the lack of detail is all they can offer at this stage.

Under the current timetable, a “high level” meeting in June 2020 will serve as a stock-take before negotiations on everything and anything start.

The declaration agreed by the two parties is non-binding but given that both have agreed to it and clearly see it in their best interests, one can expect its initiatives to be honoured if it gets the political green light on both sides of the Channel.

Leaving the EU will not exempt the UK from new trade tariffs imposed by US President Donald Trump on key imports though. The new levies came into force today (18 October) and are in response to subsidies granted by a number of countries to Airbus.

After the World Trade Organisation said Washington could impose tariffs worth more than £7bn, Trump’s administration said that civilian aircraft made in the UK, as well as France, Germany and Spain, would be hit, as well as Scottish whiskies.

Numbers have already been crunched on what impact Johnson’s new deal will have on the UK’s economy: government estimates published last year already predicted a 6.7 per cent slump in GDP by 2034.

EU leaders and officials will be on tenterhooks on Saturday as proceedings in Westminster get underway. Diplomats have insisted that most are still open to granting an extension if the UK asks for one though. Time will tell how much of this happens.

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