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Brexit Update – The Remaining 1%, The Most Challenging

UK PM Theresa May demonstrates to us that her way to end dispute is compromise (to counterparty) and threat (to own people). After months of negotiation, the Withdrawal Agreement for Brexit was approval unanimously by EU member states on Sunday. The final draft has not addressed the concerns of Brexiteers at home. Instead, most of the terms are according to the wills of the EU.

After clearing so many hurdles, here comes the thorniest part – ratification by the UK Parliament. As we mentioned in previous reports, this remaining 1% is probably the most challenging task for the whole Brexit deal.

Two weeks ago, approval of the withdrawal agreement text by the UK cabinet triggered two resignations, including Brexit Secretary Dominic Raab, of key officials. This suggest that the much of the content of the deal is controversial within the UK. While hardcore Brexiteer MP Jacob Rees-Mogg failed to force a confidence vote in May, it does not imply that those who refuse to oust May would support the deal.

By now, May has not yet secured the majority of support for the deal. The time for the UK to formally leave the EU is running short. PM May would likely focus on highlighting the negatives of a no-deal Brexit, in order to get the Parliament approve the deal.

Final Draft of Withdrawal Agreement

After releasing the 585-page draft Withdrawal Agreement on November 14, UK and EU have followed up with a 26-page declaration on future relations. The final draft contains little change from the initial draft, despite opposition by many UK PMs.

In short, the documents cover three parts – divorce bill, rights of citizens, and Irish border. It is estimated that the UK would have to pay an estimated 39B pound to the EU for the divorce. Rights of citizens are largely the same as the initial draft released in March. For instance, UK citizens in the EU, and EU citizens in the UK, will retain their residency and social security rights after Brexit. Citizens living in another EU member state (UK included) during the transition period will be allowed to stay in that country after the transition. Meanwhile, anyone that stays in the same EU member state country for 5 years will be allowed to apply for permanent residence.

On Irish border issue, the backstop solution means that a single customs territory between UK and EU would be triggered, if no long-term trade deal has been agreed by end-2020 that avoids a hard border between Northern Ireland and the Republic of Ireland, and if there is no extension to the transition period. As long as the backstop is in operation, the UK would enjoy “level playing field conditions”, meaning it cannot gain a competitive advantage while remaining in the same customs territory. Moreover, the UK would not be allowed to leave the backstop unilaterally.

Spain’s Last-Minute Threat

Shortly before EU member states put the deal into vote, Spain threatened to veto the deal if there were no clarifications over Gibraltar’s situation. Again, the UK compromised on this issue, giving Spain a say over Gibraltar’s future on future trade and security issues. The UK agreed that Gibraltar would not necessarily be covered by a future trade deal with the EU. Spain has received much criticism due to this last-minutes threat. Yet, UK’s compromise on such “outrageous” behavior exemplified its loss of bargaining power over the negotiations.

UK Parliamentary Vote

The last step is for the UK parliament to ratify the agreement. As we mentioned in previous reports, this remaining 1% is probably the most challenging task for the whole Brexit deal. The key date to remember now is January 21, 2019. There is a UK legal requirement that the government has to reach an agreement with the EU by then. If the parliament rejects the deal, the Government has until that day to put forward a new plan. The government is likely to use the brinkmanship strategy, threatening to leave the EU with no-deal on March 29, 2019, if the parliament rejects the current agreement.

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