MEPs Threaten to Veto Potential Brexit Trade Deal and Commission Threatens to Walk Away from Trade Talks

Members of the European Parliament (MEPs) have warned that they would veto any trade deal with the UK, unless the UK government withdraws its plans to breach key parts of the Brexit Withdrawal Agreement via its Internal Market Bill. The European Commission has also threatened to withdraw from its talks with the UK on a potential trade deal unless the UK government withdraws the bill. The President of the European Council, Charles Michel, joined other senior political figures within the EU in warning that the UK’s international credibility was at stake and that the UK must fulfil its responsibility to implement the Withdrawal Agreement. However, despite these warnings, on 14 September, the Internal Market Bill cleared its first hurdle in the UK’s House of Commons, with UK MPs voting to back the bill. Hong Kong companies should be aware that this row between the EU and the UK may significantly increase the chances of there being no agreement on a post-Brexit trade deal between the EU and the UK.

As reported previously in Regulatory Alert–EU Issue No. 358/2020: UK Government Creates Uproar at Home and in Brussels Over Proposed Changes to Withdrawal Agreement, the UK government’s Internal Market Bill, which is designed to govern trade within the UK following the end of the transition period on 31 December 2020, ensures that there will be no new checks on goods moving from Northern Ireland to the rest of Great Britain (England, Scotland and Wales). It also gives the UK powers to modify or “disapply” rules relating to the movement of goods that will come into force on 1 January 2021, if a trade agreement between the UK and EU is not achieved. However, these provisions breach the “Northern Ireland Protocol” which was negotiated by the UK Prime Minister Boris Johnson last October as part of the Withdrawal Agreement. Also known simply as the Irish Protocol, it requires the UK to keep to the EU’s customs code in Northern Ireland to ensure that there is no return to a hard border between Northern Ireland and the Republic of Ireland.

The UK government has said that the bill is essential to enable goods and services to flow freely across Great Britain and Northern Ireland when the UK leaves the EU's single market and customs union. Boris Johnson has claimed that the ability to modify or disapply parts of the Withdrawal Agreement is a failsafe mechanism in case the EU interprets the agreement, in particular the Irish Protocol, in an “extreme and unreasonable” way, which could lead to excessive checks and even tariffs on goods moving from Great Britain to Northern Ireland.

In a statement, the leaders of the European Parliament’s main political groups said that if the UK government breaches or threatens to breach the Withdrawal Agreement through the Internal Market Bill, or in any other way, “the European Parliament will, under no circumstances ratify any agreement between the EU and the UK.” The statement went on to say that MEPs were “disappointed with the continued lack of reciprocal engagement from the UK side on fundamental EU principles and interests.” The European Parliament is required to give its approval for a trade agreement to be ratified, even though the European Commission leads the negotiations.

This statement from MEPs comes as the European Commission demanded on 11 September that the UK government must “withdraw these measures from the draft Bill in the shortest time possible and in any case by the end of the month.” This statement from the European Commission followed an emergency meeting between European Commission Vice President Maroš Šefčovič and UK Minister for the Cabinet Office Michael Gove, where Šefčovič said that if the bill were adopted it would constitute an “extremely serious violation” of the Withdrawal Agreement and international law. The European Commission also said that “by putting forward this Bill, the UK has seriously damaged trust between the EU and the UK. It is now up to the UK government to re-establish that trust.” The European Commission added that it would not shy away from taking legal action against the UK.

However, Michael Gove said that in the meeting with Šefčovič, he had “made it perfectly clear that we would not be withdrawing this legislation.”

Despite the strong negative reaction from Brussels as well as the threats of MEPs and the European Commission to put an end to the potential Brexit trade deal, the UK Prime Minister Boris Johnson has pressed ahead with the Internal Market Bill. On 14 September, the bill passed its first reading in the UK Parliament’s House of Commons by a majority of 70 votes, despite a number of MPs from the party of the government, the Conservative Party, voting against the bill. Although it is worth noting that on 17 September, Boris Johnson – in a move designed to appease dissenting Conservative MPs – agreed to amend the bill slightly, giving MPs the right to vote again before he could use the powers in the bill that would override parts of the Withdrawal Agreement.

The bill will now be subjected to further scrutiny by the House of Commons, and thereafter by the UK Parliament’s House of Lords. It may well be delayed in the latter, given the lack of a government majority in the House of Lords and the House of Lords’ ability to delay the passing of bills into law by a maximum of one year.

Commentators contend that Prime Minister Boris Johnson believed that the Internal Market Bill would help to push the European Commission’s negotiating team to offer concessions on State aid and fisheries, the main areas of disagreement that are holding up an EU-UK trade deal. However, the reaction of the European Commission, the European Parliament and EU leaders suggests that this tactic may have backfired. Indeed, the row over the bill has disrupted the eighth round of trade talks and both sides agreed that little progress had been made.

Boris Johnson had previously said that if a trade deal is not reached by 15 October, both sides should “move on”. Hong Kong traders should note that this row over the Internal Market Bill has significantly increased the chances of no agreement on a trade deal. The result of this “no deal” scenario would be EU-UK trade being conducted on World Trade Organization terms from 1 January 2021 onwards and higher tariffs and quotas on a wide range of goods and services.