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Oil and gas sector logistics expert warns industry's EU traders not to 'hold their breath' about Malthouse Compromise

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Oilfield Technology,

An oil and gas sector logistics expert has warned the industry’s businesses trading with the EU not to “hold their breath” in anticipation of the so-called Malthouse Compromise ending the current Brexit impasse.

Adam Johnson, director of Leeds-based Tudor International Freight, said the proposed blueprint for the period following UK withdrawal from the bloc, which had emerged in recent days, was unlikely to be adopted for various reasons.

The approach, the brainchild of housing minister Kit Malthouse, has two sections. Plan A would apply if UK left the EU with a withdrawal agreement, Plan B would take effect if it did so without one.

Mr Johnson explained: “Plan A would involve the UK ‘buying’ a 12-month extension to the proposed ‘standstill’ transition period, currently due to apply between Brexit day next month and December 2020.

“The plan would also replace the Irish backstop, envisaged to take effect if the parties haven’t agreed new long-term trading arrangements by the end of the transition period. The backstop, proposed in the draft withdrawal agreement published last November, would avoid the return of a hard border through the UK effectively remaining in the EU Customs Union.

“Instead, Malthouse proposes the UK and EU would apply zero tariffs to imports of each other’s goods, agreed mutual recognition provisions and rules of origin arrangements, all disposable after 10 years, plus technological solutions, to keep the border open.”

Mr Johnson said Plan B would also involve the purchase of a transition period lasting to the end of 2021, with citizens’ rights being protected during it, to provide more time for the parties to prepare for a no-deal divorce.

The Malthouse Compromise has attracted support and interest from MPs across the Conservative party, including Steve Baker, a prominent member of the pro-Brexit European Research Group, and Nikki Morgan, a former education secretary and leading Remain campaigner before the 2016 referendum. In addition, Prime Minister Theresa May has described the suggestion as “a serious proposal.”

Mr Johnson, however, said there were flaws in the plan and therefore reasons for oil and gas sector businesses to believe it would not take effect.

He said: “Firstly, it’s hard to see the UK and EU agreeing future trading arrangements within two years, when the latter’s free trade deal with Canada, implemented in 2017, took seven years to finalise, for example.

“Secondly, like the recent amendment passed in the House of Commons in the name of Conservative MP Sir Graham Brady, the Malthouse Compromise doesn’t specify what technical alternatives to the Irish backstop it envisages applying after the transition period. Indeed, leading EU Brexit negotiator Sabine Weyand said recently that this issue had been examined in depth during the bloc’s negotiations with the UK and not only were such solutions unavailable now, this would remain the case for the next few years.”

Mr Johnson added that the idea of oil and gas sector businesses trading with the EU tariff-free for up to a decade, on the basis that the UK and the bloc were in the process of negotiating a free trade deal, was also regarded by some experts as a misreading of what World Trade Organisation rules allowed.

He said: “Regarding Plan B of the Malthouse Compromise, lawyers have pointed out that the only legal basis for a transition period is a withdrawal agreement, ratified by all relevant parties before the UK leaves the EU, so it’s hard to see one taking effect if we depart without a deal.”

Mr Johnson added that the EU had also stated repeatedly that it regarded the current draft withdrawal agreement as finalised and not for re-opening.

He said: “Taking factors such as these into account, our advice to any oil and gas sector EU traders hoping the Malthouse Compromise will prove to be a Brexit breakthrough is ‘don’t hold your breath’. In our view, like the Brady amendment, it’s likely to be more successful in uniting previously divided elements of the Conservative party than providing a way forward in the Brexit process.”

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