Updated: Jan 30, 2020
Date of last update: 01/02/2020
Since Friday, 31 st January 2020, at 11 pm, the United Kingdom (UK) is no longer a member of the European Union (EU).
Operating outside the EU trading norms that have been in place for decades represents a significant challenge for many businesses trading with the EU and/or the rest of the world. They demand clear and comprehensive information as to how the UK will organise trading arrangements from 1 February 2020 and beyond.
I have structured this blog into three parts:
I The situation from 1 February 2020
II What will happen in 2020
III EU-UK FTA - what we know
I The situation from 1 February 2020
Following departure, from 31 January 2020, 11:01 pm, the UK will EU-UK Withdrawl Agreement will come into force.
About the Withdrawl Agreement
The Withdrawal Agreement sets out the terms of the UK’s exit from the European Union (and the European Atomic Energy Community) and is applicable even after the transition period ends. Its substantial elements were negotiated in an agreement reached on 14 November 2018.
The agreement brings legal certainty where the UK's withdrawal from the EU created uncertainty: citizens' rights, the financial settlement, a transition period at least until the end of 2020, governance, Protocols on Gibraltar, and Cyprus, as well as a range of other separation issues.
On 17 October 2019, a revised Protocol on Ireland / Northern Ireland and a revised Political Declaration on the framework of the future EU-UK relationship was agreed. Find out the details here: https://www.gov.uk/government/publications/new-withdrawal-agreement-and-political-declaration
The European Union Withdrawl Agreement Bill
In addition to this international treaty, there is the UK domestic law, the European Union (Withdrawal Agreement) Bill 2019-20. It is the bill that will implement the Withdrawl Agreement between the EU and the UK. This is NOT the EU-UK Withdrawl Agreement, but the act which implements this international treaty.
The bill the same issues as the EU-UK Withdrawl Agreement to the EU (logically, as it implements it) including financial contributions, citizens' rights, customs arrangements for Northern Ireland and the planned 11-month transition period as set out in the Withdrawl Agreement.
It confirms that there will be an 11-month transition period after 31 January, in which the UK will cease to be an EU member but will continue to follow its rules and contribute to its budget, but will not have any representation in the bloc's institutions. The purpose of the transition period is to give time for the UK and EU to negotiate their future relationship, including a trade deal. This period will come to an end on 31 December.
What does this mean practically for UK businesses and customs managers?
In the week before Brexit HM Revenue & Customs (HMRC) has sent letters to business to advise on actions they need to take before the end of the transition/implementation period,
the short time frame between 1 February 2020 and 31 December 2020. HMRC specified that the movement of goods between the EU and the UK during the implementation period continues unchanged. This means that on 1 February 2020, despite EU exit, the current Customs, VAT and Excise rules and regulations, that are based on EU law, remain in effect as today and do not change (unless they change for the EU).
Will EU law still apply in the UK from 1 February 2020?
No, the UK will no longer be bound by EU legislation directly. However, from 1 February 2020, the EU-UK Withdrawal Agreement and the UK Withdrawl Bill apply, which give effect to EU law in the UK for as long as it is in force as per the above.
Provisions for Northern Ireland / Ireland
The movement of goods between Northern Ireland and Great Britain had been one of the most contentious issues dealt with in the Brexit negotiations. The Withdrawl Agreement creates a new and legally operative solution to avoid a hard border, on the island of Ireland, protects the all-island economy and the Good Friday (Belfast) Agreement in all its dimensions and safeguards the integrity of the Single Market. This solution responds to the unique circumstances on the island of Ireland with the aim of protecting peace and stability.
In the case of a no-deal Brexit on 31 December 2020, the “Implementation of this [Northern Ireland] protocol foresees checks and controls for goods entering the island of Ireland,” Michel Barnier told the European Parliament on 14 January 2020.
“The only circumstances in which you could imagine the need for checks coming from GB to NI, as I’ve explained before, is if those goods were going on into Ireland and we had not secured, which I hope and I’m confident we will, a zero tariff, zero quota agreement with our friends and partners in the EU
II What will happen in 2020
Only 11 months to prepare
With only 11 months remaining before the “actual” Brexit, the time for companies to grasp their compliance requirements of the new UK stand-alone customs, indirect taxation and trade legislation and implement any changes in processes and procedures is particularly short. Read the Letter to UK businesses
11 months to sort out the future relationship
Ursula Von der Leyen said in her intervention on 29 January 2020 in the European Parliament: "The Withdrawal Agreement is only a first step. From now on, it is about our new partnership with the United Kingdom. The negotiations are about to start.
Just to be very clear: I want the European Union and the United Kingdom to stay good friends and good partners. The story is about old friends and new beginnings. And we have a lot in common".
So what will the future look like?
The EU-UK Political Declaration that was signed sets out the framework for the future relationship between the European Union and the United Kingdom. Both parties agree to conclude an ambitious, broad, deep and flexible partnership across trade and economic cooperation with the EU, with a free trade agreement with the EU at its core, alongside agreements on security and other areas of collaboration.
During the transition period, the UK and the EU are scheduled to begin and conclude Free Trade Agreements talks.
Relationship EU-UK post-Brexit
The UK and the EU will remain the "best of friends," but they will "not be as close as before" after Brexit, the new European Commission president has said. Non-membership brings with it consequences, as no relationship can be as close as being a member of the EU, the EU has spoken on 8 January 2020.
"We will go as far as we can, but the truth is that our partnership cannot and will not be the same as before, and it cannot and will not be as close as before because with every choice comes a consequence with every decision comes a trade-off." Ursula Von der Leyen, EU Commission President
"We have been concerned with this issue for years: Brexit. We will have to clarify the relationship between Great Britain and the EU of 27 by the end of this year. Two messages are important to me. First, we want a relationship that is as close as possible between the European Union and the United Kingdom. Secondly, what will be very clear is this: if you think that you can solve problems by leaving the EU, you will end up creating many new problems and not a single problem to solve. And unfortunately, that will also become clear in the final Brexit negotiations". Speech by Minister of State for Europe Michael Roth in the German Bundestag on the German EU Council Presidency 2020, January 17, 2020
How close do we want to be to each other?
The EU Commission President made clear during her visit to London that there is a trade-off between any regulatory divergence and access to the EU market.
Key messages from the 8 January 2020 meeting:
"Without the free movement of people, you cannot have the free flow of capital and services.
"The more divergence there is, the more distant the partnership will be."
Why a "level-playing field" is essential to the EU
Ursula von der Leyen clarified further in her speech on 29 January 2020 what a level playing field is for the EU: "When it comes to trade, we are considering a free trade agreement with zero tariffs and zero quotas. This would be unique. No other free trade agreement offers such access to our Single Market.
But the precondition is that European and British businesses continue to compete on a level playing field. We will certainly not expose our companies to unfair competition.
And it is very clear. The trade-off is simple: The more the UK does commit to uphold our standards for social protection and workers' rights, our guarantees for the environment, and other standards and rules ensuring fair competition, the closer and better their access to the Single Market"
What is the Single Market and why does it matter so much?
"The Single Market is much more than a free trade zone. It is an ecosystem that Europeans build together everyday, with: common laws and regulations; common rights and standards for workers and consumers; common standards for the environment; common supervision mechanisms; and, on top of this, a common jurisdiction: the Court of Justice of the European Union". Michel Barnier, Chief Brexit Negotiator 28 Jan 2020.
What leaving the EU Single Market and Customs Union means
"Brexit is meant to be about ‘taking back control'. But what else does it mean? It means creating trade barriers that do not exist today. The decision to stop free movement means stopping citizens from moving freely between the EU and the UK to study, work or retire. Brexit is about diverging from EU rules. Rules, developed together with the UK, that protects the public interest, guarantee open and fair competition, and thereby allow frictionless trade". Michel Barnier, Chief Brexit Negotiator 28 Jan 2020.
III EU -UK FTA
EU law requires trade agreement negotiations to commence after the UK has legally left the EU. Then EU-27 countries will then approve a mandate for the EU Commission to negotiate a comprehensive trade agreement on their behalf. As a result, trade talks cannot start before March. The EU Commission President stated on 8 January 2020 that it would be "impossible" to reach a comprehensive trade deal by the end of 2020. The UK prime minister has also said the process of negotiation will not be extended.
Objectives of the EU-UK FTA
Key messages from the 8 January 2020 meeting:
The objective is to secure securing an ambitious, tariff-free trade agreement rather than continued regulatory alignment.
EU - UK FTA should be "zero tariffs, zero quotas, zero dumping".
From "comprehensive" to "basic" FTA agreement
The EU Commission has previously said that the EU and Britain will only be able to reach a “basic” agreement if the UK does not extend the Brexit transition period. They said:
Without an extension of the transition period beyond 2020, "you cannot expect to agree on every single aspect of our new partnership." (Ursula Von der Leyen).
We are ready to do our best to do the maximum in the 11 months to secure [a] basic agreement with the U.K., but we will need more time to agree on each and every point.” (Michael Barnier 9 January 2020).
“Never will it be the EU that will fail on common ambition, We will strive for a partnership that goes well beyond trade and that is unprecedented in scope, covering everything from services and fisheries to climate action, energy, transport, space, security, and defense. But that is a huge, very huge, agenda and we simply can’t expect to agree on every aspect of this new partnership within one year.” (Michael Barnier)
What is the content of a "basic" FTA ?
According to Michael Barnier, the EU would need to select areas to address first, and this would be based on the likelihood of a crash-out Brexit by the end of the year. This could be traded in goods, fisheries and ensuring a level-playing field between the EU and the UK — meaning a commitment to EU environmental, social and competition standards,
Transport would be less urgent, due to existing international agreements or no-deal contingency plans, for example for aviation, which have been put in place.
What about trade in services?
It is unclear if trade in services are in scope for the deal
The situation from 1 January 2021
New rules and regulations will apply from 1 January 2021.