Written by Peter Roberts, Roberts Nathan
The UK formally left the EU on 31st January 2020. However, in the last six months there has been effectively no identifiable change for consumers and businesses because we are all in the Transition Period, which extends to 31st December 2020. No significant changes are expected to the trading agreement currently in place between the UK and EU until January 2021, at the earliest.
As the UK is no longer part of the EU and its institutions, it has withdrawn all formal representation in the decision making processes which are centred in the European Council, Commission and Parliament.
As expected, many businesses are relieved to see an orderly withdrawal for the UK under the arrangements currently being negotiated in the Withdrawal Agreement. However, businesses in both jurisdictions should not become complacent in any way about Brexit and what it will ultimately mean in terms of how they are going to operate and trade together in the future.
The Withdrawal Agreement period is essentially a honey-moon phase during which critically important decisions need to be made and agreed upon in terms of future trading activities between the two parties. Behind the scenes trade talks are ongoing in the hope that ‘dynamic alignment’ can be achieved in terms of potential changes to the EU rules over the coming years. With dynamic alignment, the UK would automatically make the same changes in order to keep UK and EU regulations in line with each other going forward. This should enable a fair trading relationship to continue so that one market does not have a competitive advantage over the other and the UK and EU can trade with each other in a relatively unrestricted way going forward. This concept is often referred to as ‘a level playing field’. It will be interesting to see how negotiations unfold in terms of the ongoing alignment of regulations of trade and so forth.
However, as the trade talks continue and intensify, issues of non-alignment (parties potentially not agreeing to level playing field provisions) may come to the fore. This will make the negotiations very difficult in terms of completing satisfactory agreement between the two parties in a very tight timescale between now and the end of this year. While it might be ideal for the current position to be maintained (ie a zero-tariff and zero-quota structure etc), there is no guarantee that this will be the case.
On the UK side, there has been a dramatic political change in Westminster as opposition MPs, backbench MPs and external stakeholders all get used to working with a Government that has a substantial and stable majority. As was expected, the UK did not seek to extend the Transition Period before the end of June. It is therefore incumbent upon both parties to ensure a material level of progress is made on the Future Trading Agreement (FTA) by the end of the year. Given the very tight timescale now, it may be necessary for contingency plans to be put in place for certain sectors where FTA negotiations are still ongoing at the 31st December 2020.
The outcome of the FTA is highly likely to involve the complete introduction of customs controls and paperwork for trade between the two jurisdictions. This may possibly include regulatory checks on goods, significant amendments for the trade in services between both parties and potentially the re-introduction of tariffs and quotas. It is important for businesses to note that even if a tariff-free and quota-free FTA can be agreed between the parties, there will still be a need for checks and controls on all trade regarding rules of origin and other regulatory requirements.
Achieving a fully agreed FTA by the end of 2020 is going to be an enormous task. Additionally, major changes need to be made to operational and trading protocols, and to build up domestic regulatory capacity in the UK for various areas and sectors which were previously under the direct control of the EU. This task is a monumental challenge, with less than six months to go.
It is generally hoped that as we get nearer the end of 2020 a more practical approach will emerge from both sides which will take proper account of legitimate business interests and concerns. Lobbying by businesses in both the UK and EU has been quite intense in the period since January 2020 but it is not immediately clear at this stage whether good business sense will apply in the ongoing negotiations.
Due to the prevailing lack of clarity, it is very difficult for businesses to prepare themselves in order to ensure that they will be able to continue to do business and trade in any scenario that might emerge in the, yet to be completed, FTA.
The exit on 31st January 2020 marked the end of 47 years of the UK as a key member of the European Union. Losing such a significant member is a major blow for Europe and time will tell how the EU progress following such a loss.
At this point, the biggest challenge faced by businesses is a lack of clarity and direction from both the UK and the EU in terms of how businesses should prepare now for trading in the future.
Let’s hope their plans come together sooner rather than later so that the new action steps for businesses become clear.
17th July 2020