After three years of uncertainty, there may be light at the end of the tunnel. Will it be the end of a long period of insecurity, or should businesses still fear a cliff edge? Sadly, the only certainty today is that the UK is leaving the EU, and that the Withdrawal Agreement will provide businesses an 11-month period to prepare for the UK to become a third country.
Therefore, businesses need to be fully on top of (i) the key dates, (ii) the expected changes and (iii) the design and roll-out of a comprehensive implementation plan.
Key Dates
Following his overwhelming victory at the 12 December 2019 election, UK Prime Minister Boris Johnson has a comfortable majority to deliver the Brexit he promised to the UK population.
The Withdrawal Agreement of October 2019 was passed in the UK Parliament and obtained Royal assent on 24 January 2020. The European Parliament ratified the separation agreement on Wednesday, 29 January 2020. Consequently, Brexit is happing today. As from now, article 50 can no longer be re-invoked; the UK will leave the EU.
The Withdrawal Agreement provides for a transition period until 31 December 2020. This period will be used to secure a trade agreement and a new partnership with the EU. The transition period may be extended once, if agreed before 1 July 2020, for one or two years. The expectation is that the EU will trade with the UK under new rules as of 1 January 2021.
What will change ?
The UK will enter a transition period until 31 December 2020. During this period, the UK will be treated as if it still were within the Single Market and Customs Union. In other words, although no longer a member of the EU, the UK's trading relationship with the EU will remain the same during the transition.
What Brexit will look like after the transition period will depend on the outcome of the negotiations over the next 11 months :
1. The first potential outcome is that a Free Trade Agreement is reached during the transition period. EU-UK trade would subsequently be governed by these new rules as of 1 January 2021 :
- On the UK side, Mr. Johnson is aiming for a “zero tariffs, zero quotas” trade deal under which the UK can diverge from the EU regulatory framework. Taking into account the “most favoured nation” clauses in the last trade deals concluded by the EU (e.g., with Canada and Japan), this may become difficult for the EU, as the foregoing would entail that a more advantageous offer made to the UK would automatically also apply to the existing deals.
- On the EU side, although the desire is clearly to reach an agreement without customs duties and quota restrictions, the European Commission’s President Mrs. Ursula Von der Leyen has already warned that “without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world’s largest single market”. In addition, the EU has taken the clear position that an Agreement covering the movement of goods is conditioned on reaching a fisheries agreement, or on the UK granting access to its fishing waters. Finally, the time frame of 11 months available for negotiating, ratifying and implementing a trade deal seems challenging.
2. The second potential outcome implies that the parties did not succeed in reaching a trade deal during the transition period. Although, should this be the case, the Withdrawal Agreement would still be in place and greater certainty would be provided than without a Withdrawal Agreement (e.g., citizen rights would still be protected). From a trade point of view, this scenario qualifies as a no-deal Brexit, with EU-UK trade of goods being governed by the WTO rules as of 1 January 2021.
3. The third scenario entails the extension of the transition period. This could happen under the provisions of the Withdrawal Agreement, but is unlikely because the UK Government has ruled out this option repeatedly. However, there may be other ways to “avoid a no-trade-deal scenario through, for example, a new bilateral standstill agreement.
Design and roll-out of a comprehensive implementation plan
In spite of the UK’s exit today, uncertainty with regard to the future still remains, as no one can predict the outcome of the negotiations between the UK and the EU. For this reason, it is advisable for businesses to continue assessing options and translate them into the design of comprehensive implementation plans covering all relevant areas of impact. Businesses need to have such plans fully prepared by the end of 2020, in order to be ready for their timely roll-out.
Our core Brexit team takes a holistic approach to cover every facet of your organisation impacted by Brexit, wherever you do business. We’re a team of highly experienced tax, international trade, employment and finance lawyers that have been helping organisations prepare for Brexit since it first made headlines in 2016. Using our proven Brexit methodology, our relationship with PwC, as well as PwC-developed landmark digital solutions, we’ll assess your readiness and provide your organisation with the resilience to navigate the uncharted waters of Brexit, from Strategy through Execution.
