The UK will be out of the EU
The UK left the EU on 31 January. There will be a transition period during which the UK will be bound by EU law but will not have a vote or be part of EU decision-making. The transition is set to end on 31 December 2020.
Northern Ireland will be, more or less, in the EU
Northern Ireland will be subject to most EU laws following the transition period unless the arrangement is renegotiated as part of the negotiation between the EU and the UK on their future relationship, which is unlikely. The UK will still be responsible for administering the law in Northern Ireland, but it will have oversight from the EU.
There will be checks on products moving between Northern Ireland and the rest of the UK
EU law in Northern Ireland will be enforced in part by documentation and checks on shipments moving between the rest of the UK and Northern Ireland. These checks may well be far less onerous for shipments to the UK from Northern Ireland, but they will be significant and burdensome the other way, much the same as for products from third countries imported into the EU. The checks are likely to be especially significant for agricultural and related food and beverage products. There should be no checks on movements between Northern Ireland and the Republic of Ireland.
After transition, the UK will be a third country
Under the EU-UK Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (Withdrawal Agreement) of 19 October 2019, the UK will be a third country fully outside the EU as of 1 January 2021. The precise terms of the relationship will depend upon the negotiations on the future relationship.
Transition can be extended, but the UK says it won’t be
The Withdrawal Agreement provides that the UK can seek an extension in the transition period of up to two years. The request for extension must be made by the end of June 2020 and will require EU agreement on the terms, including an extension of UK payments to the EU. The UK Government has repeatedly said it will not extend the transition period, and many of the new Members of Parliament supporting the Government were elected on a “get Brexit done” pledge that included no extension of the transition period. If there is no extension and there is no ratified trade agreement with the EU before the end of the transition period, then UK-EU trade, other than Northern Ireland, will be conducted with no preferential arrangements on tariffs or other elements of trade beyond what is in the WTO Agreement.
The UK may be engaging in brinksmanship
The new Prime Minister and many of his new parliamentary colleagues were very critical of the last Government when it ruled out a “no-deal” Brexit. They are refusing to repeat what they saw as a major negotiating error. It is possible that they will find a way to back down on the threat of not extending the transition, especially if they can claim the tactic has worked and can claim progress that justifies the extension.
The “Singapore West” or “U.S. on Thames” threats
The UK is threatening a pivot toward the United States in its regulatory and trade policies. The current U.S. administration is enthusiastic about striking a trade deal, although several issues will need to be resolved. The UK has also suggested that it will seek to deregulate its economy with a view to establishing itself as a far less sclerotic competitor to the EU.
Food and beverage as well as agriculture regulation will be key to a U.S. trade deal
The UK will need to make significant concessions to the United States in negotiating a comprehensive trade deal. An important element of those concessions will be commitment to provisions allowing access to the UK market for U.S.-origin food and beverage exports. This raises a number of politically sensitive issues, such as rules excluding use of chlorine wash on chicken and acceptance of hormone-treated beef and genetically modified foods. UK Ministers have ruled out such concessions, but they are very likely to be central to U.S. demands and may have a big impact on EU-UK negotiations.
The UK is signalling that it will diverge from EU rules
The UK Government has stated its intention to refuse any extensive harmonisation with EU rules in order to allow for divergence of regulatory cultures, including deregulation in many areas, known as the “Singapore West” proposal. Much of this divergence agenda focuses on regulation of services and digital trade, but it extends to goods including food and beverages.
The EU will seek “level playing field” commitments
The EU argues that it needs robust commitments in several areas to ensure that the UK does not use deregulation to unfairly compete with EU producers. The EU has identified several categories of “level playing field” concerns, such as environmental policies; competition rules including state aids, taxation, labour, and social policy rules; and unspecified sectoral commitments, possibly in respect of regulations on chemicals, fertilisers, and food.
Managing divergence – key to EU-UK negotiations
The degree of access to the EU market offered by the EU will depend on the commitments of the UK to maintain a “level playing field”. The degree of divergence demanded by the UK will determine the degree of unrestricted trade offered by the EU. This trade negotiation will be unique in that it will be the first major negotiation of a trade agreement designed to manage divergence rather than encourage convergence or coherence of regulation.
Border checks on products moving between the EU and the UK after transition
Even in the event of a tariff-free, quota-free, and comprehensive “free trade agreement” between the EU and the UK, there will be border checks for regulatory compliance in respect of most products. There may be limited mutual recognition agreements in specific sectors, but there will be no blanket mutual recognition of regulatory compliance certifications or any other regulatory decisions. The UK is also likely to impose border checks for the same purpose on EU products entering the UK. This could be especially burdensome in the case of Sanitary and Phytosanitary (SPS) checks on animals and animal-derived products moving between the EU and the UK.
Regulatory divergence in services and digital trade
Regulation of goods trade will be one area of difficulty, but negotiations on services and digital trade, among other elements of the negotiations, could be very sensitive. Rules on data flows and digital transactions will be very important to the wider trade negotiation. Outside the EU, UK regulators will not have access to EU databases for regulatory purposes in the absence of special arrangements, which could further complicate efforts to minimise trade friction. Divergence in regulation of transport services could also have wider implications for EU-UK trade than the impact on that sector.
Intellectual property
Specific commitments to common rules on intellectual property will also be a significant part of the EU-UK negotiations. These will include negotiations on the continued recognition of geographical indications.
Dispute settlement
The UK will not accept Court of Justice of the European Union dispute settlement but will require a binational dispute resolution panel that will not have direct legal effect in the domestic law of the UK or the EU. That legal difference will lead to an expectation that UK rules will diverge from EU regulation even where the UK does not expressly legislate for divergence.
Is there enough time to avoid “WTO terms” at the end of 2020?
It is unlikely that the UK will be able to complete negotiation of a comprehensive agreement on the future relationship with the EU in time for the parties to ratify and put into force, even provisionally, the text of any agreement by the end of the transition period on 31 December 2020. Most sectors of the business community in the UK and the EU are asking UK and EU negotiators to give priority to their specific concerns, but it is not clear how many, if any, of those priorities will make it into a future relationship agreement.
Specific, realistic language on priority provisions is needed from business
The extremely tight timetable for the negotiations and the extreme pressure on UK negotiators will mean that only very carefully considered, realistically framed, and legally clear requests from industry in the form of draft treaty provisions are likely to have any real chance of inclusion in any agreement reached in 2020. If an agreement is reached in the course of this year, it is likely to be fairly basic, extending to tariff-free treatment with a few extra elements, possibly including some sectoral provisions to facilitate trade.
There may be an extended transition period, but that cannot be relied upon
Any extension would need to be requested by the end of June 2020 and the UK Government has repeatedly ruled out making such a request.
